Grim global outlook for IMF-World Bank meetings

From: POLITICO's Morning Money - Tuesday Oct 11,2022 12:01 pm

Oct 11, 2022

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Finance ministers and central bankers gathering in Washington this week for meetings of the International Monetary Fund and World Bank are facing a laundry list of global economic challenges.

To name a few: High inflation, soaring interest rates, war in Ukraine, energy and commodity shocks, looming recession in Europe, a slowdown in China, market turmoil in the United Kingdom.

“It’s an extremely unusual, unprecedented time in the economic history of the world,” said former Treasury official Mark Sobel, U.S. chairman of the Official Monetary and Financial Institutions Forum think tank.

Driving the macro discussion: The Federal Reserve’s campaign to stamp out high inflation. Fed rate hikes have caused spillover effects around the world, prompting a number of central banks to follow suit or intervene to prop up their currency in the face of a stronger U.S. dollar.

That’s led to hand-wringing from economists that the world’s central banks are overdoing it — a topic sure to be in the background at this week’s discussions. But the Fed and other policymakers have domestic mandates, and Sobel is skeptical they can coordinate much when it comes to raising rates to battle inflation.

“At the end of the day, a lot of the national policies are on their own course,” he said.

Beyond that, the IMF faces a handful of pressing operational issues that policymakers should focus on this week, Sobel said, including low-income countries struggling to pay debts. (Catch up with this piece by WSJ’s Yuka Hayashi.) The IMF board last week also approved new financing for Ukraine, and the U.S. is expected to use the meetings to push European countries to deliver more aid.

“The pace of transferring money to Ukraine is far too slow,” Treasury Secretary Janet Yellen told the FT’s James Politi in an interview published Sunday. “There are commitments but the money needs to be deployed.”

Treasury calendar: Yellen is set to host Ukraine finance minister Sergii Marchenko at the Treasury Department today. She will also meet with Indian finance minister Nirmala Sitharaman and with African finance ministers. On Wednesday, she’ll participate in the ministerial roundtable discussion for support to Ukraine at the IMF, and sit down for a fireside chat with former New York Fed President and Bretton Woods Committee Chair Bill Dudley.

Also today: The Fund releases its updated outlook for the global economy this morning, along with its global financial stability report.

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Driving the Day

International Monetary Fund releases its World Economic Outlook at 9 a.m. … New York Fed 5-year inflation expectations data released at 11 a.m. … Cleveland Fed President Loretta Mester speaks to the Economic Club of New York at 12 p.m.

DEMOCRATS HOLD THEIR FIRE — Powell is getting plenty of flak from nervous investors, analysts and progressive groups who worry he’s about to tip the economy into a recession. One group that has been reluctant to criticize: Congressional Democrats.

More from your MM host: “In interviews with key lawmakers on Capitol Hill, House and Senate Democrats mostly responded to Powell’s campaign to quash inflation with resignation and a note of caution. Few have been willing to admonish him — including in multiple hearings — with some exceptions such as Sen. Elizabeth Warren, who has torched Powell as ‘reckless and dangerous’ for risking the jobs of millions of workers.”

That broad acceptance of his mission may not last forever, former Fed Vice Chair Donald Kohn said. “I suspect that as the unemployment rate rises and once companies begin to do a little less hiring and more laying off, there will be more blowback. But that hasn’t happened yet.”

BERNANKE WINS NOBEL PRIZE — AP: “Former U.S. Federal Reserve Chair Ben Bernanke, who put his academic expertise on the Great Depression to work reviving the American economy after the 2007-2008 financial crisis, won the Nobel Prize in economic sciences along with two other U.S.-based economists for their research into the fallout from bank failures. Bernanke was recognized Monday along with Douglas W. Diamond and Philip H. Dybvig.”

TWEET OF THE DAY — Fed chairmen: They’re just like us! From NYT’s Jeanna Smialek:

Twitter: @jeannasmailek

TRUMP SPAC — Our Declan Harty writes: "Digital World Acquisition Corp., the special purpose acquisition company vying to merge with former President Donald Trump's new social media startup, still does not have enough shareholders on board with giving the companies more time to complete the deal, CEO Patrick Orlando said Monday, while announcing that investors will now have until Nov. 3 to vote. The SPAC's shares plunged soon after Monday, dropping more than 7 percent."

