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Dilemma for Fed chief: High inflation and a surging virus – Yahoo News Canada

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WASHINGTON (AP) — Not long ago, anticipation was high that Federal Reserve Chair Jerome Powell might begin to sketch out a plan this week for the Fed to start pulling back on its support for an economy that has been steadily strengthening.

That was before COVID-19 cases began accelerating across the country. Now, the decision of how and when the Fed should begin dialing back its help for the economy has become a more complicated one.

Yet in outlining his view of the economy and the threats it faces in a high-profile speech Friday, Powell may provide important clues to the timing of changes in the Fed’s ultra-low-interest rate policies.

The big question has been when the Fed will begin to slow its purchases of Treasury and mortgage bonds. The Fed has been buying $120 billion in bonds each month since the pandemic erupted in March 2020 to try to keep longer-term rates low and encourage borrowing and spending. It has also pegged its short-term benchmark interest rate at nearly zero since then.

Powell will be speaking Friday at an annual conference of academics and central bankers. The conference, sponsored by the Federal Reserve Bank of Kansas City and normally held in Jackson Hole, Wyoming, will instead be a virtual-only event for a second straight year. A surge of COVID-19 cases near the Wyoming resort delivered a direct impact on the Fed itself by forcing a last-minute cancellation of its in-person plans.

The hasty shift to an online event reflects the rapid rebound of the pandemic, led by the delta variant, particularly in the South and Northwest. It follows a sharp decline in confirmed cases earlier in the summer that had raised hopes that the coronavirus and its economic impact might be fading.

Just a few weeks ago, many Fed officials were signaling that the economy was making solid progress toward the central bank’s twin goals of maximum employment and annual inflation at just above 2% for a sustained period. Several presidents of regional Federal Reserve Banks said they wanted to announce a reduction, or taper, of the bond purchases at the Fed’s next meeting in September.

Yet some economists have been slashing their forecasts for economic growth in the current July-September quarter. Restaurant traffic has declined slightly. Last week, Powell said it wasn’t yet clear what the delta strain’s impact on the economy would be. But he emphasized that the pandemic was far from over and was still “casting a shadow on economic activity.”

With the economic picture hazier now, economists will be listening carefully for clues Powell may provide about the Fed’s intentions.

“I’ll be watching how he characterizes current conditions and the outlook he has for the economy,” said Ellen Gaske, an economist at PGIM Fixed Income. “That will give us a sense of how soon the tapering will occur.”

The uncertainties raised by the delta variant make it likelier that the Fed will announce a tapering in November or later, economists said, rather than in September. That would allow Fed officials to consider two additional months of data on inflation and jobs to gauge the delta variant’s impact.

The resurgence of the virus is hardly the only complicating factor facing the Fed. Inflation has surged to a three-decade high as a sharp rebound in consumer spending and shortages in many commodities and parts, such as semiconductors, have sent prices rising for airline tickets, hotel rooms, new and used cars and restaurant meals. The Fed’s preferred inflation gauge jumped 3.5% in June compared with a year earlier, the biggest such rise since 1991.

Higher inflation has, in turn, intensified pressure on Powell and the Fed to rein in their stimulus policies. Powell, though, has consistently expressed confidence that higher inflation will prove temporary, even if it persists for several more months. Many economists and Wall Street investors agree. Some, in fact, are more concerned about the opposite problem: That inflation will decline too far from its current level.

At the same time, growth could slow. Government stimulus is set to fade next year. No more stimulus checks are in the pipeline, and a $300-a-week federal unemployment supplement is set to expire in two weeks. Gaske noted that the price jumps have caused consumers to reduce their spending on things like cars and furniture, which over time reduces inflation pressures.

That’s in contrast to the late 1970s, the last time the United States faced rapid inflation, when rising prices encouraged a “buy it while you can” mentality, Gaske said. Ongoing spending at that time drove costs even higher.

As a result, any pullback in the Fed’s low-rate policies could help pull inflation below its 2% annual target in a year or two.

