(Bloomberg) — Federal Reserve officials say they want to use monetary policy to promote an inclusive economy, but so far they’ve shied away from describing what such an economy might look like.
For now, forecasters say they expect the U.S. central bank won’t begin raising interest rates until 2023, when national unemployment will have sunk to 3.6% and Black unemployment to 6.1% — roughly where those numbers were in early 2020, right before the pandemic struck. That’s according to the median estimates of the 16 economists who made predictions for both metrics in a recent Bloomberg survey.
But Fed Chair Jerome Powell, who is currently awaiting word from the White House about whether he will be reappointed when his term expires early next year, will get a chance to clarify whether those kinds of numbers would meet his definition of “inclusive” when he takes questions from reporters Wednesday following a two-day policy meeting.
“At some point, they can’t actually punt on the question of the Black unemployment rate,” said Claudia Sahm, a former Fed economist who participated in the survey. “The closer they get to liftoff, the more and more they are going to be forced to come up with something.”
It’s a key question for the year ahead as the U.S. central bank gears up to begin winding down the bond-buying program it launched at the onset of the pandemic in 2020, and then start raising its benchmark federal funds rate, which it slashed to nearly zero at same time. Two important developments since then have thrust Fed-watchers trying to predict where monetary policy is headed next into uncharted territory.
First, in August 2020 — following a 20-month internal review of its rate-setting strategy and a wave of protests against racial inequality across the country following the killing of George Floyd in Minneapolis — the Fed redefined the “maximum employment” mandate that Congress gave it in 1977 to be “broad-based and inclusive goal.”
In other words, a low national unemployment rate is no longer sufficient for declaring “mission accomplished” — Fed officials now want to see low-income communities benefiting from a strong economy too, something that only started happening at the tail end of the long economic expansion that preceded the pandemic.
The second development came a month later, in September 2020, when the central bank’s rate-setting Federal Open Market Committee announced that it expected to hold the funds rate near zero “until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment.”
That’s also different from the way the FOMC conducted policy in the past, when it sought to begin tightening monetary conditions prior to reaching maximum employment. The idea was to get out ahead of inflationary pressures that might be harder to subdue later on. In December 2015 — when it first began raising rates after cutting them to near zero during the 2008 financial crisis — the unemployment rate was 5% and Black unemployment was 8.5%.
But from 2015 to 2020, both overall and Black unemployment continued trending lower — Black unemployment fell as low as a record 5.2% in 2019 before bouncing back to 6% at the beginning of 2020 — and inflation remained tame. That experience led to regrets among Fed officials over misjudging the inflation threat and helped shape the outcome of last year’s policy review.
As of last month, national unemployment was 5.2% and Black unemployment was 8.8%. Both are expected to come down rapidly in the coming year as the economy recovers from the impact of the pandemic.
The big question now is whether monetary policy makers view the labor-market conditions that prevailed in early 2020 as representing the best possible outcome to hope for, all else equal, or if there is still room for improvement beyond that.
“Would they look back at February 2020 — with the Black unemployment rate at 6%, and the country at 3.5% — and say, that was an inclusive labor market? Because if that wasn’t an inclusive labor market, then that means, with monetary policy, when we get to February 2020 levels, we are not at ‘mission accomplished,’” Sahm said. “And if we are not at ‘mission accomplished,’ we should not be raising rates. But they haven’t told us.”
©2021 Bloomberg L.P.
Top economists call for radical redirection of the economy to put Health for All at the centre in the run-up to G20 – World Health Organization
The COVID-19 Pandemic has brought into focus the stark reality of the large and growing inequities across the globe in access to health care and health products: for every 100 people in high-income countries, 133 doses of COVID-19 vaccine have been administered,
while in low-income countries, only 4 doses per 100 people have been administered.
Yet, to date, the world continues to follow the same economic paradigm that doesn’t change the underlying finance structure and applies outdated thinking on economic development, which stands in the way of Health For All. As the G20 Summit approaches
in Rome from 29-31 October, where, first, health and finance ministers, and then heads of state and government, come together, there is a window of opportunity for a radical redirection from health for the economy to the economy for health for all.
The critical challenge is both to increase the magnitude of the finance available for health and to govern it in a more directed and effective manner.
