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  • Xi Rebuffs Pressure From Scholz to Rein In Chinese Manufacturing

    Xi Rebuffs Pressure From Scholz to Rein In Chinese Manufacturing

    (Bloomberg) — Chinese leader Xi Jinping told his German counterpart that a surge in Chinese clean-technology exports has helped the world tackle inflation, as he pushed back against European and US pressure to rein in the country’s powerhouse industries.

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    Xi’s comments to Chancellor Olaf Scholz during talks in Beijing suggest China may not be swayed in any meaningful way by the German leader’s push for a reduction in what Western officials see as excess manufacturing capacity in the Asian nation.

    Tensions between China and the European Union and US are mounting over trade, leading to threats of new barriers to commerce. The EU has launched probes into Chinese subsidies for electric vehicles and support for windparks, and is poised to begin an inquiry into the procurement of medical devices.

    Read More: EU Goes on China Trade Offensive After Getting ‘Played’

    “China’s export of electric vehicles, lithium batteries and solar products have enriched supplies to the global market and eased inflationary pressure, as well as made a great contribution for global efforts to tackle climate change and green transition,” Xi told Scholz, according to Chinese state television.

    He said China and Germany should look at the question “objectively” and address it from a market perspective. He also warned against protectionism.

    Scholz is on the final leg of his four-day trip to his nation’s main trading partner, his second visit to China as chancellor. He earlier warned Chinese officials to address overcapacity and treat foreign firms better. He’s due to hold talks with Chinese Premier Li Qiang later on Tuesday.

    “Both China and Germany are trading nations that benefit greatly” from membership in the World Trade Organization, Scholz told reporters during joint statements with Xi before their talks.

    “We are committed to strengthening the rules for global trade and developing them further together with the other WTO members,” he added.

    US Treasury Secretary Janet Yellen said on a visit to China this month that the vast output of China’s factories had become a global problem. The US won’t take “anything off the table,” including the possibility of additional tariffs, to stem the flood of Chinese goods, she told CNN over the weekend.

    Beijing has dismissed charges that the rapid growth of its EV industry was due to government subsidies as “groundless,” instead pointing to its innovation prowess.

    Read More: EU Set to Launch China Probe on Medical Device Procurement

    While Scholz has been careful to stay on good terms with his hosts, he has been more assertive about his nation’s worries than his predecessor, Angela Merkel, who prioritized business interests.

    Scholz told an audience of university students on Monday in Shanghai that “competition must be fair.” He added that he would like to see “no dumping” and “no overproduction,” and that copyrights should be respected.

    The criticisms aimed at China come as Xi leans on his nation’s massive manufacturing industry to reinvigorate economic growth that has faced headwinds from an unfolding property crisis, deflationary pressures and lackluster consumer demand.

    China reported data on Tuesday that showed economic growth beat expectations in the first quarter as the industrial sector powered forward, although a tail-off in March activity signaled more support may be needed to sustain that momentum.

    Scholz also said he’d talk to Xi about “how we can contribute more to a just peace in Ukraine.” He added that Germany and China needed to work together to find solutions to halt climate change and master the green energy transition in a socially just way.

    Xi touted the importance of China-Germany ties as the world faces “increasingly more challenges and risks.” He said the two nations should “join hands to inject more certainties” internationally.

    Scholz’s trip also coincides with fears about a wider war in the Middle East, as top Israeli military officials reasserted that their country has no choice but to respond to Iran’s weekend drone and missile attack.

    Europe has been unhappy with China since the start of the fighting in Ukraine in early 2022. Beijing has provided Moscow with diplomatic and political support, and trade between the nations hit a record $240 billion last year, cushioning the blow from Western economic sanctions.

    On Monday, Scholz told reporters in Shanghai that he would urge China to stop supplying so-called “dual use” products to Russia that can be used for military and civilian purposes.

    He called on all nations “not to circumvent the sanctions imposed by the international community,” and to refrain from providing the Kremlin with weapons, including dual-use goods. China has said it has not and will not seek to benefit from the war.

    –With assistance from Ben Holland.

    (Updates with additional Scholz quotes starting in seventh paragraph)

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  • Economic uncertainty reigns as the grip of inflation persists

    Economic uncertainty reigns as the grip of inflation persists

    Inflation likely remained elevated once again for the month of March, adding another round of price increases to Americans’ already-strained wallets.

    On paper, the U.S. economy looks solid. The unemployment rate has now remained below 4% for the longest stretch since the 1960s. Stocks are at all-time highs. The economy continues to add jobs.

