Economy
Recession or not? Points to ponder to understand US economy
The U.S. economy grew faster than expected in the July-September quarter, the government reported Thursday, underscoring that the United States is not in a recession despite distressingly high inflation and interest rate hikes by the Federal Reserve.
But the economy is hardly in the clear, and the solid growth reported for the third quarter did little to alter the growing conviction among economists that a recession is very likely next year.
Higher borrowing rates and chronic inflation will almost certainly continue to weaken consumer and business spending. And likely recessions in the United Kingdom and Europe and slower growth in China will erode the revenue and profits of American corporations. Such trends are expected to cause a U.S. recession sometime in 2023.
Still, there are reasons to hope that a recession, if it comes, will prove a relatively mild one. Many employers, having struggled to find workers to hire after huge layoffs during the pandemic, may decide to maintain most of their existing workforces even in a shrinking economy.
In the July-September quarter, the economy accelerated to a 2.6% annual pace, after two quarters of contraction. Consumers spent more and exports jumped, offsetting a sharp slowdown in home sales and construction.
Six months of economic decline is a long-held informal definition of a recession. Yet nothing is simple in a post-pandemic economy in which growth was negative in the first half of the year but the job market remained robust, with ultra-low unemployment and healthy levels of hiring. The economy’s direction has confounded the Fed’s policymakers and many private economists ever since growth screeched to a halt in March 2020, when COVID-19 struck and 22 million Americans were suddenly thrown out of work.
By far the biggest threat to the economy remains inflation, which is still near its highest level in four decades. Even for workers who received sizable raises, their pay has dropped once it’s adjusted for inflation. The pain is being felt disproportionately by lower-income and Black and Hispanic households, many of whom are struggling to pay for essentials like food, clothes, and rent.
High inflation has also become a central issue in Republican attacks on President Joe Biden and his fellow Democrats, who have been thrown on the defensive as they seek to maintain control of Congress in the midterm elections.
So what is the likelihood of a recession? Here are some questions and answers:
WHY DO MANY ECONOMISTS FORESEE A RECESSION?
They expect the Fed’s aggressive rate hikes and persistently high inflation to overwhelm consumers and businesses, forcing them to slow their spending and investment. Businesses will likely also have to cut jobs, causing spending to fall further.
The Fed is poised to keep raising its benchmark interest rate after having already hiked it five times this year, from near zero to a range of 3% to 3.25%. Fed officials have projected that their short-term rate, which affects borrowing costs for consumers and businesses, will reach about 4.6% next year, which would be the highest level since late 2007.
Read: How do we know when a recession has begun?
Consumers have been remarkably resilient so far this year. Still, there are signs that high inflation and borrowing costs have begun taking a toll. Last quarter, consumer spending grew at just a 1.4% annual rate, according to Thursday’s government report, down from 2% in the second quarter and less than half its pace of a year ago.
Thursday’s figures also showed that businesses are cutting back on investment in buildings and factories, and the housing market has been hammered by rising mortgage costs. Those trends are expected to intensify, leading to a likely recession.
WHAT ARE SOME SIGNS THAT A RECESSION MAY HAVE BEGUN?
The clearest signal, economists say, would be a steady rise in job losses and a surge in unemployment. Claudia Sahm, an economist and former Fed staff member, has noted that since World War II, an increase in the unemployment rate of a half-percentage point over several months has always resulted in a recession.
Many economists monitor the number of people who seek unemployment benefits each week, which indicates whether layoffs are worsening. Weekly applications for jobless aid have increased in recent months, but not by very much. Instead, employers have added a robust average of 370,000 jobs in the past three months.
ANY OTHER SIGNALS TO WATCH FOR?
Many economists monitor changes in the interest payments, or yields, on different bonds for a recession signal known as an “inverted yield curve.” This occurs when the yield on the 10-year Treasury falls below the yield on a short-term Treasury, such as the 3-month T-bill. That is unusual. Normally, longer-term bonds pay investors a richer yield in exchange for tying up their money for a longer period.
Inverted yield curves generally mean that investors foresee a recession that will compel the Fed to slash rates. Inverted curves often predate recessions. Still, it can take 18 to 24 months for a downturn to arrive after the yield curve inverts.
Ever since July, the yield on the two-year Treasury note has exceeded the 10-year yield, suggesting that markets expect a recession soon. And just this week, the three-month yield also temporarily rose above the 10-year, an inversion that has an even better track record at predicting recessions.