IAN SHREDS SAFETY NETS — Our Zack Colman and Katy O’Donnell: “As Florida tallies the immediate tab from its deadliest hurricane in decades, the destruction it wreaked on homes will erase retirees’ nest eggs and families’ primary way of passing along wealth to new generations. That exposed the dangers of American dependence on housing as most people’s financial backstop and lifeline.”

ANTI-WOKE BANK STUMBLE — WSJ’s Rachel Louise Ensign, Peter Rudegair and AnnaMaria Andriotis: “An A-list group of financial backers including Ken Griffin and Peter Thiel gave Toby Neugebauer tens of millions of dollars to build a new kind of bank—one aimed at people who see Wall Street as too liberal. … Within months, the investors’ money was nearly gone, and GloriFi was on the verge of bankruptcy.”

Regulatory Corner

Onetime Federal Reserve regulatory czar Daniel Tarullo on Friday warned his former colleagues that they are wasting some of the potential of the central bank’s annual stress testing exercise for lenders and urged them to find more ways to make it dynamic, our Victoria Guida reported.

A technical glitch with the SEC’s website has prompted the regulator to reopen public comment periods on several signature pieces of Chair Gary Gensler’s agenda, further delaying proposals around climate risk disclosures, blank-check companies and private funds, our Declan Harty reported.

Fed File

PATIENCE IS A VIRTUE — WSJ’s Nick Timiraos: “A senior Federal Reserve official cautioned it would take time for the central bank’s rapid rate rises this year to reduce inflation that has reached 40-year highs.

“‘Monetary policy will be restrictive for some time to ensure that inflation moves back’ to the central bank’s 2% target, said Fed Vice Chair Lael Brainard in remarks prepared for delivery Monday.”

FIRST IN MM: CLIMATE PRINCIPLES — A group of consumer and environmental advocates, including Public Citizen, Sierra Club and Americans for Financial Reform, is calling on the Fed to issue climate supervisory principles with clear guidelines for banks, and delivering a petition today signed by more than 60,000 people. Read the full letter here.

TREASURY BUYERS IN RETREAT — Bloomberg’s Liz McCormick, Garfield Clinton Reynolds and Michael Mackenzie: “From Japanese pensions and life insurers to foreign governments and US commercial banks, where once they were lining up to get their hands on US government debt, most have now stepped away.”

Economy

CORPORATE PROFITS — WSJ’s Theo Francis: “Many big U.S. businesses say they have been able to increase prices this year with limited pushback from customers. Not all the changes are leading to higher corporate profits.”

CHINA CHIPS — Bloomberg: “The Biden administration’s new restrictions on technology exports to China could undercut the country’s ability to develop wide swaths of its economy, from semiconductors and supercomputers to surveillance systems and advanced weapons.”

HOLIDAY DISCOUNTS — WaPo’s Abha Bhattarai: “After struggling with product shortages for much of the pandemic, the country’s retailers are now facing the opposite problem: an unprecedented glut of unsold merchandise that’s cutting into profits, derailing holiday plans and threatening to drag down broader U.S. economic growth.”

Jobs Report

Tara Sinclair has joined the Treasury Department as deputy assistant secretary for macroeconomics in the Office of Economic Policy. Sinclair was most recently an economics and international affairs professor at George Washington University and a senior fellow at the Indeed Hiring Lab.

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Fly Around

Crypto exchanges and companies will be required to collect and share with tax authorities any details of people or firms that own digital assets under measures presented by the Organisation for Economic Cooperation and Development (OECD). — Our Bjarke Smith-Meyer

Russia has lost three-fifths of its seaborne crude sales in Europe since Moscow sent troops into Ukraine in February. — Bloomberg’s Julian Lee

A crisis in U.K. government debt markets accelerated after a fresh attempt by the Bank of England to extend support to pension funds failed to assuage worried investors . — WSJ’s Chelsea Dulaney, Paul Hannon and Julie Steinberg

Charles Bowsher, who used his role as Capitol Hill’s top fiscal watchdog to reveal the full scope of the 1980s savings and loan meltdown, challenging two White House administrations as they tried to hide the full hit to taxpayers in a bailout that would total more than $120 billion, died Sept. 30 at his home in Bethesda, Maryland. — WaPo’s Brian Murphy

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