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Powell's stark message: Inflation fight may cause recession – Business News – Castanet.net

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The U.S. Federal Reserve delivered its bluntest reckoning Wednesday of what it will take to finally tame painfully high inflation: Slower growth, higher unemployment and potentially a recession.

Speaking at a news conference, Chair Jerome Powell acknowledged what many economists have been saying for months: That the Fed’s goal of engineering a “soft landing” — in which it would manage to slow growth enough to curb inflation but not so much as to cause a recession — looks increasingly unlikely.

“The chances of a soft landing,” Powell said, “are likely to diminish” as the Fed steadily raises borrowing costs to slow the worst streak of inflation in four decades. “No one knows whether this process will lead to a recession or, if so, how significant that recession would be.”

Before the Fed’s policymakers would consider halting their rate hikes, he said, they would have to see continued slow growth, a “modest” increase in unemployment and “clear evidence” that inflation is moving back down to their 2% target.

“We have got to get inflation behind us,” Powell said. “I wish there were a painless way to do that. There isn’t.”

Powell’s remarks followed another substantial three-quarters of a point rate hike — its third straight — by the Fed’s policymaking committee. Its latest action brought the Fed’s key short-term rate, which affects many consumer and business loans, to 3% to 3.25%. That’s its highest level since early 2008.

Falling gas prices have slightly lowered headline inflation, which was a still-painful 8.3% in August compared with a year earlier. Those declining prices at the gas pump might have contributed to a recent rise in President Joe Biden’s public approval ratings, which Democrats hope will boost their prospects in the November midterm elections.

On Wednesday, the Fed officials also forecast more jumbo-size hikes to come, raising their benchmark rate to roughly 4.4% by year’s end — a full point higher than they had envisioned as recently as June. And they expect to raise the rate again next year, to about 4.6%. That would be the highest level since 2007.

By raising borrowing rates, the Fed makes it costlier to take out a mortgage or an auto or business loan. Consumers and businesses then presumably borrow and spend less, cooling the economy and slowing inflation.

Other major central banks are taking aggressive steps, too, to combat global inflation, which has been fueled by the global economy’s recovery from the COVID-19 pandemic and then Russia’s war against Ukraine. On Thursday, Britain’s central bank raised its key interest rate by a half-percentage point — to its highest level in 14 years. It was the Bank of England’s seventh straight move to increase borrowing costs at a time of rising food and energy prices, which have fueled a severe cost-of-living crisis..

This month, Sweden’s central bank raised its key interest rate by a full point. And the European Central Bank delivered its largest-ever rate increase with a three-quarter-point hike for the 19 countries that use the euro currency.

In their quarterly economic forecasts Wednesday, the Fed’s policymakers also projected that economic growth will stay weak for the next few years, with unemployment rising to 4.4% by the end of 2023, up from its current level of 3.7%. Historically, economists say, any time unemployment has risen by a half-point over several months, a recession has always followed.

“So the (Fed’s) forecast is an implicit admission that a recession is likely, unless something extraordinary happens,” said Roberto Perli, an economist at Piper Sandler, an investment bank.

Fed officials now foresee the economy expanding just 0.2% this year, sharply lower than their forecast of 1.7% growth just three months ago. And they envision sluggish growth below 2% from 2023 through 2025. Even with the steep rate hikes the Fed foresees, it still expects core inflation — which excludes volatile food and gas costs — to be 3.1% at the end of 2023, well above its 2% target.

Powell warned in a speech last month that the Fed’s moves will “bring some pain” to households and businesses. And he added that the central bank’s commitment to bringing inflation back down to its 2% target was “unconditional.”

Short-term rates at a level the Fed is now envisioning will force many Americans to pay much higher interest payments on a variety of loans than in the recent past. Last week, the average fixed mortgage rate topped 6%, its highest point in 14 years, which helps explain why home sales have tumbled. Credit card rates have reached their highest level since 1996, according to Bankrate.com.

Inflation now appears increasingly fueled by higher wages and by consumers’ steady desire to spend and less by the supply shortages that had bedeviled the economy during the pandemic recession. On Sunday, Biden said on CBS’ “60 Minutes” that he believed a soft landing for the economy was still possible, suggesting that his administration’s recent energy and health care legislation would lower prices for pharmaceuticals and health care.

The law may help lower prescription drug prices, but outside analyses suggest it will do little to immediately bring down overall inflation. Last month, the nonpartisan Congressional Budget Office judged it would have a “negligible” effect on prices through 2023. The University of Pennsylvania’s Penn Wharton Budget Model went even further to say “the impact on inflation is statistically indistinguishable from zero” over the next decade.

