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Fed policymakers see upward march in interest rates

Half of U.S. Federal Reserve policymakers are expecting to start raising interest rates next year. They think that the borrowing costs should increase to at least 1% by the end of 2023. The swifter pace of interest rate hikes compared to the central bank‘s last set of projections in June comes as the economy continues its rapid recovery. Policymakers continue to see the Delta variant of the coronavirus. This has dented economic activity.

The Fed kept its benchmark overnight. The new economic projections released alongside the policy statement showed nine of 18 Fed policymakers. They now foresee a liftoff in interest rates next year. At a press conference, Fed Chair Jerome Powell said that the latest set of forecasts showed a growing convergence of views on the rate-setting committee. The economy is pointed to fewer people now seeing rates. Powell said that it is not really an unusually wide array of views about this.

By 2024, the Fed’s quarterly so-called dot plot showed, the median forecast for interest rates was for 1.8%. The Fed estimates neither stimulates nor restricts economic growth. That’s despite policymakers’ forecast for inflation to remain above the Fed’s 2% target through 2024. This is because the central bank grapples with price pressures. Powell has the view that the higher-than-expected inflation is temporary. The acknowledged inflation has confounded many policymakers’ expectations. The median forecast on inflation for this year is 0.8 percentage point to 4.2%.

U.S. gross domestic product at the median is projected to grow 5.9% this year. This is in line with recent downgrades by private forecasters, due to the impact of the Delta variant. Fed policymakers now also see the unemployment rate falling to 4.8% this year, as per the forecasts. Powell stated that some people are writing down very low unemployment rates and that’s only one indicator but it suggests a very strong labor market. He thinks that they are writing down in good faith what they see as meeting the test.

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Finance

Euro zone ministers expect inflation to slow in 2022

The acceleration of euro zone inflation, driven energy prices, is mostly temporary. Then the price growth will slow down again. The euro zone finance ministers agreed that, that too the next year as forecasted by the European Central Bank and the European Commission.

Paschal Donohoe, chaired the talks of the ministers in Luxembourg. In a news conference he said that there was also agreement that the inflation spike was not an argument against the transition to renewable sources of energy. This is under the EU’s ambitious plan of reducing CO2 emissions to zero by the year 2050.

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Finance

Under new rules, borrowing for investment sensible

British finance minister Rishi Sunak said that the government borrowing to fund investment was a sensible thing. This is to allow under new fiscal rules that he is likely to announce, unlike borrowing for day-to-day spending. He said that borrowing for capital investment that is going to drive up their growth is probably a sensible thing for them. And that too particularly in an environment of slightly lower interest rate. Sunak stated this in an event on the sidelines of the annual conference of Britain’s ruling Conservative Party. This event was organized by the Taxpayers’ Alliance advocacy group. Sunak stated in that event, that borrowing for more day-to-day spending is probably less something that you would want to have as part of your framework.

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Finance

IMF board to interview Georgieva-sources

The International Monetary Fund’s executive board is going to interview Managing Director Kristalina Georgieva. This is regarding that; its reviews claims that she pressured World Bank staff to alter data to favor China in her previous role. Board members were initially expected to meet with Georgieva. But spent their time working on other regular business matters.

The board members spent hours for questioning lawyers from the WilmerHale firm. This is about their World Bank investigation report which alleged that Georgieva, as the bank‘s CEO applied undue pressure on staff, to alter data in the flagship “Doing Business” report to benefit China. Then, an IMF spokesperson said that the IMF board remains committed to a thorough, objective, and timely review of the matter. Georgieva has strongly denied the accusations.

The upcoming interviews could prove pivotal in either increasing support for Georgieva. This is with many IMF shareholders are keen to wrap up the board’s deliberations on the matter. The fund’s most influential member governments, including the top shareholder the United States, have withheld public judgment. The World Bank tasked WilmerHale with investigating the “Doing Business” data irregularities identified in 2020. The law firm’s report contends Georgieva. The former World Bank President Jim Yong Kim’s office pressured staff to manipulate data so that the China’s global ranking in the “Doing Business 2018” study of investment climates rose to 78th from 85th.

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