WHO DECIDES WHEN A RECESSION HAS STARTED?
Recessions are officially declared by the obscure-sounding National Bureau of Economic Research, a group of economists whose Business Cycle Dating Committee defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”
The committee considers trends in hiring as a key measure in determining recessions. It also assesses many other data points, including gauges of income, employment, inflation-adjusted spending, retail sales and factory output. It puts heavy weight on jobs and a measure of inflation-adjusted income that excludes government support payments like Social Security.
Read: How to recession-proof your life amid economic uncertainty
Yet the NBER typically doesn’t declare a recession until well after one has begun, sometimes for up to a year.
DON’T A LOT OF PEOPLE THINK WE”RE ALREADY IN A RECESSION?
Yes, because many people now feel much more financially burdened. With wage gains trailing inflation for most people, higher prices have eroded Americans’ spending power.
And the Fed’s rate hikes have helped send the average 30-year fixed mortgage rate surging above 7% this week, the highest level in two decades. It has more than doubled from about 3% a year ago, thereby making homebuying increasingly unaffordable.
DOES HIGH INFLATION TYPICALLY LEAD TO A RECESSION?
Not always. Inflation reached 4.7% in 2006, at that point the highest in 15 years, without causing a downturn. (The 2008-2009 recession that followed was caused by the bursting of the housing bubble).
But when it gets as high as it has this year — it reached a 40-year peak of 9.1% in June — a downturn becomes increasingly likely.
That’s for two reasons: First, the Fed will inevitably sharply raise borrowing costs when inflation gets that high. Higher rates then drag down the economy as consumers are less able to afford homes, cars, and other major purchases.
High inflation also distorts the economy on its own. Consumer spending, adjusted for inflation, weakens. And businesses grow uncertain about the future economic outlook. Many of them pull back on their expansion plans and stop hiring, which can lead to higher unemployment as some people choose to leave jobs and aren’t replaced.
Europe sees fastest pace of rate hikes since euro launched
The European Central Bank piled on another outsized interest rate hike aimed at squelching out-of-control inflation, increasing rates at the fastest pace in the euro currency’s history and underscoring the bank’s determination to control prices despite the threat of recession.
The 25-member governing council raised its interest rate benchmarks by three-quarters of a percentage point at a meeting Thursday in Frankfurt, matching its record increase from last month and joining the U.S. Federal Reserve in making a series of rapid hikes to tackle soaring consumer prices.
ECB President Christine Lagarde acknowledged the risk is growing that the 19-country eurozone may plunge into recession but says “inflation remains far too high” and will stay high for an extended period, so the bank expects to keep hiking.
“We are not done yet. There is more ground to cover,” she told reporters, despite bank expectations that the economy will weaken the rest of this year and beginning of next.
“In the present state of uncertainty, with the likelihood of recession looming much more on the horizon ... everyone has to do their job,” Lagarde said. “Our job is price stability. This is our primary mandate, and we are riveted to that.”
Central banks around the world are rapidly raising interest rates that steer the cost of credit for businesses and consumers. Their goal is to halt galloping inflation fueled by high energy prices tied to Russia’s war in Ukraine, post-pandemic supply bottlenecks, and reviving demand for goods and services after COVID-19 restrictions eased. The Fed raised rates by three-quarters of a point for the third straight time last month.
Quarter-point increases have usually been the norm for central banks. But that was before inflation spiked to 9.9% in the eurozone, fueled by higher prices for natural gas and electricity after Russia slashed gas supplies during the war in Ukraine.
Read: Soaring inflation threatens to unleash political turmoil across Europe
“A long-lasting war in Ukraine remains a significant risk,” Lagarde said. “Confidence could deteriorate further and supply side constraints could worsen again. Energy and food costs could also remain persistently higher than expected. A weakening world economy could be an additional drag on growth in the euro area.”
Inflation robs consumers of purchasing power, leading many economists to pencil in a recession for the end of this year and the beginning of next year in the 19 countries that use the euro as their currency. While inflation in the U.S. is near 40-year highs of 8.2%, fueled in part by more pandemic support spending than in Europe, the American economy grew in the third quarter after shrinking in the first half of 2022.
The ECB has now raised rates by a full 2 percentage points in just three months, distance that took 18 months to cover during its last extended hiking phase in 2005-2007 and 17 months in 1999-2000. The benchmark for short-term lending to banks now stands at 2%, a level last seen in March 2009.
