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Pessimism About the US Economy Comes From Unhappy Consumers – Bloomberg

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Most Americans believe that the economy is getting worse, and economic confidence measures are low. At the same time, as analysts have pointed out, a lot of the economic data look pretty rosy. The unemployment rate is 4.6% and falling, and U.S. consumers have built up $2.3 trillion in extra savings over the course of the pandemic.

My Bloomberg Opinion colleague Justin Fox has helpfully explained this divergence of perspectives, but I would like to ask a slightly different question: Which view of the economy is “right” — the public’s or the data’s? On this issue, I side with the pessimistic voice of the people. Although I am optimistic about the U.S. economy in the long term, current conditions and near-term prospects are still subpar.

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How Much of a Threat Is the Omicron Variant to the Economy? – The New Yorker

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How Much of a Threat Is the Omicron Variant to the Economy?

President Joe Biden stands at a podium wearing a black suit and blue tie. There are holiday decorations and a painting...

Biden urged Americans to get fully vaccinated and wear masks indoors, adding, “The variant is a cause for concern, not a cause for panic.”Photograph by Anna Moneymaker / Getty

What a difference a few days makes. This time last week, retail analysts were looking forward to a bumper holiday-shopping season, the stock market was making new highs seemingly by the day, and economists were predicting that annualized G.D.P. growth could top eight per cent in the final quarter of the year. The Delta-variant surge in COVID-19 cases, which had been rapid during the summer, seemed to be behind us. Speaking at a White House event where President Joe Biden announced that he was nominating Jerome Powell for a second term as the chairman of the Federal Reserve, Powell said, “Today, the economy is expanding at its fastest pace in many years, carrying the promise of a return to maximum employment.”

Then came the news of the Omicron variant, which prompted the worst Black Friday sell-off on Wall Street since 1931 and a distinct change in tone from Powell. “The recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation,” he said, in prepared congressional testimony that the Fed posted on its Web site on Monday afternoon. “Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions.”

Before the release of Powell’s testimony, the financial markets had rebounded somewhat from Friday’s drop. The Dow rose by more than two hundred points, and the S. & P. 500 also closed up. The price of U.S. Treasury bonds, which are widely regarded as a haven during times of market stress, fell back after posting big gains before the weekend. Crude oil, which on Friday plunged by about ten dollars a barrel, owing to worries of a slowing global economy, rose by about three dollars.

For once, the market reaction was reasonably rational. The discovery of a new variant, possibly a more contagious one, and the immediate imposition by many governments of new travel restrictions, created a lot of uncertainty about the global economy. Because investors had been pricing in a “new normal” in which COVID-19 didn’t go away but did become manageable, a wave of precautionary selling and profit-taking was inevitable. Similarly, given how little we really know about Omicron, Monday’s pause to assess things also made sense. There were reports from South Africa that some of the new cases are mild ones, but scientists warned that it’s too early to reach any judgment about the lethality of the new variant. Anthony Fauci, the President’s chief medical adviser, informed him at a meeting of the White House COVID-19 response team that it would take about two weeks to “have more definitive information on the transmissibility, severity, and other characteristics of the variant.” Afterward, Biden urged Americans to get fully vaccinated and wear masks indoors, but he said that further lockdowns were “off the table” for now. “The variant is a cause for concern, not a cause for panic,” he added.

At this stage, that judgment applies to the economy as well as the public-health situation. In a circular to clients over the weekend, economists at Goldman Sachs outlined four ways in which this new variant could play out: a “false alarm” scenario, in which Omicron actually spreads less quickly than Delta and has little economic impact; a “downside” scenario, in which Omicron spreads more rapidly than Delta but isn’t significantly deadlier, and has only a modest economic impact; a “severe downside” scenario, in which Omicron turns out to be more contagious and deadly than Delta, prompting another wave of lockdowns and a significant economic downturn; and an “upside” scenario, in which Omicron spreads faster than Delta but proves much less deadly. In this upbeat outcome, a “net reduction in disease burden leaves global growth higher than in our baseline . . . the recovery in goods and labor supply accelerate.”

Even if that final scenario smacks of wishful thinking, it is true that the range of possible outcomes is broad. It is also important to note that the situation is very different from the start of the pandemic, when the original strain of the coronavirus had free rein. For an extremely bad economic outcome to materialize, there would have to be another wave of widespread and lengthy lockdowns—either compulsory ones imposed by governments or voluntary ones caused by people retreating to their homes out of fear. Such a set of events is conceivable, but it would likely have to be preceded by a big wave of hospitalizations and deaths in areas where Omicron is circulating, not merely more cases. As long as the vaccines continue to offer protection against the most serious illnesses, countries with high rates of vaccination will hopefully be able to escape such a tragedy. (As experts have long argued, to protect the residents of developing countries, which generally have lower rates of vaccination, it is imperative to make vaccines more widely available.)

