WASHINGTON — The Federal Reserve said Wednesday that it will keep buying government bonds until the economy makes “substantial” progress — a step intended to reassure financial markets and keep long-term borrowing rates low indefinitely.
The Fed also reiterated after its latest policy meeting that expects keep its short-term benchmark interest rate near zero through at least 2023. The Fed has kept its key rate there since March, when it took a range of extraordinary steps to fight the pandemic recession by keeping credit flowing.
In a series of economic projections Wednesday, though, Fed officials painted a brighter picture for next year, compared with its previous projections in September. The improvement likely reflects the expected impact of new coronavirus vaccines. The policymakers now foresee the economy contracting 2.4% this year, less than the 3.7% decline it envisioned in September. For next year, in anticipation of a rebound, the officials have upgraded their growth forecast from 4% to 4.2%.
By the end of 2021, the Fed expects the unemployment rate to fall to 5% from the current 6.7% — lower than the 5.5% rate it had forecast in September.
The Fed’s latest policy statement coincides with an economy that is stumbling and might even shrink over the winter as the raging pandemic forces new business restrictions and keeps many consumers at home. Weighing the bleak short-term outlook and the brighter long-term picture has complicated the Fed’s policymaking as it assesses how much more stimulus to pursue.
At a news conference, Fed Chair Jerome Powell acknowledged that challenge. While the economy and job market should rebound strongly in the second half of 2021, he said, “the issue is the next four to five months” as the virus keeps weakening growth.
Powell also noted, as he often has before, that the pandemic recession has fallen most painfully on the most disadvantaged American households.
“Economic dislocation has upended many lives and created great uncertainty about the future,” Powell said.
With its benchmark rate already near zero, the Fed has turned to bond purchases, buying $80 billion of Treasury securities and $40 billion of mortgage-backed bonds a month. Those moves indirectly lower rates on mortgages, auto loans and credit cards, with the aim of encouraging more borrowing and spending.
Before Wednesday, the Fed had given no guidance on how long it would buy Treasury and mortgage bonds. Saying it wants to await “substantial” economic progress suggested that the central bank envisions a lengthy time frame for those purchases.
Powell and many other Fed officials have repeatedly urged Congress to approve more economic aid to carry the economy through what’s expected to be a financially painful winter, with cold weather foreclosing outdoor dining and rising virus cases discouraging many Americans from shopping in stores, going to gyms or travelling.
Congressional leaders are considering a $748 billion relief package that would provide extended unemployment benefits, more loans for small businesses and possibly another round of stimulus checks for individual Americans.
At his news conference, Powell applauded Congress’ belated move to enact another rescue aid plan.
“This looks like a time where what is really needed is fiscal policy,” he said, “and it’s a very positive thing that we may finally be getting that.”
Recent economic reports have generally reflected a sharply slowing recovery. On Wednesday, the Commerce Department reported the sharpest drop in retail sales in seven months. Americans held back on spending in November at the start of the holiday shopping season, which typically accounts for a quarter or more of retailers’ annual sales.
Sales tumbled across the board — from clothing, electronic and furniture stores to department stores and restaurants. The only two bright spots were online and grocery store sales.
The retail sales report was the latest evidence that the pandemic is slowing the U.S. economy as businesses grapple with tighter restrictions and millions of consumers stay away from stores.
Last week, the number of people seeking unemployment aid rose for the third time in four weeks, evidence that companies are increasingly cutting jobs nine months since the erupted of the pandemic caused a deep recession.
The Fed’s new guidance on bond purchases marks a shift from its previous statements, when it said it would simply keep buying bonds “over the coming months.”
But providing a more specific timeline ensures that financial markets will not anticipate an earlier reduction in the purchases that could cause investors to push up rates earlier than the Fed wants. Longer-term rates reflect investor expectations for future borrowing costs. So reducing expected future rates keeps current rates lower.
“It’s helpful to be as clear as you can be about your intentions,” said Bill English, a former Fed official who teaches finance at the Yale School of Management.
Some economists had expected the Fed to announce a shift in its bond purchases by buying more longer-term bonds and fewer shorter-term securities — a step they could still take in future meetings.
Such a move would seek to deliver more immediate help for consumers and businesses. Buying more 10-year Treasurys, for example, lowers their yield, and the 10-year yield influences mortgage rates and other borrowing costs. Yields on two- or three-year bonds, by contrast, don’t affect many other rates.
But the Fed may prefer to keep that step in reserve in the event that the economy significantly worsens next year. Or it may also see it as a more effective move when the economy is reopening and people and businesses want to borrow more and expand.