The next meeting in December may see a smaller rate increase, analysts say.
“We expect the pace of hiking to slow, given that the window of opportunity to raise interest rates is narrowing with a recession in the euro area looming,” said Nicolas Sopel, senior macro strategist at Quintet Private Bank.
Higher rates can control inflation by making it more expensive to borrow, spend and invest, lowering demand for goods. But the effort to raise rates also has raised concerns about their impact on economic growth and on markets for stocks and bonds.
To sop up economic stimulus efforts that have outlived their purpose now that rates are rising, Lagarde encouraged banks to repay the cheap, long-term loans they received from the ECB to help them keep lending to businesses. The central bank raised the interest rates on the loans and said it would let banks voluntarily repay the money.
Another potentially fraught issue in drawing down stimulus without triggering turmoil in nervous markets is what to do with the bank’s 4.9 trillion euro ($4.9 trillion) pile of bonds bought under earlier efforts to lower market borrowing costs. That will be not be outlined until the December meeting, Lagarde said.
Read: EU employed over 1.3 million people in sports sector in 2021
For now, the bank is maintaining the size of its holdings by using money from maturing bonds to buy new ones. Because the ECB is such a large bondholder, shrinking the bond pile could roil bond markets and make government borrowing costs more expensive.
The risks of bond market trouble were illustrated last month when then-U.K. Prime Minister Liz Truss announced tax cuts and spending increases that raised questions about state finances, triggering a sudden selloff in British government bonds and forcing her resign after 45 days in office.
Bond market turbulence also threatened to break up the eurozone during its 2010-2015 debt crisis. Now, borrowing costs for indebted eurozone governments such as Italy have risen along with ECB interest rates.
The euro flirted below parity with the dollar after the ECB decision and remains near its lowest levels in 20 years. A weaker euro worsens inflation by raising the price of imported goods.
Reasons for the drop in the exchange rate include higher U.S. interest rates that attract money into investments priced in dollars and, more broadly, the dwindling prospects for Europe’s economy.
Green Economy in Bangladesh: Prospects and Challenges
The green economy is a new way of living that is based on sustainable consumption and production. In recent years, the concept of a green economy has been getting widely accepted in many countries. To make the green economy a reality in Bangladesh, there are some challenges that are needed to be addressed.
One challenge is the lack of access to clean energy, which makes it difficult for people to live sustainably. However, the Bangladeshi Government has already implemented sound policies that would help promote the green economy. Let’s focus on the problems and prospects of the green economy in Bangladesh.
What is the Green Economy?
The green economy is a term that refers to a way of living that is environmentally friendly and economically sustainable. It refers to practices and policies that promote green energy production, consumption, and waste reduction.
Green economy initiatives can be focused on a specific sector or area, such as renewable energy, transportation, agriculture, city planning, or manufacturing. The Green Economy has been growing in popularity since the term was used in a 1989 report by a group of leading environmental economists, which was made for the Government of the United Kingdom.
Read Renewable energy: 40% target ‘ambitious, but roadmap absent’
In 2008, the United Nations Environment Program started the Green Economy Initiative (GEI). The objective was to strengthen support for environment-friendly investments. One of the aims of the initiative was to increase support at the country level for global risk studies and influence policy-makers to implement green economy programs.
Prospects of Green Economy in Bangladesh
Generally, the financial sector of a country supports the economic growth of that country. So, if the activities of the financial industry are carried out with proper preparation and sincerity, the expansion of the green economy can be another development wonder in Bangladesh.
The population in Bangladesh is increasing day by day. And the use of technology in various stages of product production by various organizations is increasing to keep pace with the increased demand. Hence, the standard of cleanliness of the environment is decreasing.
Read Jashore waste treatment plant makes a big difference
These eventually increase the unexpected costs related to health, loss of biodiversity, carbon emissions, irreparable damage to the ecosystem, surface temperature, climate change, heavy rainfall, non-rainfall, cold currents, etc.
To cope with these issues, the development of a green economy can bring solutions as well as opportunities for exploration within a natural and healthy natural environment.
Green communication, green agriculture, green energy, green banking, green technology, green investment, green marketing, green industry, working environment, transportation, biogas, and geothermal energy all are directly related to a green economy.
Read UNGA chief calls for shift to green economies on Mother Earth Day
However, Bangladesh is not yet ready to apply all of these to improve the green economy. It is a costly and slow process. But the country has some prospects in some sectors such as using solar energy, recycling the used product, green agriculture and using biogas.
