World

The Federal Reserve moderated its all-out campaign to cool US inflation Wednesday, lifting the benchmark lending rate by a half percentage point though warning there is still “some ways to go.”

America’s central bank has taken aggressive moves to ease demand in the world’s biggest economy, hiking rates seven times this year with interest-sensitive sectors like housing already reeling from tightening policy.

Its latest increase takes the rate to 4.25-4.50 percent, the highest since 2007.

But officials signaled that their battle to cool the US economy is not yet over.

In a statement, the Fed’s policy-setting Federal Open Market Committee (FOMC) said it “anticipates that ongoing increases in the target range will be appropriate” to reach a stance restrictive enough to rein in inflation.

A quarterly forecast released with Wednesday’s decision also saw policymakers downgrade US economic growth to 0.5 percent in 2023, just narrowly avoiding a contraction.

They also raised their unemployment and inflation estimates for next year.

“Fifty basis points is still a historically large increase, and we still have some ways to go,” Fed Chair Jerome Powell told reporters in a press briefing after the rate announcement, and markets slumped on the central bank’s signals.

In their projections, policymakers expect rates would land higher than expected at 5.1 percent next year, according to a median forecast.

“I wouldn’t see us considering rate cuts until the committee is confident that inflation is moving down to two percent in a sustained way,” Powell said.

– ‘More evidence’ –

While consumer inflation eased in October and November, Powell said “it will take substantially more evidence to give confidence that inflation is on a sustained downward path.”

Households have been squeezed by red-hot prices, with conditions worsened by surging food and energy costs after Russia’s invasion of Ukraine, and fallout from China’s zero-Covid measures.

To make borrowing more expensive, the Fed has raised interest rates seven times including four bumper 0.75-point increases.

Asked if a “soft landing” for the economy remains achievable, Powell said this would be more likely if lower inflation readings persist.

Nancy Vanden Houten of Oxford Economics said: “The projections don’t explicitly call for a recession, although a rise in the unemployment rate by as much as the Fed now forecasts is consistent with a recession.”

The Fed lifted its median jobless rate forecast to 4.6 percent on Wednesday.

But Powell said: “I don’t think anyone knows whether we’re going to have a recession or not, and if we do, whether it’s going to be a deep one or not.”

– ‘Hawkish’ –

“The new forecasts are more hawkish than we expected,” said economist Ian Shepherdson of Pantheon Macroeconomics, referring to the higher inflation and unemployment rate expectations, and lower GDP growth projection.

“If policymakers implement all the hikes they now expect, they will have done too much,” he cautioned.

Analysts have warned that further tightening by the Fed risks cooling the economy at a time when it is already under pressure heading into 2023.

The latest increase suggests the Fed has “moved to phase two of its rate hiking cycle,” said Rubeela Farooqi of High Frequency Economics in a note.

This means it is shifting from its more aggressive path to “a slower pace of rate increases until rates are in a sufficiently restrictive stance,” she said.

Powell added Wednesday that the Fed’s focus now is “on moving our policy stance to one that is restrictive enough to ensure a return of inflation to our two percent goal over time.”

Consumer inflation came in at 7.1 percent year-on-year in November, according to government figures.

“We think that we’ll have to maintain a restrictive stance of policy for some time,” Powell said. 

“Historical experience cautions strongly against prematurely loosening policy,” he added.

Turkish President Recep Tayyip Erdogan on Wednesday backed the creation of a new natural gas pipeline that could ease Europe’s dependence on Russia by linking up with energy-rich Turkmenistan.

The Turkish leader’s remarks came during a three-way summit with the presidents of Turkmenistan and Azerbaijan in the isolated Central Asian state’s city of Awaza.

The meeting came with Europe trying to end its dependence on Russian energy following the Kremlin’s invasion of Ukraine.

Erdogan has tried to play a role of a middle man in the conflict by maintaining close working relations with Russian President Vladimir Putin while supplying Kyiv with arms.

He has backed Putin’s idea of creating a new “gas hub” in Turkey that could supply European clients while bypassing existing pipelines running through Ukraine and under the Baltic Sea.

But he also lent his support on Wednesday to a new project that could link Turkmenistan with an existing pipeline running from Turkey to Azerbaijan.

“We carry Caspian Sea gas to Europe via (the existing) corridor, which is the backbone of the Trans-Anatolian natural gas pipeline,” Erdogan said in remarks released by his office.

“We need to launch work on transporting Turkmen natural gas to Western markets in the same way.”

