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The global economy's 2020 hangover is far from over – CNN



New York (CNN Business)It’s almost 2022, but 2020 isn’t done with us yet.

Despite good news about Covid-19 vaccinations, a solid economic rebound and seemingly boundless optimism on Wall Street, we’re nowhere near out of the woods.
The global supply chain is a wreck. Europe and Asia are facing a potentially crippling energy shortage. And the US government’s partisan gridlock over the debt ceiling is far from resolved. All of that has the global economy in a vise grip that we won’t be free of anytime soon.
“There’s just as much uncertainty now, today, as there was in March 2020 as the pandemic was unfolding,” said Mike O’Rourke, chief market strategist at Jones Trading. The only difference, he says, is that investors now are swimming in easy money that’s allowed them to shrug off the grim headlines.

Supply chain chaos

The Biden administration is doing what it can. On Wednesday, the White House announced a “90-day sprint” to unclog port congestion, shifting the Port of Los Angeles to a 24/7 schedule and leaning on the private sector to expand their overnight operations.
The White House announced a "90-day sprint" to unclog port congestion. But it can only do so much.

The White House announced a "90-day sprint" to unclog port congestion. But it can only do so much.

But the government can do only so much. The move to a 24/7 schedule is “low-hanging fruit,” said Geoff Freeman, CEO of the Consumer Brands Association. Ports overseas have been operating that way for months.
The problem goes much deeper than traffic jams. Truck drivers, for example, are in high demand just about everywhere. But so are trucks, which rely on computer chips, which are — you guessed it — backordered till the end of time.
The majority of financial executives expect the supply problems to last well into 2022, if not later, according to a survey released Thursday by Duke University.

Prices surging

All of this is driving up prices. You don’t need a Ph.D in economics to see that, and yet central bankers and economists are still calling price hikes “transitory.” The Federal Reserve has used the term so much, and for so long, it’s pretty much lost all meaning.
On Wednesday, the official word from the Fed was this: “The staff continued to expect that this year’s rise in inflation would prove to be transitory.” On the same day, the government published data showing the consumer price index soared 5.4% in September from a year earlier.
The Fed’s “transitory” line looks like very wishful thinking from the people whose job it is to keep inflation around 2%.
As if all of that weren’t hard enough on consumers: Winter is coming, and the world is facing an acute shortage of energy.
American households can expect to spend 54% more for propane, 43% more for home heating oil, 30% more for natural gas and 6% more for electric heating, the US Energy Information Administration said Wednesday.
The price spikes are even more dramatic in Europe, where wholesale electricity prices have increased by 200% compared to the 2019 average, according to the European Commission. Coal prices in China are at record highs and rolling blackouts to conserve energy have already begun.
The EU is facing a sharp spike in energy prices, driven by increased global demand.

The EU is facing a sharp spike in energy prices, driven by increased global demand.

And just to keep things interesting, US lawmakers are flirting with financial disaster.
President Biden on Friday signed a short-term debt ceiling suspension, averting an imminent default on US debt. But the Treasury says that deal will only get the country through December 3, setting up yet another showdown for Republicans and Democrats — just in time for the holidays!
It’s hard to overstate how devastating a default would be. Millions of job losses would undo all the gains the labor market has made since the pandemic hit; credit markets would seize up; paychecks to federal workers, Medicare benefits, military salaries and other payments would be halted.
“No one would be spared,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget, told CNN last month. “It would be such a self-imposed disaster that we wouldn’t recover from, all at a time when our role in the world is already being questioned.”