Bangladesh can increase the use of solar energy. With the proper use of endless light and heat from the sun, we can create an environment-friendly country in the coming days through various effective measures. Fossil fuel reserves are not infinite, and they will be finished.
But solar energy is derived from nature, a great gift of nature. Encouraging the principle of conservation of natural resources derived from nature ensures habitable earth for future generations.
Read What can COP27 do for climate vulnerable countries?
Moreover, renewable energy can be derived from ocean waves, water, and wind without any negative environmental impact. Thus, renewable energy generation, supply, and technological excellence will create jobs as well as create an environmentally friendly modern country. The growth and expansion of green employment depend on ensuring abundant use of renewable energy.
Converting the environment and destroying waste into incredible energy resources will be the wealth of our future by processing the remaining unnecessary part of daily used products.
Because excessive use of fertilizers and pesticides in unplanned agricultural management creates dire conditions. Therefore, the idea of green agriculture is the right decision for the coming future. Using green fertilizer and chemical-free fertilizer helps retain land fertility and increase fertility simultaneously with greater quantity on less land.
Read BGMEA seeks faster delivery of raw materials through green channel
Safe crop production is key. This system talks about all environmentally friendly production and production systems, including the use of organic fertilizers instead of chemical fertilizers, diversification of crops, and production of mixed crops. In this regard, encouraging the production and more use of biogas will lead the country toward risk-free environmental development.
Challenges of Green Economy in Bangladesh
The government has taken several important steps to take the green economy forward, which is very positive. But there are many challenges too.
Costly
Green factory installation costs can be up to 30% more than a conventional factory because pleasing production process, energy-efficient technology, water conservation technology, solar panel technology, inverter technology, and rainwater harvesting results in greater construction costs.
Read Bangladesh fails to exploit full potentials of green energy: Official documents
Moreover, industries need to utilize foreign consulting companies because of the absence of qualified professionals in the local area, which increases construction costs a lot. It, therefore, becomes quite hard to reach green economically.
Lack of Policy
Bangladesh has not issued a specific green industrial policy declaration. The high rates of corporate tax and value-added tax are also creating an obstacle to green industrialization, which also makes it challenging to import high-end machinery from abroad.
Lack of Awareness
Consumer behavior is additionally a tricky component in green industry development. The local consumers are poorly informed about the importance of going green. Demand for green products is from simply the western business world. As a result, only export-oriented enterprises are motivated to transition from green industries.
Read Davos climate focus: Can ‘going green’ mean oil and gas?
Other Challenges
Land scarcity, a high-interest cost of loans, insufficient transportation options, insufficient infrastructure for utility services, and other problems can be obstacles to the establishment of green industries in Bangladesh.
Taken Steps to Establish a Green Economy in Bangladesh
The Bangladesh government has already taken several steps to go green. The Government has already approved the 'Renewable Energy Authority Act' in 2012. Coastal green belt development activities have been undertaken. Also, adopted a five-year waiver on the commercial production of renewable energy.
The Bangladesh government has also taken steps to set up solar power and biogas plants. The Clean Development Mechanism (CDM) project was launched in 2013 to make organic compost fertilizer from municipal waste. To reduce air pollution from brick kilns, instructions have been given to convert old brick kilns to modern eco-friendly technology.
Read Bangladesh, Denmark sign document to strengthen partnership on green transition
Banks have now stopped lending to old brick kilns. A rapid expansion program has been undertaken to set up solar power and biogas plants. Environment courts have been set up in all districts. The government has already taken several steps to encourage farmers to use organic fertilizers. The country has already earned carbon credits by launching a project to produce bio-fertilizers from waste and use solar energy in some villages.
Bangladesh Bank has launched a refinancing program for entrepreneurs to produce green products. Between 2012 and 2016, Bangladesh Bank almost doubled its capital (from Tk 478 million to Tk 920 million) in refinancing green products. Sectors receiving the highest amount of loans under this initiative are—eco-friendly brick kilns, renewable energy, and liquid waste management.
Moreover, Bangladesh Bank has prepared environmental and social risk management policies. Through this policy, green financing initiatives have been taken. The organization is also working on identifying the risks of financing entrepreneurs involved in the production of toxic carbon monoxide and turning them green.