On Wednesday, Powell stressed that the Fed will consider all its options to strengthen growth.
“We are committed to using our full range of tools to support the economy .. until the job is done,” he said. “No one should doubt that.”
Christopher Rugaber And Martin Crutsinger, The Associated Press
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Another recession looms for UK economy as lockdowns bite – 570 News
LONDON — The British economy looks set to fall back into recession after official figures on Friday showed that it shrank by 2.6% month-on-month in November, when much of the country was in a second coronavirus lockdown.
The Office for National Statistics said that as a result of the fall, the economy is 8.5% smaller than its pre-pandemic peak. When the pandemic struck last spring, the economy contracted by up to a fifth over the first half of the year, before a summer easing of restrictions saw the economy recover a chunk of those losses.
Because of the November fall, the economy is set to contract again in the fourth quarter.
With most of the U.K. in an even tighter lockdown at the start of 2021 following a spike in new cases that has been blamed on a new variant of the virus in London and southeast England, it looks inevitable that the economy will shrink further in the first quarter of the year. That means it will have contracted for two consecutive quarters, the technical definition of a recession.
“It’s clear things will get harder before they get better and today’s figures highlight the scale of the challenge we face,” said Britain’s Treasury chief Rishi Sunak.
The November decline was not as bad as some economists feared, an indication that firms have managed to work out ways of selling their goods even when their doors are closed through online services.
The services sector was hit hard in November, shrinking by 3.4% as rafts of hospitality and leisure firms were forced to shut. The sector is now 9.9% smaller than it was in February 2020, before the impact of the pandemic was first fully felt.
“The economy took a hit from restrictions put in place to contain the pandemic during November, with pubs and hairdressers seeing the biggest impact,” said Darren Morgan, director for economic statistics. “However, many businesses adjusted to the new working conditions during the pandemic.”
The hope is that the rollout of coronavirus vaccines — the U.K. is ahead of many other countries — will see a pick-up in activity later this year.
“While the economic story today is of only the second-ever double-dip recession on record, the story of the year will be a vaccine-driven bounce back in economic activity for sectors like hospitality and leisure,” said James Smith, research director of the Resolution Foundation.
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Pan Pylas, The Associated Press
A circular economy is vital for meeting goals of the Paris Agreement – GreenBiz
This article originally appeared on Circulate News.
Five years ago, the world’s nations gathered in Le Bourget, near Paris, to discuss, draft and adopt what has since become known as the Paris Agreement. The document, signed by 196 countries to date, became the first global consensus on the need to address the devastating impacts of climate change. It commits its signatories to containing global warming to well below 2 degrees Celsius, a feat that requires tremendous collaboration.
So where are we now, five years down the line?
Some 192 countries around the world, the emitters of 96 percent of the global greenhouse gas emissions, have submitted plans (called nationally determined contributions or NDCs) to reduce their emissions. Meanwhile, as the evidence of the cost of inaction mounts, local governments, businesses and the financial sector are also mobilizing. In less than a year, and despite the COVID-19 pandemic, the number of net-zero pledges from cities, regions and companies roughly doubled to more than 2,500 by October.
In the second half of 2020 alone, China pledged to go net-zero by 2060 and to put its emissions on a downward trend starting in 2030; the incoming Biden administration vowed to bring the U.S. back to the Paris Agreement; the EU has continued to make progress towards passing its first European Climate Law, which will make climate neutrality by 2050 mandatory across the bloc; and the U.K. government recently vowed to cut emissions by 68 percent by 2030, compared to 1990 levels.
Global trends analysis shows dramatic increases in the production of renewable energy, in particular wind and solar energy, an increased uptake in energy efficiency in buildings and industry, and in the number of electric vehicles; with carbon capture, storage and use, and green hydrogen being touted as the technologies that will help offset the industrial emissions that the other measures cannot tackle.
Applying circular economy strategies for the 5 most common materials in our economy — cement, aluminum, steel, plastics and food — can eliminate almost half of the remaining emissions from the production of goods.
It all sounds positive, but while the groundwork for a net-zero emissions future has been laid, the level of greenhouse gases in the atmosphere continues to increase. Before the government-imposed lockdowns of 2020, the amount of CO2 in the atmosphere was the highest it had been in over 800,000 years. We already have exceeded the threshold of 1C global warming compared to pre-industrial levels, which has brought about increasingly frequent extreme weather events that are wreaking havoc in communities and ecosystems the world over. Putting the recent climate plans and pledges into action is a matter of utmost urgency.