The US Energy Information Administration lists Turkmenistan as the world’s sixth-largest holder of proven natural gas reserves.

Much of its past gas volumes have reached world markets via pipeline running to Russia.

But its has also been ramping up supplies to China and is looking for ways to access other markets via Turkey.

Erdogan has long dreamt of using Turkey’s location on the edges of the Middle East and Europe to turn it into one of the world’s main centres of the energy trade.

Central Asian countries have also been reassessing their once-close relations with Moscow since Russia’s war on Ukraine.

Russia’s decision to limit gas supplies in retaliation for Western sanctions have left European countries scambling for supplies as they head into the cold winter months.

The head of South Africa’s beleaguered state-owned power utility Eskom, Andre de Ruyter, has resigned, the company said on Wednesday, as the country suffers from a worsening energy crisis. 

De Ruyter, a former packaging executive who took over as CEO in 2020, will stay on until the end of March next year to give the firm time to look for a successor, Mpho Makwana, the chairman of Eskom’s board said in a statement. 

“It has been an honour and privilege to serve Eskom and South Africa. I wish all the hard working people of Eskom well,” said De Ruyter.

Scheduled blackouts have burdened Africa’s most industrialised economy for years, with Eskom failing to keep pace with demand and maintain its ageing coal power infrastructure.

But the outages reached new extremes this year. 

Record power cuts have cost the country hundreds of millions of dollars in lost output, disrupting commerce and industry and angering the population, with lights going off often several times a day for a few hours. 

Last month, Eskom, which is struggling under a 400-billion-rand ($23.3 billion) debt — half of which the government has pledged to take on — said it had run out of funds to buy diesel to stabilise the system. 

De Ruyter had come under pressure from some government ministers that accused the company of not properly attending to the crisis, which analysts say is the result of years of mismanagement, disrepair and corruption.

“At a time when de Ruyter needed all the support he could muster and a free hand to deal with the most pressing challenge facing the country, he has been sacrificed at the altar of political expediency,” said Ghaleb Cachalia a lawmaker with the opposition Democratic Alliance (DA) party.

Public Enterprises Minister, Pravin Gordhan thanked De Ruyter for his “sacrifice and resilience in a difficult job”.

The head of the International Committee of the Red Cross warned Wednesday “an enormous level of suffering” awaits the world in 2023 with famine spreading.

Mirjana Spoljaric, who took over at the ICRC in October, told a Geneva press conference: “We expect an enormous level of suffering.

“As the world is trending at the moment we don’t see any easing of the humanitarian pressures, they will be immense potentially,” she said.

“There is a possibility that we will see very high levels of hunger in many parts of the world and insecurity in general.”

Not only will prices be high for food, it will “simply not be available in the same amounts due to a lack of fertilisers and due to, again, the impact of climate change.”

She cited Somalia as a country of particular concern.

“In our four hospitals we have seen a tenfold increase of wounds caused by violence, violent, armed violence, conflict and we are also witnessing a three fold increase of malnutrition in children.

“The situation is extremely alarming,” Spoljaric said, adding her next trip would be to the Horn of Africa were some 20 million people are suffering from malnutrition.

The ICRC is seeking 2.8 billion euros for next year, up on last year’s 2.4 billion.

But the ICRC chief said it might not be enough, “depending on how the situation evolves”.

Germany on Wednesday signed a deal to buy dozens of US-made F-35 fighter jets, US officials said, part of the country’s military overhaul following Russia’s invasion of Ukraine. 

“The German F-35 programme will ensure the continuation of Germany’s alliance commitments and guarantee NATO’s credible deterrence in the future,” said the US embassy in Berlin in a statement. 

The 35 jets, the world’s most advanced warplanes, should be delivered between 2026 and 2029, it said. 

Berlin had announced in March the planned purchase of the aircraft made by Lockheed Martin to replace its ageing Tornado fleet. 

But the defence ministry in Berlin earlier this month raised concerns about the plan, warning of “delays and additional costs” in the nearly 10 billion euro ($10.5 billion) acquisition, in a letter to parliament’s budget committee. 

Germany’s lower house of parliament still decided to press ahead and approve the acquisition on Wednesday. 

“The German-US defence partnership has never been stronger and is a central pillar of NATO’s transatlantic partnership,” said the embassy statement. 

The cost of the jets is to come from a planned 100 billion euro investment in the armed forces, unveiled following the outbreak of the Ukraine war in a bid to overhaul Germany’s underfunded military.