Even so, some economists are beginning to express concern that the Fed’s rapid rate hikes — the fastest since the early 1980s — will cause more economic damage than necessary to tame inflation. Mike Konczal, an economist at the Roosevelt Institute, noted that the economy is already slowing and that wage increases — a key driver of inflation — are levelling off and by some measures even declining a bit.

Surveys also show that Americans are expecting inflation to ease significantly over the next five years. That is an important trend because inflation expectations can become self-fulfilling: If people expect inflation to ease, some will feel less pressure to accelerate their purchases. Less spending would then help moderate price increases.

The Fed’s rapid rate hikes mirror steps that other major central banks are taking, contributing to concerns about a potential global recession. The European Central Bank last week raised its benchmark rate by three-quarters of a percentage point. The Bank of England, the Reserve Bank of Australia and the Bank of Canada have all carried out hefty rate increases in recent weeks.

And in China, the world’s second-largest economy, growth is already suffering from the government’s repeated COVID lockdowns. If recession sweeps through most large economies, that could derail the U.S. economy, too.

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US bear market deepens: What that means for you – Al Jazeera English

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United States stocks slumped further this week as investors navigated a barrage of bad news.

Central banks around the world have been scrambling to fight soaring high inflation by increasing the cost of borrowing without hurting long-term growth prospects. Adding to the uncertainty and fear are rising tensions between the West and Russia following Moscow’s invasion of Ukraine.

In the US, the S&P 500 – a proxy for the health of retirement and college savings accounts – this week fell to its lowest level in almost two years and was set for a monthly decline of nearly 8 percent.

The tech-heavy Nasdaq 100 has dropped nearly 33 percent so far in 2022, the Dow Jones Industrial Average lost more than 20 percent while the world’s best-known cryptocurrency, Bitcoin, shed nearly 60 percent of its value. Home prices are also dropping as interest rates soar, making loans for potential buyers more expensive.

The Federal Reserve, the country’s central bank, is tasked with fighting the highest inflation in decades and has been doing that by raising interest rates. But can it increase the cost of capital to reduce demand and moderate prices without plunging the economy into a deep recession?

“It’s really a no-win situation at this point. Largely because of the number of shocks policymakers have had to deal with,” Cristian deRitis, leading economist at Moody’s, a research firm based in New York, explained to Al Jazeera.

How much further down can stocks go? What is a bear market exactly? And is there a light at the end of the tunnel?

Here’s the short answer.

I keep hearing that the US is in a bear market. What is that exactly?

A bear market occurs when a broad market index dips more than 20 percent from recent highs.

Why is the US currently in a bear market?

“Persisting concerns over inflation and the Fed’s ability to tame prices without a hard landing,” is how Peter Essele, head of portfolio management at Commonwealth Financial Network, a Massachusetts-based firm, explained it.

What’s the reason behind the high inflation and why are prices out of control?

Kenneth McLaughlin, professor of economics at Hunter College in New York, told Al Jazeera that one of the reasons is the federal government “injecting $5 trillion into the economy including through stimulus checks during the pandemic with kind of good intentions but with no plans to pay for it.”

In other words?

Think back to early 2020 when businesses shuttered and economies came to a standstill to curb the spread of the coronavirus. Millions of Americans found themselves under lockdown with nowhere to go and spend the fresh-off-the-press stimulus checks. That caused equity prices, be it stocks, Bitcoin and home prices across the US, to skyrocket. It also caused a surge in demand for goods and that, as we see now, has led to the highest rise in the cost of living seen in decades.

A trader works on the floor of the New York Stock Exchange (NYSE) in New York City, U.S
The war in Ukraine and growing tensions between the West and Russia are expected to continue to spook investors and roil markets [File: Brendan McDermid/Reuters]

How does this cause the stock market to go down?

As the Fed raises rates, which is essentially increasing the cost of borrowing in order to bring down the price of goods and services, people start to fear a slowdown in the economy. This pushes down the price of stocks and other investments.

Are the current economic conditions really just the consequence of what happened in the last 2 years?

The last two years have been unprecedented in many aspects. But what we are seeing today can also be attributed to the extremely low interest rates of the last decade when, following the financial crisis of 2007-2008, the government made it cheaper for Americans to borrow, Essele told Al Jazeera.

Didn’t the markets just have a rally?

Stocks did experience a rally in August. Things were looking up when petrol prices, which had soared in earlier months, dropped sharply. Investors held on to the hope that perhaps the Fed would ease on the interest rate hikes if the inflation numbers for August showed that consumer prices had cooled. But despite cheaper petrol, food and other essential goods, prices remained high – surging 8.3 percent in August compared with a year earlier.