    But since the start of the pandemic, Americans have seen average prices increase more than 20% overall — giving people a sense that the cost of many goods and services, not to mention housing, has surged to unreasonable levels.

    On Wednesday, the Bureau of Labor Statistics will report inflation readings for March. The consensus forecast is 3.5%, up from 3.2% in February. Excluding food and energy, which represent commodities with more volatile prices, the so-called core reading is expected to have declined slightly, from 3.8% to 3.7%.

    When will prices come down?

    So what will cause price growth to finally slow down to the Federal Reserve’s 2% target?

    Unfortunately, it usually takes a major economic crisis for broad categories of prices to reverse. Instead, the best consumers can hope for is that they stop going up so fast.

    While there are some signs that it’s happening — grocery price increases, for instance, have finally fallen below 2% after surging during the pandemic — economists say it’s likely to still take some time for inflation to truly subside.

    Complex economic forces, they say, continue to keep price growth elevated.

    A significant worker shortage sparked by the pandemic — especially for front-line service employees — helped push hourly pay higher. But this resulted in pushing up prices on the consumer side, since labor costs represent a significant portion of the overall cost of a given good or service.

    Meanwhile, supply-chain disruptions that emerged during the pandemic have yet to fully subside, said Sarah House, a managing director and senior economist at Wells Fargo.

    She pointed to automobile prices, which have surged more than 20% since the start of the pandemic for new vehicles and more than 30% for used vehicles. While the pace of their price increases has abated, difficulties in sourcing auto parts, plus the loss of experienced technicians, have pushed vehicle prices higher.

    This, in turn, has pushed auto insurance rates higher — and it turns out that car insurance commands a significant percentage of the overall increase in consumer prices.

    “The services side is where we’re continuing to see stronger [price] growth,” House said. “That’s where we’re still getting an elevated degree of inflation from.”

    Stagnant pay and higher borrowing costs

    Americans’ pay has barely kept up with the price increases. While federal stimulus at the outset of the pandemic helped give people a cash cushion during the worst of it, there is an emerging consensus that this same cushion helped drive prices higher by giving people money to spend.

    On net, Bureau of Labor Statistics data shows that the effect of inflation has caused Americans’ average hourly pay to rise by just a few cents compared with where it was at the start of the pandemic.

    The Federal Reserve, which is in charge of taming price growth, in part by raising and lowering interest rates, has sought to fight fire with fire. By raising the cost of borrowing money, the central bank has tried to reduce demand for goods and services, ultimately pushing price growth down.

    The Fed’s interest rate hikes have indeed caused borrowing costs for everything from credit cards to automobiles to homes to climb to levels not seen in years.

    For many Americans, that’s meant getting locked out of the housing market, not to mention paying credit card rates above 20% and auto loan rates above 8%.

    But inflation has persisted, surprising many economists. At the start of the year, the consensus forecast was for economic growth to slow, allowing the Fed to start cutting interest rates this spring, with a total of three cuts for 2024.

    But a growing number of analysts now say that, at a minimum, rate cuts will be delayed. Still others say there won’t even be three cuts.

    Despite all the challenges, the risk of a recession that would lead to significant job losses remains low. Yet there are signs that consumer jitters are accelerating. The New York Federal Reserve reported Monday that fears of job losses are climbing and that workers who are already out of a job say getting hired is now more difficult than it was prior to the pandemic.

    While about one-quarter of Americans report their household financial situation to be better than a year ago, about one-third report being worse off.

    It all adds up to a precarious situation. In a speech last week, Federal Reserve Chair Jerome Powell called the economic outlook “still quite uncertain.”

    “The job of sustainably restoring 2% inflation is not yet done,” Powell said.

    This article was originally published on NBCNews.com

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  • How immigrants are helping boost the U.S. job market without affecting inflation

    How immigrants are helping boost the U.S. job market without affecting inflation

    Blockbuster job growth continues to power the U.S. economy, with the Bureau of Labor Statistics reporting 303,000 payrolls added in March.

    Usually, such strong growth might signal that inflation could pick up. If employers see more demand for goods and services, they need to hire more workers — and if there aren’t enough workers, they have to increase pay, which increases the overall cost of running the business.

    But while annual price growth, at more than 3%, remains above the Federal Reserve’s 2% target, it is still well below the 9% peak seen in the summer of 2022.

    Economists increasingly believe that the post-pandemic surge in immigration is a key reason the economy has been able to grow steadily without pushing inflation higher, as the new arrivals have helped employers fill roles at levels of pay that have kept a lid on overall price growth.

