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The future trajectory of the economy!

Interest rates are to be unchanged at near zero ( 0-0.25 per cent ) announced The Federal Reserve System’s Board of Governors (the Fed) of the United States while concluding its  two-day monetary-policy meeting on Wednesday, September 16. This is yet another decided and dominant signal that its monetary policy will effectively be on hold for the next few year. In order to help the economy recover and add jobs for as long as possible, most members of the Federal Open Market Committee (FOMC) said that they expect to keep rates at near-zero until the end of 2023.

“Increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace to sustain smooth market functioning and help foster accommodative financial conditions, thereby supporting the flow of credit to households and businesses” was said by the Fed addressing the first time rate setting committee. The US central bank is purchasing government securities at a rate of $120 billion per month, consisting of $80 billion in Treasuries and $40 billion in mortgage securities. It is only appropriate that this fast pace of asset purchases given ongoing impact of the coronavirus pandemic but also suggested that it could be changed should the economic and financial conditions justify doing so, said The Fed’s chairman, Jerome Powel.

Updating their economic projections, penciling in a smaller gross domestic product (GDP) contraction for this year (but one that will grow more slowly in 2021 and 2022 than its previous June forecast) as well as a lower unemployment rate (- 7.6 percent by the end of 2020 and down to 4 percent by 2023).

Powell shared his support for more fiscal stimulus in order to facilitate the recovery of the economic stats. He said,“My sense is that more fiscal support is likely to be needed,” he said. “Of course, the details of that are for Congress, not for the Fed. But I would just say there are roughly 11 million people still out of work due to the pandemic, and (a) good part of those people were working in industries that are likely to struggle. Those people may need additional support as they try to find their way through what will be a difficult time for them.”

If or not the inflation is to rise about 2 per cent is to be seen anytime soon. On the other hand, Rick Rieder, chief investment officer of global fixed income and head of the Global Allocation Investment team at Blackrock, thinks that, “Still, we’re skeptical about the achievability of this inflation goal at a time when the disinflationary influences of technological innovation and the demographic trend of population aging arguably hold a greater impact on the rate of inflation than central bank policy does.” 

The Fed also indicated that it would not tighten any monetary policy and it will be on track to ‘’achieve inflation moderately above 2% for some time so that inflation averages 2% over time and longer-term inflation expectations remain well anchored at 2%,” meaning that there was an anticipation to maintain an accommodative stance of monetary policy until the outcomes are achieved. All these are the reflections of the central bank’s recently announced shift in policy towards an average inflation targeting (AIT) framework.  “This is all about credibility, and we understand perfectly that we have to earn credibility,” Powell acknowledged, adding that the Fed governors “have to support it with our actions, and I think today is a very good first step in doing that. It is strong powerful guidance.”


LexisNexis risk solutions study reveals sharp rise of financial crime compliance costs

Decision makers inside banks, investment firms, asset managers and insurance firms identify the drivers impacting financial crime compliance. LexisNexis® Risk Solutions revealed that the results of its annual True Cost of Financial Crime Compliance Study for the U.S. and Canada. The total projected cost of financial crime compliance for the region is approximately $49.9 billion. The survey illustrates the sharp increase in financial crime compliance costs.

The study projects the average annual cost of financial crime compliance for U.S. financial institutions with $10 billion. Pandemic Continues to Spur Growth. The pandemic continues to negatively impact compliance operations. Sixty eight percent of U.S. respondents report longer times required to complete due diligence. Fifty five percent of U.S. respondents report reduced productivity compared.

More U.S. financial institutions now rank real estate and hospitality as top money laundering risk segments. Crime involving digital payments, trade-based money laundering and money mule schemes are on the rise. Digital currency is a growing problem for Canadian firms. Crimes involving digital payments have the greatest impact on compliance costs. Cryptocurrency crimes have the greatest impact on compliance costs for Canadian firms. The survey results demonstrate that financial institutions are battling a broader set of issues.

Survey respondents indicate that a lack of current and extensive data tops the list of Know Your Customer (KYC). Leslie Bailey, vice president of financial crime compliance strategy for LexisNexis Risk Solutions stated that the study shows clear linkages between the pandemic, digital crime and increasing regulations. Hence, financial institutions need to prepare for expanded compliance obligations and risks from emerging financial crime. Bailey added that digital transformation is a game-changer for financial crime compliance operations.

This will require a sophisticated approach that incorporates insight into digital behaviors. This study surveyed 145 decision-makers in the U.S. and Canada. Responses were collected in June 2019, August 2020 and June 2021. Organizations such as banks, investment firms, asset management firms and insurance firms. The total annual cost of compliance across firms was calculated using survey data. The spend amount was generated by multiplying the average percent allocated to financial crime costs.

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COP26 delegates agree on need to deliver on $100 BLN climate finance pledge

Delegates heading to the COP26 U.N. climate summit in Glasgow. These delegates agreed that they must deliver on the $100 billion per year pledge. COP26 president Alok Sharma said that, it is to help most vulnerable nations for tackling the climate change.

After many days of meetings at the pre-COP26 climate event, which happened in Italy, Sharma said that there was a consensus to do more. Which is to keep the 1.5 degrees Celsius target within reach, adding more needed to be done collectively in terms of national climate plans.

The COP26 conference in Glasgow aims to secure more ambitious climate action. This is from nearly 200 countries, those all that have signed the 2015 Paris Agreement for limiting the global warming, well below 2.0 degrees Celsius. And to 1.5 degrees, above pre-industrial levels.

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City’s exposure to Evergrande is very minimal-Hong Kong finance Chief

Hong Kong’s exposure to debt-laden developer China Evergrande Group is very minimal at 0.05%. This is of banking assets, South China Morning Post reported, citing the city’s finance minister. Financial Secretary Paul Chan told the newspaper that it is very minimal and won’t cause them any systemic risks. He added that he had arrived at the conclusion after a recent audit of the local banking sector’s exposure to the company.

Chan also said that the Hong Kong’s stock market was inevitably subject to some volatility. This is amidst a recent mainland crackdown on some industries. But still he believed any setback would be temporary. With liabilities of $305 billion, Evergrande has sparked concerns its cash crunch could spread through China’s financial system. This may reverberate globally and that is a worry that has eased with the Chinese central bank’s vow, to protect homebuyers’ interests. Evergrande has missed two bond interest payments. Bondholders have said this and its offshore debt, amounting to about $20 billion, trades at distressed levels.

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