Read RMG: BGMEA, Jeanologia to collaborate on promoting green technologies
Final Words
Both economic growth and environmental conservation are essential for a country. There is no other way to establish a green economy in Bangladesh to make it suitable for living with development. As we are one of the most vulnerable countries to climate change and the environment, it is important to quickly solve the problems by implementing a green economy. Because sustainable development is not possible without a green economy.
Social stability now economy’s main challenge: Planning Minister
Planning Minister MA Mannan today (September 6, 2022) said that prices of essentials have to be kept within the purchasing capacity of lower income groups.
He said this at ‘Development Dialogue' organized by the Development Journalists Forum of Bangladesh (DJFB) at the NEC conference hall in Dhaka.
The minister said due to Russia-Ukraine war, food and energy prices have shot up globally and the main challenge for the economy now is to maintain social stability.
Read: Economy moving to comfortable zone as inflation eases: Planning minister
The planning minister said, “I will be happy if dollar price does not cross Tk 100.”
Replying to a query, Mannan said, “Corruption is visible in society. Many efforts continue to reduce corruption in the government projects. Once the project is approved, the responsibility of implementation goes to the executive department. So I can’t do much even if I want to.”
However, corruption has reduced somewhat due to various initiatives of the government, the minister said.
Read How the record hike in fuel prices manifested in Dhaka’s kitchen markets
“Despite pandemic and Ukraine war, Bangladesh economy in robust shape”
Prime Minister Sheikh Hasina has reiterated that despite the Covid-19 fallout and the Russia-Ukraine war, Bangladesh economy continues to be in robust shape and that her government is exercising due diligence when taking any loan.
In an interview with Indian news agency ANI, Prime Minister Hasina ruled out concerns that Bangladesh could go the Sri Lanka way.
She said that currently the world as a whole was facing challenges, not just Bangladesh.
Read:“Not only Bangladesh, in India minorities suffered too at times”
“Our economy is still going strong… We faced the Covid-19 pandemic, and now the Russia-Ukraine war. That has its effects here. But Bangladesh always makes debt payments timely. So, our debt rate is low. Our economic trajectory and development are (planned) calculatedly,” said the prime minister.
Hasina, however, acknowledged that the war in Ukraine has posed some challenges for Bangladesh. “It has negative effects, no doubt, especially in terms of import,” she said.
Hasina asserted that because of measured approach, Bangladesh was secure on the economic front. Bangladesh did not take any loan unless it was sure that it would benefit from the project undertaken, she said.
Read:“Differences can be resolved through dialogue, Bangladesh-India do precisely that”
“I think the whole world is facing economic problems, we are too… But yes, there are people who raise this issue. ‘Oh, Bangladesh will be Sri Lanka!’ This and that. But I can assure you, no, that will not happen. Because we... all our development plans, what we prepare and we implement, we always consider what the returns would be… how people would be benefitted… Otherwise, we don’t initiate any project just to spend money,” she said.
“… The moment Covid-19 pandemic started, I called upon our people, and we provided all kinds of support and inputs, up to the village level, and also encouraged our people to grow more food items. I always supported them,” PM Hasina said during interview with ANI.
Read Teesta mainly depends on India: PM Hasina tells ANI
Hasina to unveil Bangladesh-China friendship bridge on Sept 4
Prime Minister Sheikh Hasina will inaugurate the eighth Bangladesh-China Friendship Bridge in Pirojpur district on September 4.
Once open, the bridge will connect Pirojpur with southeastern districts of the country as well as mitigate the unemployment problem of the country by boosting the economy of the district.
The Bangladesh-China Friendship Bridge over the Kocha river at Bekutia point of Pirojpur will be unveiled by Hasina virtually, said the manager of Bridge Construction Project, Masud Mahmud Sumon.
The bridge will be named after Bangamata Sheikh Fazilatunnesa Mujib, he told reporters on Thursday.
Construction work of the bridge began on October 20, 2018, at Bekutia point on Barishal-Pirojpur-Khulna road. It was completed within the stipulated time amid the Covid-19 pandemic.
Mahmud said the one-km-long bridge is 1500 metres in length and it has 495 viaducts at both ends.
Also read: Padma Bridge: Know Its Amazing Facts, Engineering Wonders
The construction cost of the project is Tk 894 crore, of which, China provided Tk 654.79 crore as grant.
The bridge will also connect Khulna and Barishal districts.
