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Fed to hike in Q4 next year; inflation to remain above target until 2024: Reuters poll

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Fed to hike in Q4 next year; inflation to remain above target until 2024: Reuters poll
© Reuters. FILE PHOTO: The Federal Reserve building is set against a blue sky in Washington, U.S., May 1, 2020. REUTERS/Kevin Lamarque

By Shrutee Sarkar

BENGALURU (Reuters) – The Federal Reserve will raise interest rates late next year, earlier than expected just a month ago, in a landmark shift from the emergency measures it took to backstop the U.S. economy during the COVID-19 pandemic, according to a Reuters poll.

    Most respondents said the Fed should move even sooner to combat inflation, which hit a 30-year high last month and economists say it will stick above the central bank’s target until at least 2024.

The shift in economists’ expectations for a first rate hike to next year from early 2023 predicted in an October survey puts them more in line with market expectations, and follows recent news U.S. inflation hit a 30-year high last month.

With disrupted global supply chains and a sharply-improved job market, the Fed, like most major central banks, is expected to move sooner rather than later.

The Nov. 15-18 poll predicted the Fed would raise rates by 25 basis points to 0.25-0.50% in Q4 2022, followed by two more hikes in Q1 and Q2 2023. The fed funds rate was expected to reach 1.25-1.50% by the end of 2023.

But nearly two-thirds of economists, 27 of 42, who responded to an additional question on what they recommended the Fed ought to do said the Fed should raise rates earlier, by the end of September next year.

“The double-whammy of a cost and wage push into prices is likely leaving the Fed uncomfortable. The risks of earlier hikes – next summer, if not before – are on the rise,” said Michelle Meyer, U.S. economist at Bank of America (NYSE:) Securities.

“To the extent that inflation expectations march higher over the longer run and consumers continue to react negatively to higher prices on the view that they will prove persistent, the more likely the Fed will damper the inflationary pressure with tighter monetary policy.”

Reuters Poll: U.S. monetary policy outlook – https://fingfx.thomsonreuters.com/gfx/polling/lgpdwngjzvo/U.S.%20monetary%20policy%20outlook.png

High inflation is a concern for central banks around the world, some of which have already raised rates or are close to doing so. The Fed, for its part, is expected to taper its $120 billion in monthly bond purchases from this month.

The consensus view for change in the core personal consumption expenditures (PCE) price index, the Fed’s key inflation gauge, was predicted to stay above 4% this quarter and next, double the 2% target. It’s then forecast to slow in the second half of 2022, along with growth.

Those forecasts were upgraded from last month.

“The whiff of stagflation is getting stronger as shortages worsen, leading to surging prices and weaker real GDP growth. Shortages of goods and intermediate inputs will eventually ease, although not for at least six to 12 months,” said Paul Ashworth, chief North America economist at Capital Economics.

“But the drop in the labour force appears to be more permanent, which suggests the pandemic could have a long-term scarring effect on potential GDP after all.”

After expanding 6.7% in the second quarter on an annualized basis, U.S. economic growth was expected to have slowed to 2.0% in the third quarter before expanding 4.8% this quarter. That compared with 3.8% and 5.0% predicted in October for the third and fourth quarters, respectively.

On average, the economy was expected to grow 3.9% next year, 2.6% in 2023 and 2.3% in 2024. That compared with previous forecasts of 4.0% for 2022, 2.5% for 2023 and 2.2% in 2024.

While the unemployment rate was predicted to range between 3.6% and 4.3% until the end of 2023, over 55% of 39 respondents who answered another question said consumer spending in the U.S. would improve over the coming year.

Economy

South Korean exports dropped 14% in November, the highest in 2.5 years

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exports South Korea

South Korea’s exports fell 14 percent year-on-year to $51.91 billion in November, preliminary data from the Ministry of Commerce, Industry and Energy showed. The November drop was the biggest in 2.5 years since May 2020 and was caused both by the deteriorating global economy, which even a Google price chart showed, and a truckers’ strike in the country.

South Korea exports 2022 – reasons for the drop

Exports fell for the second month in a row. Analysts on average expected an 11% decline, according to Trading Economics. Respondents to MarketWatch predicted a 10.5% decline.

Shipments of semiconductor products overseas, the country’s top export item, fell 29.8%; petrochemicals fell 26.5% and steel exports fell 10.6%. Meanwhile, exports of automobiles jumped 31% and petroleum products 26%.

Exports to China, South Korea’s largest trading partner, fell by 25.5%, and to Asian countries – by 13.9%. Below, supplies to the USA grew by 8% and to the European Union – by 0.1%.

In January-November exports rose by 7.8% on the same period last year and reached a record $629.1 billion.

South Korean imports rose 2.7% to $59.2 billion in November, marking the 23rd consecutive month of gains, but the current rate of growth is the lowest since November 2020. Experts had predicted an increase of only 0.2%.

South Korea’s trade deficit last month was $7.01 billion, compared with a surplus of $2,973 billion a year earlier.

The negative balance was recorded for the eighth month in a row. As a result, by the end of 2022, the country may record a foreign trade deficit for the first time since the financial crisis in 2008.

Earlier we reported that the UN estimates the cost of humanitarian aid in 2023 at a record $51 billion.

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The UN estimates humanitarian aid costs in 2023 at a record $51 billion because of an impending humanitarian crisis

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a humanitarian crisis

Joint humanitarian operations will require a record $51.5 billion in 2023 to address urgent problems.

The UN Office for the OCHA estimates that 339 million people will need urgent aid in 2023. At the same time, OCHA called on donor countries to provide funds for assistance in 2023 to the 230 million people most in need, living in 68 countries.

Griffiths explained that aid is needed not only for people experiencing conflicts and disease outbreaks. but also for those suffering the effects of climate change, such as people in peninsular Somalia facing drought and those in Pakistan experiencing severe flooding. For the first time, the growing humanitarian crisis has brought the number of displaced people worldwide to the 100 million mark. Also worsening an already bad situation is the worldwide coronavirus pandemic, which affects the poor. Note that the general economic crisis has begun to negatively affect even the Netflix price chart.

Earlier we reported that house prices in the UK fell by 1.4% in November.

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Economy

Average house prices in the UK fell 1.4% in November

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average house prices in the uk

Average house prices in the UK fell 1.4% in the previous month in November to 263,788 thousand pounds (about $319,000), according to the British mortgage company Nationwide Building Society.

The decline was recorded at the end of the second consecutive month and was the most significant in almost 2.5 years – since June 2020. Analysts on average had forecast a decline of only 0.3%, according to Trading Economics.

Are house prices in the UK going to fall even more?

Residential real estate prices in November compared to the same month last year increased by 4.4%. At the same time, experts expected a larger increase of 5.8%. The growth rate slowed down significantly compared with 7.2% in October. Because of the difficult economic situation, British investors are investing in other instruments. The Microsoft price chart, for example, is showing potential for growth, so many are interested in the U.S. stock market. 

“The market looks set to remain under pressure in the coming quarters. Inflation will remain high for some time, and interest rates are likely to continue to rise,” believes Nationwide Senior Economist Robert Gardner. – The outlook is unclear, and much will depend on how the overall economy behaves, but a relatively soft landing is still possible.”

Earlier we reported that Sanctions Circumvention was included in the EU’s list of criminal offenses.

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