Importantly, most of these plans and pledges have focused on reducing the emissions from energy, but have largely ignored an important part of the equation: the emissions stemming from the production and consumption of goods and food.
With existing technology, and that expected to be scalable by 2050, an optimal uptake of renewable energy and energy efficiency will address 55 percent of today’s global greenhouse gas emissions — those from energy supply systems, energy consumption in buildings, and transport. The remaining emissions come from the way we make, use and dispose of products, materials and food; they are from industry, agriculture and land use. Certain processes within these sectors are particularly powerful hotspots of greenhouse gas emissions: chemical processes to manufacture cement; high-heat processes such as metal smelting; landfilling; incineration; deforestation; and land use change and agriculture. Tackling this remaining 45 percent of emissions requires a revision of how we design, make and use products and materials, and the way we use land.
The maturity of the conversation around renewable energy and energy efficiency isn’t matched in these other areas — and that is a missed opportunity for governments and businesses alike to address climate change. We need to address all sources of greenhouse gas emissions, which is where the circular economy comes in. Applying circular economy strategies for the five most common materials in our economy — cement, aluminum, steel, plastics and food — can eliminate almost half of the remaining emissions from the production of goods, or 9.3 billion metric tons of CO2e by 2050, equivalent to all current global emissions from transport. The pledges and progress being made at the moment present an opportunity to embed circular economy principles into climate action plans and thus complete the picture.
Before COVID-19, there was a growing consensus that the circular economy was a pathway to long-term prosperity. Rather than pushing the circular economy off the agenda, the pandemic has made it more relevant than ever. By highlighting the fragility of our current system, the pandemic has reinforced the need to rethink our economic model. As well as providing a clear framework to help achieve the goals of the Paris Agreement, the circular economy can provide a resilient economic recovery that can work in the long term, unlike any plan entrenched in the take-make-waste principles of the current linear economy. The circular economy can create greater resilience to shocks in industry and society — attributes valuable well beyond the current situation.
Others are thinking along similar lines. The circular economy is on the agendas of some of the world’s largest businesses, including those responsible for 20 percent of the world’s plastic packaging, which have signed the Global Commitment to put in place a circular economy for plastic. Governments around the world are making steps to facilitate the transition through legislation, not least in the EU where the circular economy is a key element of the European Green Deal and a new circular economy action plan has been adopted.
The old ways of doing business — which rely on extraction, waste, pollution and habitat loss — have had their time.
The circular economy offers an attractive path forward as it creates value and growth in ways that benefit customers, businesses, society and the environment. It is a systems solution framework with three principles, driven by design and innovation: eliminate waste and pollution; keep products and materials in use; and regenerate natural systems.
For example, keeping construction materials in use can significantly reduce the climate impact of this sector. The processing of recycled aggregates, for example, generates 40 percent less greenhouse gas emissions than that of virgin aggregates. In the transport sector, multimodal mobility systems, if also designed for durability, reduce global CO2 emissions by 70 percent or 0.4 billion metric tons of CO2 in 2040. In the food system, applying circular economy principles could reduce annual greenhouse gas emissions by 4.3 billion tonnes of CO2 equivalent, comparable to taking nearly all 1 billion cars in the world off the road permanently.
Now could be a crucial moment to embed circular economy principles in government NDCs. Because of the pandemic, the role of governments and public bodies has grown at an unprecedented rate — at least in times of peace. The sheer scale of government spending and the visibility of the state in taking control of many aspects of public life could result in broader public acceptance of government intervention. Coupled with an increased public awareness of the threat of climate change, the result may be governments having both the power and the political will to dramatically shift our global trajectory on climate.
This could mean that international accords such as the Paris Agreement hold more weight than before. Therefore, in order to tackle climate change in a holistic way and act not only on the energy transition and efficiency side, but to look at the whole spectrum of emissions, it is time to put the circular economy at the heart of the efforts to mitigate climate change.
The five-year anniversary of the Paris Climate Agreement couldn’t come at a more pivotal point. With COVID-19 vaccines being rolled out, and nations around the world clamoring to recover from the pandemic’s economic shock, the time is ripe for a system rethink. The old ways of doing business — which rely on extraction, waste, pollution and habitat loss — have had their time. Can the shift to a net zero emission circular economy, which has steadily been building momentum in recent years, be accelerated into a full-blown system overhaul? With the reset button firmly pushed on the global economy, now could be our chance to turn things around, to lay the foundations for a new and better system that can work in the long term.
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