Powell: Fed’s inflation fight could bring ‘pain,’ job losses
Federal Reserve Chair Jerome Powell delivered a stark warning Friday about the Fed’s determination to fight inflation with more sharp interest rate hikes: It will likely cause pain for Americans in the form of a weaker economy and job losses.
The message landed with a thud on Wall Street, sending the Dow Jones Industrial Average down more than 1,000 points for the day.
“These are the unfortunate costs of reducing inflation,” Powell said in a high-profile speech at the Fed’s annual economic symposium in Jackson Hole. “But a failure to restore price stability would mean far greater pain.”
Investors had been hoping for a signal from Powell that the Fed might soon moderate its rate increases later this year if inflation were to show further signs of easing. But the Fed chair indicated that that time may not be near, and stocks tumbled in response.
Runaway price increases have soured most Americans on the economy, even as the unemployment rate has fallen to a half-century low of 3.5%. It has also created political risks for President Joe Biden and congressional Democrats in this fall’s elections, with Republicans denouncing Biden’s $1.9 trillion financial support package, approved last year, as having fueled inflation.
The Dow Jones average finished down 3% on Friday, its worst day in three months. The tech-heavy Nasdaq composite shed nearly 4%. Shorter-term Treasury yields climbed as traders built up bets for the Fed to stay aggressive with rates.
Some on Wall Street expect the economy to fall into recession later this year or early next year, after which they expect the Fed to reverse itself and reduce rates.
A number of Fed officials, though, have pushed back against that notion. Powell’s remarks suggested that the Fed is aiming to raise its benchmark rate — to about 3.75% to 4% by next year — yet not so high as to tank the economy, in hopes of slowing growth long enough to conquer high inflation.
“The idea they are trying to hammer into the market’s head is that their approach makes a rapid pivot to (rate cuts) unlikely,” said Eric Winograd, an economist at asset manager AllianceBernstein. “They are going to stay tight even when it hurts.”
After raising its key short-term rate by a steep three-quarters of a point at each of its past two meetings — part of the Fed’s fastest series of hikes since the early 1980s — Powell said the Fed might ease up on that pace “at some point,” suggesting that any such slowing isn’t near.
Powell said the size of the Fed’s rate increase at its next meeting in late September — whether one-half or three-quarters of a percentage point — will depend on inflation and jobs data. An increase of either size, though, would exceed the Fed’s traditional quarter-point hike, a reflection of how severe inflation has become.
Read: US inflation will likely stay high even as gas prices fall
The Fed chair said that while lower inflation readings that have been reported for July have been “welcome,” he added that, “a single month’s improvement falls far short of what (Fed policymakers) will need to see before we are confident that inflation is moving down.”
On Friday, an inflation gauge that is closely monitored by the Fed showed that prices actually declined 0.1% from June to July. Though prices did jump 6.3% in July from 12 months earlier, that was down from a 6.8% year-over-year jump in June, which had been the highest since 1982. The drop largely reflected lower gas prices.
In his speech Friday, Powell noted that the history of high inflation in the 1970s, when the central bank sought to counter high prices with only intermittent rate hikes, shows that the Fed must stay focused.
“The historical record cautions strongly against prematurely” lowering interest rates, he said. “We must keep at it until the job is done.”
What particularly worries Powell and other Fed officials is the prospect that inflation would become entrenched, leading consumers and businesses to change their behavior in ways that would perpetuate higher prices. If, for example, workers began demanding higher pay to match higher inflation, many employers would then pass on those higher labor costs to consumers in the form of higher prices.
Many analysts speculate that Fed officials want to see roughly six months or so of lower monthly inflation readings, similar to July’s, before stopping their rate hikes.
Powell’s speech was the marquee event of the the Fed’s annual economic symposium at Jackson Hole, the first time the conference of central bankers is being held in person since 2019, after it went virtual for two years during the COVID-19 pandemic.
Since March, the Fed has implemented its fastest pace of rate increases in decades to try to curb inflation, which has punished households with soaring costs for food, gas, rent and other necessities. The central bank has lifted its benchmark rate by 2 full percentage points in just four meetings, to a range of 2.25% to 2.5%.
Those hikes have led to higher costs for mortgages, car loans and other consumer and business borrowing. Home sales have been plunging since the Fed first signaled it would raise borrowing costs.
In June, the Fed’s policymakers signaled that they expected their key rate to end 2022 in a range of 3.25% to 3.5% and then to rise further next year to between 3.75% and 4%. If rates reached their projected level at the end of this year, they would be at the highest point since 2008.