It’s also getting harder for the Fed to define its other policy goal of “maximum employment.” Initially Powell and other officials, including Vice Chair Richard Clarida, defined it as a “broad and inclusive” goal that included sharply reducing unemployment for Black Americans and Latinos and restoring the job market to its pre-pandemic health.

Yet the number of older Americans who are retiring has accelerated since the pandemic struck, and it’s far from clear that low interest rates would induce many of them to return to work. A smaller workforce could make it harder to restore the job market to pre-pandemic levels.

Many economists were surprised by remarks from Clarida this month suggesting that a return to an unemployment rate of 3.8% would meet the Fed’s goal of maximum employment and justify a rate hike by the end of 2022, earlier than Fed officials had projected in June.

Even if the jobless rate falls that low — it is now 5.4% — millions of Americans could remain on the sidelines, no longer looking for work and therefore not counted as unemployed. Black and Latino Americans would likely have much higher unemployment rates. Fed officials had previously made clear that they would take those concerns into account, but Clarida did not mention them.

“They’ve certainly not reinforced their commitment to broad and inclusive gains,” Adam Posen, president of the Peterson Institute for International Economics, said on a conference call with reporters. “They could have stuck with it much more than they did.”

Fed officials had expected much more clarity around the economy and job market by early fall. As the pandemic faded, more Americans would return to work, instead of shying away out of fear of viral infection. Now the delta variant could prolong that fear and postpone the point at which the Fed can get a clear read on the job market.

“It’s really hard for Powell to signal much here,” said William English, a former senior official at the Fed and now a finance professor at the Yale School of Management. “They’re in a world with a lot of uncertainty.”

Christopher Rugaber, The Associated Press

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What China developer Evergrande's debt crunch means for U.S. investors: Ed Yardeni – CNBC

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In this article

A debt crunch involving China’s second largest properly developer has caught investors’ attention in the past week.

Evergrande, the Shenzhen-based company, is facing a default on its debt burden of roughly $300 billion. The crisis has echoes to the Lehman Brothers bankruptcy, which marked its 13-year anniversary last week, a development that at the time sent shockwaves through global markets.

Ed Yardeni, president of Yardeni Research, says it’s unlikely Evergrande will have a fallout quite as severe as the Lehman bankruptcy when the global economy and credit markets collapsed. Instead, he sees it as analogous to a different event a decade even earlier.

“If it’s similar to anything,  it’s similar to Long-Term Capital Management, which is the calamity that occurred in 1998 but that was dealt with very quickly by the Federal Reserve and the major banks and it didn’t have any global implications,” Yardeni told CNBC’s “Trading Nation” on Friday.

Like with hedge fund Long-Term Capital Management, Yardeni sees government intervention in Evergrande preventing any collapse and contagion.

“The reality is it is too big to fail, and I think the Chinese government is going to intervene big time. I don’t think they’re going to save management… but it will be restructured and in a way that won’t harm the economy too much over there and won’t affect the global economy or financial markets the way Lehman did,” said Yardeni.

Even if a crisis tied to Evergrande is avoided, Yardeni does not see Chinese markets rebounding anytime soon. He says Evergrande is just one reason for investors to avoid the region.

“If you’re invested in Chinese stocks, there have been lots of reasons to get out, quite honestly,” said Yardeni. “The Chinese Communist Party which runs the government over there has been meddling, intervening in the markets, interrupting corporate governance, telling companies how they should manage their businesses. And so I think it’s a good opportunity here just to lie low. I would not be buying on the dips in China.”

Beijing has tightened regulations on industries such as technology and private education in recent months. That increased scrutiny has taken their markets and U.S.-listed Chinese stocks lower.

Continued uncertainty in China could be a benefit for U.S. markets, he adds.

“There are lots of global investors that want to be invested in areas where they feel comfortable, where there’s corporate governance rules, where there’s contract laws that are obeyed. I think a lot of money that has gone global and might have been tempted to go to China may very well come to the U.S.,” he said.