Where are we now?

“Inflation is becoming more structural and investors are now concerned about stagflation,” Essele explained to Al Jazeera, suggesting that price hikes may be here to stay for the long haul. Stagflation is a mashup of the words “inflation” and “stagnation” and refers to a situation when inflation is high even as the rate of economic growth slows down.

So what does the future hold? And how long will this bear market last?

Expect above-average price pressures. The war in Ukraine and growing tensions between the West and Russia add to the uncertainty and will continue to spook investors and roil markets.

“But we are likely in three-quarters of the way through the bear market,” Essele predicted.

I don’t own any stocks, why should I care about a bear market?

While stock investors are the ones most directly affected by a US bear market, there are spillover effects to the rest of the economy primarily due to the “wealth effect”. That is, as households see the value of their retirement and stock portfolios decline, they will pull back on their spending.

“Given how dependent the US economy is on consumer spending, this impact can be significant and widespread,” Moody’s deRitis told Al Jazeera. “Discretionary sectors such as travel, leisure, and hospitality may feel the most immediate effect but other industries such as housing and retail trade will experience reduced demand as households grow cautious.”

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Ontario Securities Commission files allegations of fraud in multimillion-dollar crypto offering – CP24

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TORONTO – The Ontario Securities Commission says it has filed allegations against Troy Richard James Hogg related to a crypto token offering that raised US$51 million.

The statement of allegations says that between May 2017 and June 2019, Hogg, an Ontario resident, promoted and sold a crypto asset named Dignity token, previously called Unity Ingot, to investors around the world.

The regulator alleges that Hogg and his companies – Cryptobontix Inc., Arbitrade Exchange Inc. and Arbitrade Ltd. – defrauded investors with false and misleading statements in promotional materials, including that gold bullion supported the value of the tokens.

The OSC alleges that Hogg and his companies further defrauded investors by spending a significant amount of invested funds on things unrelated to crypto security tokens, including buying real estate and making payments to companies controlled by Hogg.

The regulator also alleges that Hogg did not file a prospectus for the token or obtain the necessary registration with the OSC to engage in trading activities.

The OSC says it was assisted in its investigation by the U.S. Securities and Exchange Commission, which ran a parallel investigation and has levelled charges against Hogg and several U.S. residents.

This report by The Canadian Press was first published Sept. 30, 2022.

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Lululemon settles lawsuit with Peloton over allegations of ‘copycat’ clothing

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Two of North America’s biggest names in fitness have settled a lawsuit over allegations of “copycat” sports bras and workout tights.

Vancouver-based “athleisure” brand Lululemon has agreed to terms with American exercise bike company Peloton after negotiating a “mutually agreeable settlement” in the patent dispute, according to a notice of voluntary dismissal filed in a California district court on Friday.

The terms of that agreement have not been made public.

Lululemon filed suit in November, claiming Peloton’s Strappy Bra, Cadent Laser Dot Legging, Cadent Laser Dot Bra, High Neck Bra, Cadent Peak Bra and One Luxe tights were all rip-offs of its own products.

“Unlike innovators such as Lululemon, Peloton did not spend the time, effort and expense to create an original product line,” the Lululemon claim read.

“Instead, Peloton imitated several of Lululemon’s innovative designs and sold knock-offs of Lululemon’s products, claiming them as its own.”

Court documents show that the dispute dates back to a 2016 co-branding deal that allowed Peloton to put its logo alongside Lululemon’s on certain Lululemon products that were sold through Peloton stores.

In its own court filings, Peloton claimed the arrangement was “burdensome and time-intensive,” leading the company to end the partnership and develop “its own private label brand of fitness apparel.”

This image is included in a lawsuit filed by Lululemon against Peloton. Lululemon claimed the average customer would not be able to tell their products apart. (U.S. District Court)

Lululemon, in turn, claimed that Peloton had simply imitated some of its garments. The yoga wear firm sent Peloton a cease-and-desist letter on Nov. 11, 2021, asking the company to “immediately stop selling its copycat product.”

According to the Lululemon lawsuit, Peloton said it needed until Nov. 24 to respond to the accusations in the letter.

Instead, Peloton filed its own lawsuit in the Southern District of New York, alleging that Lululemon was making “baseless threats” and asking a judge to pre-emptively declare that Peloton had done nothing wrong.

News of the settlement in California comes just one day after a judge in New York dismissed Peloton’s lawsuit, ruling it “an improper anticipatory declaratory judgment action,” filed with the intention of beating Lululemon to the courthouse.

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