Powell is betting that he can engineer a high-risk outcome: Slow the economy enough to ease inflation pressures yet not so much as to trigger a recession.
His task has been complicated by the economy’s cloudy picture: On Thursday, the government said the economy shrank at a 0.6% annual rate in the April-June period, the second straight quarter of contraction. Yet employers are still hiring rapidly, and the number of people seeking unemployment aid, a measure of layoffs, remains relatively low.
At its meeting in July, Fed policymakers expressed two competing concerns that highlighted their delicate task.
Read: US inflation jumped 7.5% in the past year, a 40-year high
According to minutes from that meeting, the officials — who aren’t identified by name — have prioritized their inflation fight. Still, some officials said there was a risk that the Fed would raise borrowing costs more than necessary, risking a recession. If inflation were to fall closer to the Fed’s 2% target and the economy weakened further, those diverging views could become hard to reconcile.
At last year’s Jackson Hole symposium, Powell listed five reasons why he thought inflation would be “transitory.” Yet instead it has persisted, and many economists have noted that those remarks haven’t aged well.
Powell indirectly acknowledged that history at the outset of his remarks Friday, when he said that, “at past Jackson Hole conferences, I have discussed broad topics such as the ever-changing structure of the economy and the challenges of conducting monetary policy.”
“Today,” he said, “my remarks will be shorter, my focus narrower and my message more direct.”
Economy has unease, but no crisis: Shamsul Alam
State minister for planning Shamsul Alam on Sunday said Bangladesh’s economy has discomfort, but there is no crisis yet.
Denying a section of economists' assumptions, he said the economy is on the right track; growth, production, and supply lines are working positively, while the government is trying to ease inflation by policy measures.
Alam said this at a discussion meeting on ‘New challenges in the economy of Bangladesh’ organized by the Economic Reporters’ Forum (ERF) at its auditorium in the capital on Sunday.
Chief Economist, Bangladesh Bank Md Habibur Rahman, Ahsan H. Mansur, Executive Director, Policy Research Institute (PRI), Mohammad Hatem, Executive President of BKMEA, Barrister Nihad Kabir, , Chairperson, Business Initiative Leading Development (BUILD), Abul Kashem Khan, director FBCCI, among other spoke at the event.
Also read: No reason to worry; Bangladesh's economy on right track: Shamsul Alam
ERF president Sharmeen Rinvy presided the discussion meeting while its secretary general, SM Rashidul Islam, moderated the program.
The state minister also said some Bangladeshi economists were wrong in predicting that over 5 lakh people may die from Covid-19 pandemic unless a full lockdown was imposed across the country.
Despite this warning, the prime minister decided to keep open the factories, resulting in Bangladesh standing in the1st position in South Asia and 15th in the world in economic growth. If the government implemented a full lockdown in the factories, the economy of the country would have been in trouble, he said.
Import is declining, remittance, export and industrial growth are expanding in the country, defying the warning of a disaster of these sectors by the domestic economists, Dr Alam said.
The state minister said around 10 lakh workers went to different countries till June 2022. Ane despite huge imports, forex reserves still remained over USD $ 41 billion, so there is nothing to be worried about the economy.
BB chief economist Habibur said Bangladesh macroeconomics situation is under a little stress due to external effects, which are becoming stable by policy measures of the central bank.
The central bank will not increase the interest rate rather policy rate increases to make money management smooth, he said.
Also read: Economy needs transitional policy to overcome the crisis: Debapriya
Meanwhile, the BB announced around Tk 1.0 lakh crore special loan packages for CMSMEs, SMEs, Agriculture and other specialized sectors to increase money flow in the market, said Dr Habibur.
He also assumed that exchange rate will back in stable position and then inflation rate will also become tolerable as it created for external effect, he said.
Ahsan Mansur said that another blow from the global recession will hit the domestic economy besides Russia-Ukraine war.
He suggested massive reform of the tax system including tax policies and strengthen domestic gas-coal extraction to make vibrant the domestic economy from the external effect.
Mohammad Hatem said huge tax burden is a barrier to growing business here it is not cooperative al all for Bangladesh entrepreneurs to compete with the global market.
If business grows, the revenue generation would grow, so government policy should aim to help business grow more. 0therwise pushing higher tax will hurt business, he pointed out.
