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We're in a pivotal week for the economy. Here's what you need to know – CNN

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A version of this story appeared in CNN’s What Matters newsletter. To get it in your inbox, sign up for free here.

Washington (CNN)Prices in the US will ease, “come hell or high water.”

That was President Joe Biden’s message on Tuesday as the US — already in the throes of a turbulent economic year — braces for a pivotal week.
The combination of surging oil and gasoline prices following Russia’s invasion of Ukraine, broader inflation worries resulting from continued supply-chain disruptions and fears about aggressive interest rate hikes by the Federal Reserve have sent the market into a tailspin.
Put simply: “It’s a pretty bad storm,” Joann Weiner, an economics professor at George Washington University, told What Matters.
Here’s what you need to know about this week’s consequential Federal Reserve meeting on Tuesday and Wednesday and why it matters.

All eyes on Wednesday

To fight inflation, the US central bank is expected to increase its benchmark interest rate by three-quarters of a percentage point, the biggest single hike since 1994.
This follows the Fed’s decision to raise its rate by half a percentage point in May, the biggest increase in 22 years.
CNN’s Matt Egan puts it this way: The fact that the Fed is decisively moving away from zero shows confidence in the health of the job market. But the speed with which interest rates are expected to go up underscores its growing concern about the soaring cost of living.
Investors are expecting the Fed to raise its target range near 4% by the end of the year, up from about 1% today. For context, as Egan notes, rates got as high as 5.25% before the Great Recession.
But what does this mean for consumers? More from Egan: Every time the Fed raises rates, it becomes more expensive to borrow. That means higher interest costs for mortgages, home equity lines of credit, credit cards, student debt and car loans. Business loans will also get pricier, for businesses large and small.
Americans will initially experience this policy shift through higher borrowing costs: It is no longer insanely cheap to take out mortgages or car loans. And cash sitting in bank accounts will finally earn something, albeit not much.
The risk? The central bank overdoes it, slowing the economy so much that it accidentally sparks a recession that drives unemployment higher.

Why such aggressive rate hikes?

To borrow an old phrase, drastic times call for drastic measures.
If it feels like your paycheck is depleting more quickly than it used to, you’re not alone. Americans everywhere are feeling the effects of inflation … everywhere.
The typical US household is spending about $460 more every month than it did last year to purchase the same basket of goods and services, said Mark Zandi, chief economist with Moody’s Analytics. And for the first time ever, a gallon of regular gas now costs $5 on average nationwide, according to AAA’s Saturday reading.
The latest Consumer Price Index, the government’s basic inflation measure, doesn’t offer comfort elsewhere: Prices for food purchased to eat at home rose 11.9% over the past 12 months; the shelter index, which measures rents and other housing costs, posted a 5.5% increase; and used car prices lifted 16.1%.
There was, however, a sliver of good news in the Producer Price Index, which measures wholesale prices before goods and services reach consumers.
That index rose 10.8% in May compared with where it stood a year ago, according to data released Tuesday by the Bureau of Labor Statistics. While that’s still quite high by historical standards, it’s down from the revised 10.9% rise reported in April’s reading.

The politics of economics

Fact-checking Biden's claim that Putin shares blame for inflation

Fact-checking Biden's claim that Putin shares blame for inflation

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The Fed’s ability to tame inflation carries enormous consequences in Washington. If the upcoming midterm elections become a referendum on the economy, for example, Democrats have a big problem on their hands.
You don’t have to look further than the S&P 500, one of the broadest measures of the US stock market. The index has now lost all of its gains since Biden was inaugurated early last year.
The President and Democrats in Congress, of course, recognize the threat that a flailing economy poses to their midterm aspirations, along with the liability it could carry into 2024. And it’s hard to not look at recent decisions from the White House through that lens.
For example, Biden will visit Saudi Arabia next month, where he is expected to engage in some capacity with Crown Prince Mohammed bin Salman — something he once campaigned against.
Speaking to reporters over the weekend, the President insisted the trip was not tied to global energy prices, though his advisers have said openly that the need to increase oil production in order to stabilize prices is a key driver of the Saudi reset.
The good news for the White House is that economies aren’t always a strong indicator of political prospects:
  • Bad economies don’t always hamper reelection. As CNN’s Paul R. La Monica writes: The market plunged 16.5% in the first 510 days of Ronald Reagan’s presidency, which was also a period of historically high inflation. Stocks were down 25% in the early part of George W. Bush’s presidency, as the market was in the midst of the dot-com meltdown and struggled to recover in the aftermath of 9/11. But both Reagan and George W. Bush wound up being reelected.
  • Good economies don’t always secure reelection. Meanwhile, stocks soared more than 20% early in both George H.W. Bush’s and Donald Trump’s tenures in the Oval Office. Neither was elected to a second term.
“The bottom line is this: I truly believe we made extraordinary progress by laying a new foundation for our economy,” Biden maintained Tuesday, “which becomes clear once global inflation begins to recede.”