Wall Street’s blinders

In the face of so much risk, you might wonder why on Earth Wall Street seems so unbothered. Despite recent volatility, the S&P 500, the broadest measure of Wall Street, is up more than 18% so far this year.
Investors hate uncertainty, but they love easy money more.
“It’s $10 trillion of fiscal and monetary stimulus pumped into a $22 trillion economy,” said O’Rourke, the Jones Trading analyst. All of that cash has neutralized the signals investors might otherwise receive that trouble is afoot.
“There’s much liquidity, and everyone feels good about it that they’re ignoring those headlines, those risks, for the time being,” O’Rourke said. “But it’s unlikely they’ll ignore them forever.”
That’s because the Fed plans to start pumping the brakes on its easy-money policies, most likely next month.
Fear of missing out is another powerful sentiment keeping stock markets humming. Investors are well aware the party can’t last forever, so they’re going wild while they can.
We’re in a “massive equity bubble,” according to O’Rourke. And it’s difficult, if not impossible, to predict what the breaking point will be.
-— CNN Business’ Matt Egan and Paul R. La Monica contributed reporting.

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'Degrowth' Is a Misguided Way to Decarbonize the Economy – Bloomberg



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Spend any time discussing climate policy and you’re sure to discover the “degrowth” movement. Its vocal proponents are hard to miss, online and off. Its core tenets might be harder to pin down, but the tagline captures the gist: Economic growth is the problem. The only way to decarbonize the economy: Degrowth!

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Omicron could pose 'significant' threat to global economy, Yellen says – Reuters



Dec 2 (Reuters) – The Omicron variant of COVID-19 could slow global economic growth by exacerbating supply chain problems and depressing demand, U.S. Treasury Secretary Janet Yellen told the Reuters Next conference on Thursday.

Yellen cited a great deal of uncertainty about the impact of the highly contagious variant, first detected in South Africa, given the severe U.S. economic slowdown caused by the emergence of the Delta variant of COVID-19 earlier this year.

“Hopefully it’s not something that’s going to slow economic growth significantly,” Yellen said, adding, “There’s a lot of uncertainty, but it could cause significant problems. We’re still evaluating that.”

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Yellen said the new strain of the coronavirus could exacerbate supply chain problems and boost inflation, but it could also depress demand and cause slower growth, which would ease some of the inflationary pressures.

The spread of Omicron has roiled financial markets and prompted governments around the world to tighten travel and workplace restrictions. The United States reported its first case of community transmission of the new variant on Thursday.

Yellen, the former head of the Federal Reserve, also told the virtual global conference that she is ready to retire the word “transitory” to describe the current state of inflation plaguing the U.S. recovery from the COVID-19 pandemic, echoing comments from Fed Chair Jerome Powell earlier this week.

“I’m ready to retire the word transitory. I can agree that that hasn’t been an apt description of what we’re dealing with,” Yellen said.

Powell told lawmakers this week the word meant different things to different people, sowing some confusion, and it was a good time to explain more clearly what was meant. read more


Treasury Secretary Janet Yellen pauses while testifying before a Senate Banking Committee hybrid hearing on oversight of the Treasury Department and the Federal Reserve on Capitol Hill in Washington, U.S., November 30, 2021. REUTERS/Elizabeth Frantz
Treasury Secretary Janet Yellen pauses while testifying before a Senate Banking Committee hybrid hearing on oversight of the Treasury Department and the Federal Reserve on Capitol Hill in Washington, U.S., November 30, 2021. REUTERS/Elizabeth Frantz

Yellen insisted that stimulus spending by the Biden administration early this year was not the major driver boosting consumer prices, which hit 31-year highs in October and are running at more than twice the Fed’s flexible inflation target of 2% annually. She blamed the surging prices mainly on supply chain issues and a mismatch between supply and demand.

Yellen said the $1.9 trillion American Rescue Plan passed by Congress earlier this year had helped vulnerable Americans get through the worst of the pandemic and fueled the strong U.S. economy.

While it may have contributed to inflation “somewhat,” she said the surge was largely due to the pandemic and the massive shift in consumption towards goods and away from services.

She said the Fed should keep a close eye on rising wages to avoid the kind of damaging and long-lasting “wage-price spiral” seen in the 1970s.

Yellen, who led the Fed from 2014 to 2018, said it was up to the U.S. central bank to decide what to do about interest rates, but noted that a strong U.S. economy, which would likely prompt rate hikes, is generally a good thing for the rest of the world. read more

President Joe Biden’s administration is working closely with the private sector to curb price increases, Yellen said, citing efforts to accelerate the loading of containers at ports and encourage domestic production of semiconductors.