Yardeni has a 5,000 price target on the S&P 500 for the end of 2022, though he says the benchmark index could reach that level sooner. The S&P 500 closed Friday at 4,433.

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Big gap between Pfizer, Moderna vaccines seen for preventing COVID hospitalizations – Yahoo News Canada

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Los Angeles , CA - May 14: Alma Sevilla preparers Pfizer COVID-19 vaccine vial at a mobile vaccine clinic held at Roosevelt Park on Friday, May 14, 2021 in Los Angeles , CA. (Irfan Khan / Los Angeles Times)

A dose of Pfizer-BioNTech COVID-19 vaccine is readied at a mobile vaccine clinic in Los Angeles. (Irfan Khan / Los Angeles Times)

Amid persistent concerns that the protection offered by COVID-19 vaccines may be waning, a report released Friday by the Centers for Disease Control and Prevention finds that America’s workhorse shot is significantly less effective at preventing severe cases of disease over the long term than many experts had realized.

Data collected from 18 states between March and August suggest the Pfizer-BioNTech vaccine reduces the risk of being hospitalized with COVID-19 by 91% in the first four months after receiving the second dose. Beyond 120 days, however, that vaccine efficacy drops to 77%.

Meanwhile, Moderna’s vaccine was 93% effective at reducing the short-term risk of COVID-19 hospitalization and remained 92% effective after 120 days.

Overall, 54% of fully vaccinated Americans have been immunized with the Pfizer shot.

The surprising findings came as a Food and Drug Administration advisory panel recommended against offering booster doses of the Pfizer vaccine to all Americans ages 16 and older. In a striking rebuke, 16 of 18 experts told the agency it had not mustered enough data to make a third shot the norm.

In lengthy briefings to the panel, representatives from Pfizer pointed to clinical trial results involving 306 mostly healthy participants to argue that a booster “restores” the 95% vaccine effectiveness rate seen earlier in the pandemic.

Company officials also touted evidence from Israel, which rolled out boosters after seeing a rise in hospitalizations among people who were fully vaccinated. Those hospitalizations dropped dramatically after third doses were given, Israeli scientists have said.

But panel members made clear that despite Pfizer’s aggressive stance, it had not gathered enough evidence that a third shot was safe for young people and for those at lesser risk of becoming severely ill with COVID-19.

“We need age-specific data” on the safety and protective benefits of a further booster, said Dr. Ofer Levy, a panel member who directs the Precision Vaccines program at Boston Children’s Hospital.

FDA clearance for booster shots for everyone 16 and older would be seen as something “close to a mandate,” said Dr. Eric Rubin, a panel member and infectious-disease expert at the Harvard T.H. Chan School of Public Health. Rubin worried that such a move could redefine what it takes to be considered fully vaccinated against COVID-19.

“None of us are there yet,” he said.

But others apparently are. Dr. Anthony Fauci, President Biden’s top advisor on vaccines, has come out strongly in favor of booster shots, saying before Friday’s vote that a failure to endorse the shots “would be a mistake.”

And in mid-August, Biden himself said his administration would begin making booster shots available the week of Sept. 20 to those vaccinated for at least eight months.

Biden cautioned at the time that his plan was contingent on FDA approval. But his announcement stoked concerns of political meddling in a matter that required the unhindered evaluation of scientists.

“This should demonstrate to the public that the members of this committee are independent of the FDA,” Dr. Archana Chatterjee, dean of the Chicago Medical School, said after the vote. “In fact, we do bring our voices to the table when we are asked to serve on this committee.”

The panel unanimously agreed that a third shot of the vaccine now sold under the brand name Comirnaty should be offered to select groups: individuals 65 and older, people at risk of developing severe disease, and those, including healthcare workers, whose occupations put them at high risk of infection.

Dr. Peter Marks, who leads the FDA’s evaluation of drugs and vaccines, told panel members that the agency could give its blessing to booster shots with an emergency use authorization — a regulatory step that falls short of the full approval Pfizer had sought.