For now, the Biden Administration and other governments are extremely reluctant to impose more lockdowns, which would be politically controversial and economically damaging. Their medical advisers are busy pointing out that the vaccines have provided significant protection against the previous variants. There is “reason to be optimistic,” Francis Collins, the director of the National Institutes of Health, told MSNBC on Monday. However, the World Health Organization released a technical note that described Omicron as “a highly divergent variant,” and it said that the over-all global risk from Omicron is “very high.”

Powell’s warning about downside economic risks means that an appearance he’ll make before the Senate Banking Committee on Tuesday will be closely watched. It comes as the Fed is set to decide whether to tighten monetary policy more rapidly to head off higher inflation. The emergence of Omicron further complicates this decision, because, as Powell indicated in his prepared testimony, it could affect the economy in several different ways. If a severe fourth wave does materialize, hiring could appreciably slow again, but short-term inflationary pressures could also conceivably increase as disruptions to the supply chain intensify. The year-end meeting of the Fed will be held in a couple weeks. Between now and then, Powell and his colleagues will be watching the news anxiously. Just like the rest of us.


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Bank of Canada to work with Indigenous groups on reconciliation

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The Bank of Canada will work with Indigenous groups to understand the wounds caused by decades of discrimination and determine how reconciliation can create a more inclusive and prosperous economy for all, Governor Tiff Macklem said on Monday.

Macklem, opening a symposium on Indigenous economies, said Canadians could work to correct some of the consequences of those “ugly periods.”

Ottawa forcibly removed thousands of Indigenous children from their communities and put them in residential schools in an effort to strip them of their language and culture, a practice that continues to scar families and individuals.

“The Bank of Canada will be working with a broad spectrum of Indigenous groups to set out what reconciliation means for what we do,” Macklem said.

“Together, we’ll define what reconciliation means for the work of the Bank of Canada — toward a more inclusive and prosperous economy for everyone,” he said.

Canada‘s Truth and Reconciliation Commission called the residential school system “cultural genocide” in 2015, as it set out 94 “calls to action” to try to restore Canada‘s relationship with its Indigenous people, including economic reconciliation.

“We can’t go back and change what’s happened. But we can try to correct some of the consequences,” said Macklem, adding that it is the central bank’s job to create conditions for opportunity for all Canadians.

“Taking concrete steps toward economic reconciliation is our responsibility too. And it’s incumbent upon us to take the time to do this well,” said Macklem.

 

(Reporting by Julie Gordon in Ottawa; Editing by Dan Grebler)

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Global economy will grow if world holds global warming below 1.5 C, study says – Financial Post

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As well as protecting the planet, achieving net zero would have long-term economic benefits

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The global economy will be two per cent bigger by the end of the century if the world can hold global warming below 1.5 degrees Celsius, according to a new study.

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Most models predict a period in which the world surpasses that mark for several years or decades, before cooling back down to the 1.5 degree mark by 2100. This would require removing existing carbon from the atmosphere on an impractically large scale, according to research published in the journal Nature Climate Change.

Drawing on modelling from nine teams, lead researcher Keywan Riahi, director of the energy program at Austrian research institute IIASA, found that may be impossible, and a temporary overshoot would likely increase extreme weather such as flooding and wildfires. To avoid permanent damage to ecosystems, the world must avoid surpassing the mark altogether, the report warned. In doing so, there will be less need to remove carbon dioxide from the atmosphere — a process known as net-negative emissions.

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In fact, global GDP could grow even more than two per cent, according to another co-author, Laurent Drouet, a senior scientist at climate research group CMCC in Italy. Drouet said the calculation used in the study doesn’t include the economic damage of climate change, which would be more severe above 1.5 degrees.

The study warned that to remain beneath that threshold, countries must improve their emissions goals under the Paris Agreement framework. The current pledges imply a slow start to mitigation and need to be ramped up dramatically, the report said.

The transport sector is key to success, according to the study. A recent report by global climate leadership group C40 Cities says global public transit use must double by 2030 to meet the targets.

Daniel Huppmann, co-author and a researcher at the IIASA, called for radical change in transport to support decarbonization. “A mobility revolution will be crucial to reducing dependence on net-negative emissions technologies and to mitigate their risks and negative societal impact,” he said.

Bloomberg.com

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