She said lowering Trump-era tariffs on imported goods from China through a revived exclusion process could help ease some inflationary pressures, but would not be a “game-changer.” [nL1N2SN1M6]

While she is “open” to a visit to China to meet with government officials there on economic issues, Yellen said a trip is not currently on her agenda. But she said she would continue to engage with her Chinese counterpart, Vice Premier Liu He, on issues such as technology practices, securities markets and exchange rate practices as well as efforts to rebalance China’s economy toward consumer spending.

Yellen also told the Reuters Next audience that her mind is not yet made up on whether the Fed should create a digital dollar, following China and some other countries in developing central bank digital currencies.

She said the advantages and disadvantages of such a move needed to be weighed, including possible negative effects on the banking system, and that consensus among the Fed, the Biden administration and Congress was needed to proceed. read more

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Reporting by Alessandra Galloni, additional reporting by David Lawder, Andrea Shalal and Daniel Burns; Editing by Paul Simao

Our Standards: The Thomson Reuters Trust Principles.

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Dollar gains as Fed hawks circle before jobs report; Aussie slumps



The dollar leapt against its more risk-sensitive Australian and New Zealand counterparts on Friday, ahead of key U.S. jobs data that could clear the path to earlier Federal Reserve interest rate hikes, even as Omicron uncertainties cloud the outlook.

Fed officials speaking on Thursday joined Chair Jerome Powell in striking hawkish stances, with San Francisco Fed President Mary Daly saying it may be time to “start crafting a plan” to raise rates to combat inflation, and Richmond Fed President Thomas Barkin throwing his support behind “normalising policy.”

Meanwhile, the continued spread of the Omicron COVID-19 variant globally buoyed havens like the dollar and yen and pressured riskier currencies. Omicron has quickly established itself as the dominant strain in South Africa, where it was first discovered last month, and has now been found in five U.S. states including Hawaii.

“G10 FX is very much risk-off” on “renewed jitters about the Omicron cases popping up in very distant parts of the U.S., and how we might have only seen the first phase of policy restrictions in response,” said Sean Callow, a currency strategist at Westpac in Sydney.

The dollar index, which measures the greenback against six major peers, gained 0.09% to 96.173, setting it up for a 0.11% advance for the week. That would be a sixth weekly gain, the longest stretch since January 2015.

“If you strip out the noise in the market at the moment, which is driven very much by uncertainties around Omicron, the dollar is in a fairly bullish cycle,” said Kyle Rodda, a market analyst at IG in Melbourne.

“That’s on the basis that clearly U.S. economic outperformance, especially within the developed world, is fairly entrenched for the time being, and we’re really pricing in that the Fed is going to increase the pace of the tapering programme in December and set up rate hikes well before the middle of next year.”

Money markets see high odds that the Fed will raise the target rate by a quarter point at its June meeting.

Powell reiterated in testimony to Congress on Wednesday that he and fellow policymakers will consider swifter action at their Dec. 14-15 meeting.

Economists in a Reuters poll estimate the United States created 530,000 new jobs last month, continuing a run of strong data.

The dollar was flat at 113.21 yen.

The euro was little changed at $1.12975, consolidating after its drop to an almost 17-month low at $1.1186 last week.

The Aussie dropped 0.26% to $0.7076, a fourth losing session, and earlier touched a 13-month low of $0.70625.

“We continue to expect near‑term AUD moves will be driven by Omicron and the risk remains a dip below $0.7000,” Commonwealth Bank of Australia strategist Joseph Capurso wrote in a report.

Both the European Central Bank and Reserve Bank of Australia, which decides policy on Tuesday, have stuck to dovish stances, pushing back against market bets that policymakers will be forced to bow to inflationary pressures.

New Zealand’s kiwi dollar fell 0.33% to $0.6795.


(Reporting by Kevin Buckland; Editing by Shri Navaratnam and Sam Holmes)

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