    In a note to clients published Friday, titled “Why we have both strong growth and lower inflation,” Goldman Sachs chief U.S. economist David Mericle said rising immigration had boosted labor force growth. As a result, the strong demand that consumers continue to exhibit elsewhere is unlikely to raise prices by much, “if at all,” he said.

    In fact, so far, measures of labor market “tightness,” like wages, “have continued to fall or move sideways, not rise,” Mericle said.

    “Won’t stronger growth prevent inflation from falling or even reignite it?” he wrote. “We don’t think so.”

    The Congressional Budget Office, a nonpartisan federal agency, was the first to cite the immigration surge that began in 2022 as the primary factor helping to expand the overall size of the U.S. labor force.

    This year, the agency increased its projection of how large the U.S. labor force could be in 2033 by 5.2 million people. Most of that increase is expected to be a result of higher projected net immigration.

    The Brookings Institution, a nonpartisan think tank, came to a similar conclusion earlier this month, saying the economy can now tolerate a more brisk pace of job growth without adding to cost concerns.

    “Faster population and labor force growth has meant that employment could grow more quickly than previously believed without adding to inflationary pressures,” Brookings said.

    Wendy Edelberg, a former Federal Reserve economist now serving as director of Brookings’ Hamilton Project, told NBC News the net effect of immigration on inflation is not entirely obvious — but is likely marginal. Indeed, Fed Chair Jay Powell has expressed similar observations, saying the effect of the new wave of arrivals is “broadly neutral.”

    What is clear, Edelman said, is that the immigration surge will allow the economy to tolerate higher levels of job growth without overheating.

    “Without immigration, if I’d seen an increase of 300,000, I would have been utterly baffled that wages were not higher,” she said, citing the March jobs report released on Friday.

    Wage data shows the annual pace of average hourly pay growth has declined to 4.1% in March after hitting a post-pandemic peak of 5.9% in March 2022.

    If the supply and demand for labor were truly out of sync, the pace of wage growth would be much higher, likely translating into higher overall inflation.

    Instead, thanks to the immigration surge, businesses in the aggregate can tap into the newly growing labor pool to meet continued demand for their goods and services, without having to raise wages significantly to compete for workers.

    For many parts of the economy, from federal Social Security payments all the way down to local businesses that may be looking for workers or new customers, immigration is usually a net good, Edelman said.

    At the same time, it tends to put a strain on state and local budgets, she said.

    Immigration now ranks as the most volatile domestic issue facing President Joe Biden, with Gallup survey respondents ranking it as the country’s “most important problem,” the first time it has held that position since 2019. Republicans have called on Biden to take extreme measures to stem the entry of migrants, while former President Donald Trump has referred to them as “not humans” and “animals.”

    Big cities like New York and Chicago, meanwhile, have faced crises stemming in part from political stunts by Texas Gov. Greg Abbott that have involved sending migrants to those cities at a pace they’re not equipped to handle.

    But while the focus of the debate has been on undocumented immigration, the majority of immigrants arriving are actually authorized to work in the U.S., Edelberg said.

    Plus, they’re more likely to spend a greater share of their labor income.

    “So they’re increasing the demand for goods and services, and helping to supply labor,” she said. “So the net effect on inflation is actually small.”

    This article was originally published on NBCNews.com

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  • Federal Reserve expected to cut rates, lift Biden’s prospects

    Federal Reserve expected to cut rates, lift Biden’s prospects

    By Jarrett Renshaw and Howard Schneider

    WASHINGTON (Reuters) – The U.S. Federal Reserve looks on track to cut interest rates as the presidential campaign season heats up, potentially delivering President Joe Biden a boost as polls show Americans dislike his handling of the economy.

    The Fed could play an outsized – and potentially uncomfortable – election-year role by helping shape attitudes about stubbornly high inflation and mounting housing costs that have been a drag on Biden’s reelection efforts. Rate cuts will also invite critics – Republican challenger Donald Trump chief among them – to argue an agency set up to be an independent monetary authority is tipping the political scales toward Biden.

    Indeed, Trump isn’t even waiting for the first rate cut to happen before making that claim, telling Fox Business last month he expects Fed Chair Jerome Powell – whom Trump installed as central bank chief in 2018 and soured on soon afterward – “to do something to probably help the Democrats … if he lowers interest rates.”

    Trump’s angst – and Biden’s likely optimism – over the matter is understandable given the hefty mindshare interest rates have come to claim among consumers fatigued and angered by enduring the steepest inflation since the Reagan administration.

