FirstFT: Fed slows rate rises while ECB to stick to half-point increase

The US Federal Reserve increased its benchmark interest rates by a quarter of a percentage point yesterday, marking a return to a slower, more orthodox pace of rate rises. But its European and British counterparts are likely to stick to a 50 basis point rise later today as underlying price pressures remain high.

The Fed’s shift reflects the fact that inflation appears to have peaked while the economy is starting to slow. The increase brings the federal funds rate to between 4.5 per cent and 4.75 per cent, the highest level since September 2007.

But the Fed warned that “ongoing increases in the target range” would be needed, suggesting the central bank is inclined to raise borrowing costs further at its next meeting.

The European Central Bank and the Bank of England are set to raise rates by half a percentage point today. While the eurozone’s headline inflation fell to 8.5 per cent last month, this is still more than four times the ECB’s 2 per cent target.

Core inflation — which excludes changes in food and energy prices and is considered the best measure of the stickiness of price pressures — remained unchanged at an all-time high of 5.2 per cent in the year to January.

Five more stories in the news

1. Adani cancels share sale Adani Enterprises has called off its $2.4bn equity fundraising, citing an “unprecedented situation” after its shares fell 27 per cent yesterday, taking them well below the deal price range. The decision marks another blow to Indian billionaire Gautam Adani after short seller Hindenburg alleged fraud and stock manipulation in his companies.

2. Banks set to recoup little from Archegos Banks that lost billions from the meltdown of Archegos Capital Management will get back as little as 5 cents on the dollar from its restructuring, with brokers such as Goldman Sachs funding the payouts using cash left in the family office’s trading accounts. Global banks are expecting to recoup between 5 per cent and 20 per cent of their losses, according to people familiar with the matter.

3. Brussels says leaks put N Ireland deal at risk Brussels has warned that leaks of sensitive UK-EU talks on reforming Northern Ireland’s post-Brexit trading arrangements could endanger a compromise deal between the two sides. British prime minister Rishi Sunak is under pressure to sell a potential deal to Conservative MPs and pro-UK parties in the region.

4. Nigerian communities sue Shell for damages More than 11,000 residents of Nigeria’s oil-producing Niger Delta have filed a claim for compensation against Shell at the UK High Court. The plaintiffs claim that oil spills from Shell’s operations have contaminated drinking water, harmed air quality and destroyed farm land and fishing stocks in the region.

5. Washington optimistic about western security pact The White House has expressed optimism that the US, UK and Australia will clear the main obstacle to their landmark Aukus security deal. US national security adviser Jake Sullivan said there had been progress in easing some technology export rules, creating a “pathway” for allies to build nuclear-powered submarines for Australia.

The day ahead

Economic data Germany reports its December trade balance, while Spain and the US have unemployment numbers.

Earnings On a big day for Big Tech results, Alphabet, Amazon.com and Apple report earnings. In the energy sector, ConocoPhillips and Shell report. Deutsche Bank, Eli Lilly, Estée Lauder, Ferrari, Ford, BT Group, Merck, Qualcomm, Sony and Starbucks also have results. See our full list in The Week Ahead newsletter.

Pope in Africa Pope Francis continues his trip to the continent, calling for peace and an end to “economic colonialism” at his first stop, the Democratic Republic of Congo. He will next visit South Sudan.

What else we’re reading

Bakhmut nears tipping point as Russia intensifies offensive After eight months of grinding combat, Russian forces are bearing down on the eastern city from three directions, leaving Ukraine’s main supply line under severe pressure and Kyiv with an agonising choice over the cost of holding its ground.

How the US fell out of love with flying The aviation chaos that grounded thousands of flights during the US holiday season was the final straw for many travellers frustrated with problems across the industry. Are these disruptions a short-term consequence of the pandemic, or the culmination of long-term under-investment and shortcomings in regulatory scrutiny?

Opinion: Beware the great battery industry fallacy The race to attract this industry of the future is as frantic as the rush for AAA cells after an eight-year-old opens their birthday presents, writes Robin Harding. But what the mania ignores is many years of experience that shows batteries are a bad business: low margin, capital intensive, dirty and hemmed in by hard physical limits on technological progress.

Opinion: The UK finds its way to a tougher line on crypto It turns out the UK still wants to be a “global crypto hub”, which feels a bit like volunteering as the landing zone for the fiery wreckage of a plane crash, writes Helen Thomas. But a recent government consultation makes clear that crypto is going to be regulated, and that the worst of the political salivating over the industry has dried up.

Profile: Unilever’s new chief Hein Schumacher Twenty-five years ago, Hein Schumacher spent time at a Dove soap factory in southern Germany as a graduate trainee at Unilever. Now, he is returning as chief executive to scrub up the consumer goods group. While his appointment was backed by activist investor Nelson Peltz, other shareholders expected someone with a higher profile. But those who know the Dutch dairy executive say he should not be underestimated.

Take a break from the news

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