He emphasized on uninterrupted energy supply in the knitwear sector for smooth production of export goods. If it does not happen, the fabrics import demand will increase which is not good for the economy.
Nihad Kabir said the government should act as facilitator, not regulator everywhere.
In case of raw materials for the pharmaceutical sector, an importer has to collect around 73 types of documents from Union Parishad to relevant ministries which are waste of time, she said.
For lack of automation a business requires around 35 types of documents to start and that is not business friendly at all. To create entrepreneurs, the government should reform policy, withdraw trade license requirements, make the easy business process to create young entrepreneurs, Nihad suggested.
Economy needs transitional policy to overcome the crisis: Debapriya
Noted Economist Dr Debapriya Bhattacharya on Thursday called for a ‘transitional policy understanding’ to overcome the ongoing financial turmoil in the country’s economy.
"The main villain of the economy is the weakness of the financial sector. The reason for this is the lack of reforms that have been accumulating for a long time. Its effects are now visible. We are unable to move forward without a transitional policy,” he said.
Debapriya, a distinguished fellow of think tank Centre for Policy Dialogue (CPD), made the remarks at a media conversation with economic reporters on “Overcoming the Current Economic Challenges – Towards a Transitional Policy Understanding.”
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“The current crisis is only a symptom of the disease, because of the lack of reform. He said that the government has to reduce the subsidy to deal with the crisis in the financial sector. But now it was more necessary to give subsidies to protect poor people to control inflation,” he said.
He said Bangladesh’s economy is yet to go back to the pre-COVID benchmark and experiencing fragmented recovery and macroeconomic stability is under high stress, particularly due to inflationary pressure and unstable foreign exchange rate with the local currencies.
Besides, the global economy’s prospects for FY23 --commodity price rise, supply chain disruption, and logistic, increase in transportation cost – are bad for Bangladesh, he argued.
In such a situation the economy needs a transitional policy understanding for a period of 2-3 years to overcome the uncertainties (national and global) for stabilization and consolidation of the economy with a short-term outlook.
Export-Import deficit of USD $33.25 billion, the current account deficit of $18.70 billion, and the overall external deficit of $5.38 million, these are the symptoms of the disease, not the disease itself, he mentioned.
The revenue share in GDP did not go up more than 10 per cent of GDP, the share of income and asset tax in total revenue stagnated at around 30 per cent, and the budget deficit was increasingly being funded by borrowing from banks, all are the elements of fiscal mismanagement, he said.
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In reply to a query, he said the recent fuel oil price hike is disagreeable and imprudent, the economy will not be benefited from this move in the current context domestic economic situation, he said.
Debapriya pointed out that the government has cut subsidies in the oil sector, which are now diverted to pay the capacity charge of rental power plants.
He urged to increase the interest of bank lending to 12 per cent for a moderate credit growth, and protect depositors increasing its rate to 8-9 per cent.
He also called for ending the direct central bank’s interference in fixing the exchange rate, rather it should be fixed by the competitive market rate.
In reply to another query, he said people will pay revenue eagerly when they can see transparency and adaptation in government expenditure including procurement.
Fuel price hike may push economy into dire consequences: GM Quader
Jatiya Party Chairman GM Quader on Saturday described the government’s decision to hike fuel prices by more than 51 percent as "cruel" and "unprecedented".
“Such an increase in the fuel prices will create a great disaster in public lives while the country’s economy will move towards dire consequences,” he warned in a statement.
GM Quader, also the deputy opposition leader in parliament, said this move has manifested that the government has no sympathy for the people of the country.
At a time when fuel prices are on a downward trend across the world, the Jatiya Party chief said the government has increased the oil prices.
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“The price of benchmark crude oil has decreased by 29 to 30 percent in the last four to five months at different places in the world. The US benchmark West Texas Intermediate (WTI) oil prices fell below $89 a barrel that rose to $124 dollars last March,” he observed.
Stating that international benchmark Brent crude is now being sold at $94 per barrel, the Jatiya Party Chairman said, while the prices of fuel oil have started falling all over the world, the rise in oil prices in the country has disappointed people from all walks of life.
GM Quader feared that the transportation cost will go up following the hike in fuel prices while the price of daily essentials will increase manifold.
Besides, he said the production cost of domestic products will increase and their price will also push up, inviting a disaster in the export industry.
Under the circumstances, the Jatiya Party chief urged the government to reconsider the 'anti-people' decision to hike fuel prices.