The World Health Organization (WHO) Council on the Economics of Health For All (WHO Council on the Economics of Health For All) calls now, more than ever, for clear, ambitious goals to mobilize and focus investments towards health, considering financing for health as a long-term investment and not
a short-term cost. The Council’s new brief on Financing Health for All prioritizes two key dimensions: more finance and better finance and lays out the way forward through three pathways to action:
- Creating fiscal space by easing artificial constraints imposed by outdated economic assumptions and reversing the harmful effects of reforms that lead to big health cuts, allowing spending and investments towards Health For All to
- Directing investments to ensure Health for All becomes the central purpose of economic activities, and increase public leadership and dynamic state capabilities to create a conducive regulatory, tax, industrial policy and investment
- Governing public and private finance by regulating the functioning and financing of private health markets through measures that crowd in and direct private finance towards improving health outcomes globally and equitably.
The Council believes that a new paradigm must be pursued that avoids macroeconomic policies and assumptions that move us away from Health For All. This means designing policies to reach health for all now and in the long-term and realigning finance from
all sectors and sources through conditionalities that fuel symbiotic gains in the public interest. Not only more financing of the health sector, but better-quality finance is crucial to deliver Health For All, which must be equitable and ensure a
sustainable impact on peoples’ lives.
The challenge is to change mindsets within countries that impose internal constraints on spending and to transform externally-imposed conditionalities that hinder spending on what matters for health and promote Health For All. Changing the rules of the
game is a fundamental priority of any strategy to deliver Health For All, and policymakers have the ability to rethink finance now.
“The COVID-19 pandemic has demonstrated that the financing of health systems needs to change radically to protect and promote the health of all people,” said Dr Tedros Adhanom Ghebreyesus, Director-General of WHO. “The latest report
by the Council on the Economics of Health For All makes a clear and compelling argument for the need for sustained financing to be directed to achieving health for all people, and for investments to be understood as long-term gains for national and
“While health systems are under-resourced, more finance is not the only solution. The work of the Council stresses the need to reform and redirect finance in radical ways so that the objective is Health For All is designed into the financial structures,
the conditionalities and the partnerships between business and the state,” said Professor Mariana Mazzucato, Chair of the Council.
By way of background, the WHO Council on the Economics of Health For All was established in November 2020 by WHO Director-General Dr Tedros Adhanom Ghebreyesus. The Council’s core mission is to rethink how value in health and wellbeing
is measured, produced, and distributed across the economy. It will recommend a new way to shape the economy with the objective of building healthy societies that are just, inclusive, equitable, and sustainable. Made up of ten of the world’s
most eminent economists and health experts, the Council works on four areas on how to rethink measurement of economic development, financing, capacity, and innovation with the aim of achieving Health for All. Briefs in each of these areas, and a comprehensive
final report to be produced in 2023, will be used to build momentum amongst finance ministers, heads of state/government, as well as other decision makers such as other financial authorities and international development authorities, towards changing
the structure of economic activity in favor of Health For All.
The members of the Council are Professor Mariana Mazzucato (Chair), Professor Senait Fisseha, Professor Jayati Ghosh, Vanessa Huang, Professor Stephanie Kelton, Professor Ilona Kickbusch, Zelia Maria Profeta da Luz, Kate Raworth, Dr Vera Songwe and Dame
Marilyn Waring (see bottom of page: WHO Council on the Economics of Health For All).
Swiss National Bank Warns of Risks With Green Economy Push – Bloomberg
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Actively pushing for a green transformation of the economy could undermine the effectiveness of the Swiss National Bank’s monetary policy, Governing Board Member Andrea Maechler said.
UBS logs surprise 9% rise in Q3 net profit
UBS posted a 9% rise in third-quarter net profit on Tuesday, as continued trading helped the world’s largest wealth manager to its best quarterly profit since 2015.
Its third-quarter net profit of $2.279 billion far outpaced a median estimate of $1.596 billion from a poll of 23 analysts compiled by Switzerland’s largest bank.
“Our business momentum, our focus on fueling growth, on disciplined execution and on delivering our full ecosystem to clients – all of this led to another strong quarter across all of our business divisions and regions,” Chief Executive Ralph Hamers said in a statement.
In each of the last four quarters, UBS saw double-digit percent gains in net profit as buoyant markets helped it generate higher earnings off of managing money for the rich.
From July through September, favourable market conditions, and higher lending and trading amongst its wealthy clientele, unexpectedly helped raise earnings over the bumper levels reported in the third quarter of last year.
(Reporting by Oliver Hirt and Brenna Hughes Neghaiwi; Editing by Michael Shields and Edwina Gibbs)
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