What if the Fed doesn’t succeed?

The President has repeatedly stressed the importance of letting the Fed do its work independently, and he’s put his faith in its ability to tackle inflation.
But what happens if the Fed crash-lands the economy into a recession?
“From a 30,000-foot level, if you’re looking at it from down on high, I expect a recession — if we have one — would be six months, nine months, something like that,” Zandi told CNN this week. “Unemployment would rise from 3.6% to 5.5%, 6%, something like that. Not good, but you know, in the grand scheme of things, kind of more typical, comparable to other recessions we’ve experienced in the past.”
Indeed, a growing chorus of analysts believe the Fed acted too late on inflation to engineer a soft landing. But there have been rare instances when the central bank has cooled off the economy and kept prices in check without sending the US economy spiraling into a downturn: once in 1965, and again in 1984 and 1994.
The good news, Weiner says, is the Fed has gotten better at signaling its intentions: “As long as the Fed does what’s expected, things don’t go haywire.”

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Brazil economic activity much brisker than expected in June – Financial Post

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BRASILIA — Economic activity in Brazil rose more than expected in June, a central bank index showed on Monday, contributing to a second-quarter rally helped by a service sector rebound following the impact of the COVID-19 pandemic.

The IBC-Br economic activity index, a leading indicator of gross domestic product, rose a seasonally adjusted 0.69% in June from May, much higher than the 0.25% growth expected by economists, according to a Reuters poll.

In the second quarter, activity increased 0.57% over the previous quarter.

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The IBC-Br index was up 3.09% on a non-seasonally adjusted basis from June 2021, while in the 12 months through June it grew 2.18%, the central bank said.

Official GDP figures will be released by the statistics agency IBGE on Sept. 1.

Economy Minister Paulo Guedes recently estimated that the economy will grow above 2% this year, driven by the strength of the labor market and the normalization of economic activities that have suffered during the pandemic, with an emphasis on the services sector.

Meanwhile, private economists who started the year projecting a 0.3% rise in GDP in 2022 are now expecting 2% growth, according to a weekly central bank survey.

After the IBC-Br figures, Bank of America revised its GDP growth forecast to 2.5% from 1.5% previously, saying activity data was surprising on the upside as the service sector remained strong.

“Increase in social transfers and tax cuts should cushion the slowdown in the second half,” wrote David Beker, head of Brazil Economics at BofA.

For the second half, analysts had expected a slowdown amid aggressive monetary tightening led by the central bank to tame inflation, which has already pushed interest rates to 13.75% from a record low of 2% in March 2021. (Reporting by Marcela Ayres; Editing by Steven Grattan, Hugh Lawson and Rosalba O’Brien)

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Chinese Households’ Pivot to Thriftiness Is Bad News for World Economy – Bloomberg

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Chinese Households’ Pivot to Thriftiness Is Bad News for World Economy  Bloomberg



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Japan’s economy rebounds from COVID, growing 2.2 percent in Q2 – Al Jazeera English

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Growth driven by rise in private consumption following the lifting of pandemic curbs in March.

Japan’s economy grew an annualised 2.2 percent in the second quarter, as robust private consumption provided a boost to the country’s long-delayed recovery from the COVID-19 pandemic.

The relatively strong economic data released on Monday comes after gross domestic product (GDP) grew just 0.1 percent during the January-March period.

The growth was driven largely by a 1.1 percent rise in private consumption, which accounts for more than half of Japan’s GDP, as dining out, leisure and travel rebounded following the lifting of pandemic curbs in March.

The latest results mean Japan’s 542.12 trillion yen ($4.07 trillion) economy is now larger than it was before the pandemic hit.

The world’s third-largest economy, however, still faces an uncertain road to recovery amid slowing global growth and rising inflation, supply chain constraints, a weakening yen, and a resurgence in domestic COVID-19 infections, which have topped 200,000 daily cases in recent weeks.

In July, the International Monetary Fund cut Japan’s growth outlook for 2022 to 1.7 percent, down from 2.4 percent in April.

Japan’s economic recovery from the pandemic has lagged other countries due to weak consumption, which has been exacerbated by ongoing border controls and domestic pandemic restrictions that continued until March.

The weak recovery has turned the Bank of Japan into a global outlier, with it sticking to an ultra-loose monetary policy as other central banks raise rates to tame rising inflation.

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