“If you want to be the best, you have to do things that other people are unwilling to do. —Michael Phelps

1. Bank of England Further Expands Bond-Market Rescue to Restore U.K.’s Financial Stability — the Bank of England extended support targeted at pension funds for the second day in a row, the latest attempt to contain a bond-market selloff that has threatened U.K. financial stability. The turmoil sparked fresh demands for pension funds to come up with cash to shore up LDIs, or liability-driven investments, derivative-based strategies that were meant to help match the money they owe to retirees over the long term.
LDIs were at the root of the bond selloff that prompted the BOE’s original intervention. Pension plans in late September saw a wave of margin calls after Prime Minister Liz Truss’s government announced large, debt-funded tax cuts that fueled an unprecedented bond-market selloff.
2. Fed Minutes Show Policy Pivot Is Not Coming Soon — the minutes noted “broad-based and unacceptably high level of inflation,” and said risks to the inflation outlook are increasing. Many participants emphasized that the cost of taking too little action against inflation outweighed the cost of doing too much, and several underlined the need to maintain a restrictive stance for as long as necessary. A couple of those officials stressed that historical experience demonstrated the danger of prematurely ending periods of tight monetary policy designed to bring down inflation.
3. Core US Inflation Rises to 40-Year High — the core consumer price index, which excludes food and energy, increased 6.6% from a year ago, the highest level since 1982, Labor Department data showed Thursday. From a month earlier, the core CPI climbed 0.6% for a second month. The advance was broad based. Shelter, food and medical care indexes were the largest of “many contributors,” the report said. Prices for gasoline and used cars declined. The CPI report is the last one before next month’s US midterm elections and poses fresh challenges to President Joe Biden and Democrats as they seek to retain thin congressional majorities. Already, the surge in inflation has posed a serious threat to those prospects.
4. U.K. Prime Minister Liz Truss Fires Treasury Chief, U-Turns on Taxes — U.K. Prime Minister Liz Truss fired Treasury chief Kwasi Kwarteng and reversed crucial parts of her government’s tax cuts, after her plans to jolt the economy into growth unraveled in spectacular fashion following a backlash from financial markets and her party. In a scramble to shore up support within her party, the embattled Ms. Truss also ditched her plan to prevent a planned rise in the rate of corporate income tax next April to 25% from 19%—a move taken by predecessor Boris Johnson’s government to help shore up finances. The U-turn was the second major part of her tax-cutting package to be abandoned recently. The turmoil in the U.K. is a sharp reminder of the political and economic challenges facing leaders across the West as they grapple with fast-rising inflation and weak growth. Price increases are forcing central banks to quickly raise interest rates, denting economic growth and making financial markets far more sensitive to deficits and debt.

The week ahead — Economic data from Econoday.com:

This entry was posted on Monday, October 17th, 2022 at 3:42 pm and is filed under Weekly Summary. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.