Quoteworthy: "Until we started taking market share from them in a meaningful way, they didn’t react." –— Tesla CEO Elon Musk, referring to the earlier naysayers that include other car makers
On Dec 15, Federal Reserve (Fed) Chair Jerome Powell signalled that inflation is now enemy number one to keeping the economic expansion on track and returning the labour market to something approaching ebullient pre-pandemic levels.
In an abrupt policy pivot, the Fed sped up the drawdown of its asset-purchase program and laid out a road map for a series of interest-rate increases over coming years, starting with three hikes in 2022. Powell also raised the possibility that the US central bank might begin to withdraw liquidity from the financial system before too long by reducing its massive balance sheet.
“One of the two big threats to getting back to maximum employment is actually high inflation,” Powell says during a press briefing, adding that the pandemic was the other. “What we need is another long expansion, like the ones we have been having over the last 40 years.”
Financial markets took the shift in the Fed’s rhetoric in stride, with investors betting that the central bank can pull off a proverbial soft landing of the economy — reining in rapid price increases with gradual increases in interest rates that don’t materially damage gross domestic product. Stock prices posted the biggest rally since 2020 on the day of a Fed decision.
“The first step for the Fed is open-mouth operations: They are talking tough,” notes Scott Brown, chief economist with Raymond James Financial. “The Fed is seeing inflation broadening out and people are hearing about inflation on the nightly news — inflation, inflation, inflation. The Fed is worried about that.”
See also: BOK surprises with rate cut as Trump win boosts trade risks
They are not the only ones worried. Faced with sagging opinion polls and growing voter concern about rapid inflation, US President Joe Biden has recently taken to acknowledging the damage being done by higher prices while still talking up the strength of the economy.
Some economists have their doubts about the Fed’s ability to keep the expansion going, arguing that it’s been slow off the mark in shifting its focus to an inflationary threat that has been steadily building throughout the year.
“The Fed had fallen behind the curve in terms of its rhetoric and actions in regard to containing the threat from inflation,” says Mark Vitner, a senior economist at Wells Fargo. “In the past, it has proven very difficult to slow inflation when the economy is at full employment and real GDP is growing faster than its potential. That is where we will be in 2022.”
See also: ECB’s Schnabel sees only limited room for further rate cuts
Powell denied that the timing of his pivot had anything to do with Biden’s decision to renominate him for another four-year term, telling reporters that he had begun putting it in place before the president made his announcement on Nov 22.
The shift by the Fed comes after months in which Powell had insisted that the rise in inflation was transitory and driven by supply-chain bottlenecks that would fade with time. The Fed on Dec 15 drove a stake in the transitory rhetoric, dropping it completely from its post-meeting statement.
Powell says the Fed still sees inflation coming down next year and beyond, and the forecasts that policy makers released on Dec 15 bear that out. But to bring that about they now see a markedly more rapid pace of interest-rate increases than they projected just two months ago.
While the Fed statement referenced the risk to the economy from new Covid-19 variants, Powell played down the potential impact of Omicron, arguing that growth was strong and that vaccinated Americans were learning to live with the virus.
Powell maintains that the US could well reach maximum employment next year when policy makers are projecting that they will start lifting interest rates from zero. Unemployment has fallen rapidly, though at 4.2% for November it is still above the 3.5% mark prior to the pandemic.
He acknowledges that the labour market may not fully return to the stellar levels that prevailed before Covid-19 struck, particularly when it comes to workforce participation. Some Americans probably have dropped out of the labour force for good, including ageing baby boomers whose retirement savings plans have benefited from a surging stock market.
“We’re not going back to the same economy we had in February of 2020,” Powell says.
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
Indeed, he says the Fed was keeping a close eye on wages lest they begin rising so rapidly that they feed into already too high-inflation.
“We would not in any way want to foreclose the idea that the labour market can get even better,” he adds. “But again, with inflation as high as it is we have to make policy in real time, we’ve got to make that assessment in real time.” — Bloomberg
Climate and board diversity disclosures now mandatory: SGX
Singapore Exchange (SGX) has on Dec 15 unveiled its roadmap for issuers to provide climate-related disclosures. The disclosures will be based on recommendations of the exchange’s task force on climate-related financial disclosures (TCFD).
From the financial year beginning 2022, all issuers will have to provide climate reporting on a “comply or explain” basis in their sustainability reports. Climate reporting will subsequently be mandatory for issuers in the financial; agriculture, food and forest products; and energy industries from FY2023. In FY2024, the materials and buildings, as well as the transportation industries, must do the same.
There will be other key changes that will be effective come Jan 1, 2022, reads the statement released by SGX. The key changes include requiring issuers to subject sustainability reporting processes to internal review.
From 2022, all directors will have to undergo a one-time training on sustainability. Sustainability reports are to be issued together with annual reports unless issuers have conducted external assurance.
Finally, issuers have to set a board diversity policy that addresses gender, skill and experience, and other relevant aspects of diversity. Issuers must also describe the board diversity policy and details such as diversity targets, plans, timelines and progress in their annual reports. The requirements come after a public consultation on both sustainability reporting and board diversity disclosures, which received “broad support”, says SGX.
“The market recognises that climate reporting is important as a first step towards efforts to mitigate the effects of climate change. Decision-makers also want climate information when they allocate assets, extend financing, and price risks. These factors make climate reporting most urgent for industries with the biggest impact,” says SGX Regulation (SGX RegCo) chief executive Tan Boon Gin.
He adds: “We are also mandating specific disclosures around board diversity. Recent uncertainties have posed financial and governance challenges for boards. Having a broad set of perspectives will better enable companies to anticipate and face these challenges. It is therefore crucial that boards are diverse and have the necessary skill and experience to deal with the complexities of today’s operating environment.” — Felicia Tan
Grab to buy Malaysian supermarket chain Jaya Grocer
Grab, the largest ride-hailing and food delivery firm in Southeast Asia, is acquiring Malaysian premium grocery chain Jaya Grocer for an undisclosed amount.
In a Dec 13 filing with the US Securities and Exchange Commission, the Nasdaq-listed company said its subsidiary has entered into a share purchase agreement (SPA) to acquire all of Jaya Grocer’s ordinary shares and 75% of its preference shares. Jaya Grocer has 40 stores across Peninsular Malaysia. The majority are located in the Klang Valley, which includes the capital city of Kuala Lumpur.
“Subject to certain terms, the Grab subsidiary will have the option to buy, and the current shareholders will have the option to sell to the Grab subsidiary, the remaining 25% of the preference shares of Jaya Grocer after the closing of the transaction,” Grab said in its announcement.
It adds that the company intends to partner with a local investor, which will own 50% of the voting shares in Jaya Grocer for local regulatory purposes.
Subject to customary conditions, closing under the SPA is expected to occur in the first quarter of 2022. Following this, Jaya Grocer will become a subsidiary of Grab and its financial results will be consolidated by the ride-hailing giant. — Khairani Afifi Noordin
Photo: Bloomberg