    “Rate cuts are massively popular with people. It will really help build confidence in the economy just as people are paying closer attention to the election,” said Celinda Lake, a top Biden pollster in his 2020 campaign who has recently done private polls on the Fed for a client. “People are really feeling like they are being gouged every way to Sunday.”

    TOO SLOW TO MATTER?

    Americans in poll after poll rank the economy at or near the top of their most important election-year issues, and the outlook U.S. central bankers sketched at last week’s meeting is rather a rosy one for Biden. Officials’ projections suggest he will ride a growing economy, low unemployment, moderating inflation, and also cheaper credit into Election Day on Nov. 5.

    Investors now anticipate rate cuts at two of the four Fed meetings between now and then, in mid-June and again in mid-September, decisions that Biden could then point to as evidence the worst of inflation has passed and that could influence voter perceptions of the economy.

    Though the Fed only controls an overnight borrowing rate among banks, reductions to that benchmark – set at 5.25%-to-5.50% since last July – translate quickly to lower mortgage rates, cheaper car loans and easier financing terms for small businesses. The question is whether what is anticipated – roughly half a percentage point of reductions before voters go to the polls – will be sufficient to move the needle.

    Lindsay Owens, head of the Groundwork Collaborative, a progressive Washington think tank, is skeptical that it will. With the unemployment rate low, the economy growing at a strong pace and inflation still a concern, the Fed will cut rates too slowly to aid Biden all that much politically, she said.

    “We’re in a 23-year-high interest rate environment and getting another 25-basis point cut or two before November doesn’t change the fact that mortgage rates are going to be high,” Owens said.

    ‘THAT LITTLE OUTFIT’

    Polls repeatedly show Americans give Biden poor ratings for his handling of the U.S. economy, due in large part to rising costs for groceries, gasoline and other necessities that have squeezed the poor and middle class. Biden has spent large parts of the last year touting the strong economy, but the effort has done little to change Americans’ negative attitudes.

    The University of Michigan’s widely followed Consumer Sentiment Index plunged to a record low in June 2022 as inflation raged at a four-decade high of 9.1%. Sentiment is now about halfway between that and its pre-pandemic averages.

    The developing dynamic between Biden, the economy and the Fed is in contrast to what former presidents Jimmy Carter and George H. W. Bush faced in the late 1970s and early 1990s, when inflation and Fed rate hikes arguably hurt their reelection chances. Both lost.

    For the Fed, the current outlook, if it meets expectations, would be a singular triumph of its own. Aggressive rates hikes during 2022 and 2023 brought a punishing bout of inflation under control without causing a recession, and now a turn to rate cuts may be as close as the central bank comes to a declaration of victory.

    Biden offered a preview of sorts of how he will incorporate Fed decisions during a campaign stop in Philadelphia earlier this month. He talked about his efforts to lower housing costs for Americans and made a prediction.

    “I can’t guarantee it, but I’ll bet you — I’ll bet you those rates come down more because I bet you that little outfit that sets interest rates is going to come down,” Biden said.

    The White House later clarified that Biden was offering his view of the economy, not making recommendations to the independent Fed, underscoring the political tightrope Biden and his campaign must walk when talking about the central bank.

    ‘BIDENFLATION’

    Republicans have used the Fed’s rate hikes to bludgeon Biden, seeking to tether them to his mismanagement of the economy.

    “Under Joe Biden, the Fed hiked interest rates to the highest level in 23 years – making life harder for families already struggling with the impact of Bidenflation,” said Republican National Committee spokesperson Anna Kelly.

    Trump, who has his own tangled history with Powell, will no doubt take note of any rate cuts. He promoted Powell, a Fed governor at the time, to chair, but quickly clashed with him for raising interest rates – accusing him of trying to wreck the economy and at one point all but declaring him an enemy of the people.

    Trump has made pinning the blame for inflation on Biden a key feature of his campaign rallies, and has not hesitated to paint Powell as a political actor who will take an action that could benefit his Democratic rival.

    In his Fox Business interview with Maria Bartiromo last month, Trump said he believed Powell was looking to cut rates “for the sake of maybe getting people elected.”

    North Carolina State economics professor Michael Walden has some advice for Powell, who faces hectoring from one camp or the other regardless of what the Fed ultimately does with rates.

    “Whatever the source of criticism, Chairman Powell should be ready to cover his ears in the coming months,” he said.

    (Reporting By Jarrett Renshaw, Howard Schneider; Additional reporting by Nathan Layne; Editing by Dan Burns and Andrea Ricci)

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