The company issued no statement Friday in response to the panel’s vote.

Researchers in the United States have been warning for months that the immunity afforded by COVID-19 vaccines might be waning. The CDC reported that in late July, close to three-quarters of the 469 people swept up in a Massachusetts outbreak were fully vaccinated. And the agency has launched several studies aimed at detecting changes in vaccine effectiveness in healthcare workers and others who were vaccinated early.

But virtually all of those infections appeared to be mild. And health officials eager to induce vaccine skeptics to step up for their shot — including Fauci and Dr. Rochelle Walensky, director of the Centers for Disease Control and Prevention — have repeatedly praised the vaccines for keeping most fully vaccinated people out of hospitals.

The new report on waning vaccine efficacy challenges that expectation.

Vials of Pfizer-BioNTech COVID-19 sit on a tray at a vaccination clinic.Vials of Pfizer-BioNTech COVID-19 sit on a tray at a vaccination clinic.

Vials of Pfizer-BioNTech COVID-19 sit on a tray at a mass vaccination clinic in Ontario, Calif. (Irfan Khan / Los Angeles Times)

Researchers from around the country found striking differences between two mRNA vaccines long thought to be interchangeable.

When the Moderna vaccine received emergency use authorization in December, the company reported that 30 people in its clinical trial developed severe cases of COVID-19, including nine who required hospitalization. All 30 patients were in the placebo group, resulting in a vaccine efficacy against severe disease of 100%.

Ten people in Pfizer’s initial clinical trial developed severe cases of COVID-19. Nine of them were in the placebo group, including seven who were hospitalized, resulting in a vaccine efficacy against severe disease of 88.9%.

Once the Moderna and Pfizer vaccines were rolled out to the public, their records of preventing COVID-19 hospitalizations in the first four months were neck and neck — 93% and 91% effective, respectively. But the degree of protection diverged after that.

When they focused specifically on the period 120 days beyond the second dose, the study authors found that the Moderna vaccine remained 92% effective at preventing COVID-19 hospitalizations. But the equivalent figure for the Pfizer vaccine was 77%.

The results were published in the CDC’s Morbidity and Mortality Weekly Report.

Both the Pfizer and Moderna vaccines are based on mRNA technology, which delivers temporary instructions to the body’s muscle cells that help it learn to recognize the spike protein, a key part of the coronavirus’ structure. But “they’re actually not necessarily interchangeable,” said Dr. Timothy Brewer, a professor of medicine and epidemiology at UCLA.

Each vaccine is formulated and administered differently, Brewer said, and those differences could affect the strength and duration of the two vaccines’ protection.

Moderna’s shot contains 100 micrograms of vaccine, more than three times the 30 micrograms in the Pfizer shot. And Pfizer’s two doses are given three weeks apart, while Moderna’s two-shot regimen is administered with a four-week gap.

Brewer also pointed to evidence that the Moderna vaccine seemed to elicit higher levels of a key antibody than the Pfizer vaccine.

“We know from other studies the neutralizing antibody levels will decay over time, so starting at a higher level will mean that you have farther to go before you decay to a point where efficacy drops off,” he said.

Dr. Robert Murphy, who directs Northwestern University’s Institute for Global Health, said the Pfizer vaccine’s reduced protection against severe disease may bolster the case for boosters for all who got the vaccine, not just the specific groups identified by the FDA advisory panel.

“Based on the data I have seen, persons who received the Pfizer vaccine would benefit from a booster dose at this time,” he said. “I don’t see why we have to wait until the younger people get sick and become hospitalized.”

But Dr. Arnold Monto, who chairs the FDA advisory panel, applauded the agency’s willingness to withhold a full-throated call for boosters until a stronger case can be made. And he suggested that as more evidence accumulates, boosters for all might still get the nod.

“That’s the beauty of the emergency use authorization,” said Monto, an epidemiologist at University of Michigan. “It can be changed based on changing data.”

This story originally appeared in Los Angeles Times.

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CN Rail to slash capital spending, resume stock buybacks as shareholder battle looms – The Globe and Mail

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CN’s announcement came less than a day after its second-largest investor, TCI Fund Management, gave the company 21 days to call a shareholder meeting at which TCI plans to oust CN’s chairman, chief executive officer and two directors.

DARRYL DYCK/The Canadian Press

Canadian National Railway Co. has moved to fend off a battle for control of the company’s boardroom, rolling out a list of investor-friendly plans Friday that includes share buybacks, layoffs and reduced spending.

CN unveiled the changes, including the sale of non-rail businesses and other steps intended to boost profit and improve productivity, as it defended its actions in the failed takeover of U.S. railway Kansas City Southern.

CN’s announcement came less than a day after its second-largest investor, TCI Fund Management, gave the company 21 days to call a shareholder meeting at which TCI plans to oust CN’s chairman, chief executive officer and two directors.

Mathieu Gaudreault, a CN spokesman, said the company received TCI’s meeting requisition notice and will respond later.

British billionaire Chris Hohn, who owns TCI, said CN is poorly run by people with little or no rail experience. Mr. Hohn said the failed attempt to buy Kansas City Southern underlined CN’s “flawed decision making” and “a basic misunderstanding of the railroad industry and regulatory environment.”

Ben Walker, a partner in TCI, dismissed CN’s Friday announcement as “reactive” and said it does not change the plans to wage a boardroom fight. The dissatisfaction with CN’s leadership precedes the failed KCS bid, he said, pointing to CN’s underperformance in recent years compared with its rivals.

“A lot of the things they’re doing should have been done already as part of a continuous improvement plan and efficiency optimization,” Mr. Walker said by phone. “We’re hopeful that shareholders will vote for our slate of independent, high-quality nominees.”

KCS agreed to a cheaper bid from rival Canadian Pacific Railway Ltd. and is awaiting regulatory approval.

On a conference call with analysts Friday, CN executives defended their handling of the KCS bid and said the company’s management and board were the best people to lead the company.

“We have the right leadership team and management team to execute our strategic plan, both in the short term and the long term,” said Jean-Jacques Ruest, CN’s chief executive officer. “We have a vision for the industry which is forward-looking, not backward-looking.”

Mr. Ruest said the non-rail businesses that could be sold or shut down include its Great Lakes commodity ships, freight forwarding business and Winnipeg trucking company TransX Group, which CN bought in 2019.

“There is no sacred cow at CN,” Mr. Ruest said on the call. “Do they fit in the long-term strategy? Do they also contribute to feeding the beast or bringing business to the railroad?”

CN said it will eliminate 650 management jobs and 400 unionized positions in train operations.

Walter Spracklin, a Royal Bank of Canada stock analyst, said CN’s “strategic refocus” was inevitable.

“It is clear to us that CN’s operating efficiency has deteriorated over the past several years and the company has gone from industry leader to industry laggard,” Mr. Spracklin said. “That said, as an early pioneer of [precision scheduled railroading], we believe the company has the potential to achieve … efficiency levels that are among the best in the industry.”

TCI’s nominees to CN’s board include former CN and Union Pacific Railroad executive Jim Vena as CEO.

The US$40-billion hedge fund, launched in 2003 by Mr. Hohn, owns more than 5 per cent of CN’s shares, worth about $4-billion. TCI is also the largest owner of CP shares, at 8 per cent, and owns almost 3 per cent of Union Pacific.

In 2008, TCI led a boardroom fight at U.S. railway CSX Corp., replacing four of 12 directors.

Among the steps CN announced Friday:

  • Resuming share repurchases to reach $1.1-billion by the end of January, 2022;
  • Increasing shareholder returns, including share buybacks of $5-billion for 2022;
  • Replacing two directors in 2022, including chairman Robert Pace, whose planned retirement was previously announced;
  • Improving the operating ratio, which compares sales with costs, to 57 per cent; and
  • Increasing train length and speed.

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