Tue. Oct 19th, 2021


This is an audio heading of the FT News Briefing podcast episode: Inflation, inflation, inflation

Marc Filippino
Good morning from the Financial Times. Today is Wednesday, September 29th. And this is your FT newsletter.

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Inflation is the word of the day here during the information session. Fear of inflation led to the biggest sale since May in the US stock market. Inflation has become a political weapon in the recent battle in the US Congress, and the fear of inflation is causing rising energy prices. And we’ll take a little detour from inflation and talk about China’s latest attempt to curb cryptocurrency trading.

Ryan McMorrow
China has been trying for years to get rid of Bitcoin and other cryptocurrencies, and people have always found a way to avoid them.

Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.

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Prices are rising in part due to the stimulus measures introduced by the Federal Reserve during the pandemic. Inflation has spurred the US Federal Reserve to indicate that it could raise interest rates next year, and inflation is affecting markets and US politics. So first politics. Right now, U.S. Republican lawmakers are struggling with Democrats’ efforts to lift the government’s borrowing limit. Yesterday, Treasury Secretary Janet Yellen warned that the U.S. would run the risk of putting money up by October 18 if Congress could not agree to raise the debt ceiling. Republicans have argued that raising the debt limit could boost inflation because it would hold more money in the economy. Our American political correspondent, Lauren Fedor, reminds me that lawmakers are not only thinking about the economy here, but also about next year’s midterm elections.

Lauren Fedor
And when it comes to the Republican side, they see inflation, the economy, the Republican ability to handle the economy, as a winning issue. And if they can enter next year’s mid-term, you know, ‘We’re the party that will make you richer. We will make sure that the prices are manageable and that you have more money in your pocket at the end of the day. And the Democrats are going to make you poorer. “They definitely consider it a winning message. Democrats’ argument is that Republicans relate several issues to each other, and they will argue that raising loans is necessary to afford, pay for things that were already going on, programs that were already approved last year and more further back in the Trump administration.

Marc Filippino
Lauren, we need to remind listeners that the debt limit is a regular occurrence in Washington in most years, right?

Lauren Fedor
Yes, I mean, you’re right in the sense that the debt ceiling has been raised dozens of times over the last few years. In fact, in the Trump administration alone, Republicans voted to raise the debt ceiling three times. They have clearly changed their tune here. And much of it has to do with the political landscape we are in. You know, in this case, the Republicans are leaning very hard in their argument that they think the Democrats were irresponsible when it comes to public spending. And they’re actually trying to link this whole debate to another debate that’s causing a lot of headaches in Washington. And that has to do with Joe Biden’s legislative agenda. You know, you might remember that this $ 1.2 ton infrastructure bill is still in the cards. And then there is a much larger budget plan of $ 3.5 tons. Republicans largely say it’s too much money, it’s too much spending. And they basically argue that it’s irresponsible, and we’m not going to endorse it anymore.

Marc Filippino
Lauren Fedor covers Capitol Hill for the FT.

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Now, in financial markets, inflation and the looming outlook of higher interest rates are causing investors to sell government bonds. A sell-off that began last week has continued until this week, shaking stocks as investors reposition themselves for the prospect of a more hawkish central bank policy. It particularly hit technical stocks. Yesterday, the Nasdaq fell nearly 3 percent. The S&P 500 ended the day more than 2 percent lower, the biggest loss since May. Here is the correspondent of the US capital markets, FT, Kate Duguid.

Kate Duguid
Investors were therefore slightly surprised, I think, last week by both the Fed and the Bank of England pushing forward expectations of interest rate hikes. Both the Bank of England and the Federal Reserve have also raised their expectations of inflation. Although inflation figures have not yet really risen, the fact that both of these very important central banks expect longer-term higher inflation has frightened investors. What happened yesterday is that we also experienced huge losses in the technology sector. Investors view technological valuations highly in terms of the future growth of the business. So what this means is that when you face the prospect of higher inflation, higher interest rates, growth, future growth will be affected.

Marc Filippino
Kate Duguid of the FT covers US capital markets.

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The fear of inflation contributes to the sharp rise in energy prices, oil, natural gas, coal, you name it, energy becomes more expensive just as winter approaches. Yesterday, Brent crude rose more than $ 80 a barrel for the first time since 2018.

Derek Brower
It is actually about the principles of supply and demand, as they call it, in the market.

Marc Filippino
Derek Brower is our American energy editor. He says the supply constraints are also driving up prices in other sectors.

Derek Brower
Opec, the cartel of oil producers, is greatly reducing supply. Yet, nowadays, American shale producers are not growing very fast at all because stock market investors in shell companies do not want them to grow. They therefore do not spend on drilling. The two forces therefore come to the supply side. And then we have this recovery of the world economy and the reopening of economies. So there is also a big increase in demand.

Marc Filippino
And oil prices could rise even higher. Derek cites a Goldman Sachs report that predicts oil will reach $ 90 by the end of the year.

Derek Brower
And oil is still the lifeblood of the world economy. It will therefore contribute to all the prices. And governments around the world are already worried about inflation. The other problem is that other goods, especially other energy products, are also rising rapidly in their price. So you have natural gas reaching record highs. Record prices in Asia and Europe and in the US have risen by about 200 percent in the past year. Natural gas is therefore used for heating, it is used for electricity, and these costs will also contribute to the household bills. So these are big problems that consumers are facing. And because they face consumers or voters, they also face governments in economies like the UK, where there is currently an energy crisis, in the US, where Joe Biden has already spoken out about his concerns about rising petrol prices, and in China, where there are currently power outages.

Marc Filippino
Derek Brower is the American energy editor of the FT.

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The Chinese government is not just dealing with power outages. It tries to wrap its regulatory arms around cryptocurrency. The country was a major market for cryptocurrency trading and bitcoin mining. Authorities, however, pushed parts of the domestic industry from abroad. And last week, the central bank and nine other agencies made it illegal to provide foreign exchange services to Chinese users. Ryan McMorrow is the technology correspondent of the FT in Beijing.

Ryan McMorrow
From the beginning, they were very wary of any digital currency with which Chinese people could impede capital controls. Just like an ordinary Chinese person can only convert the equivalent of Rmb50,000 into $ 50,000 per year. And you have to have very specific uses for it. Cryptocurrency is thus a way of avoiding capital controls, and it is also just a way of getting away, as is their strict control of the currency. The initial coin offering was one of the first areas they struck because it saw it lead to fraud and other things.

Marc Filippino
So, how realistic can these latest curbs be, Ryan?

Ryan McMorrow
China has been trying for years to get rid of Bitcoin and other cryptocurrencies, and people have always found a way to avoid them. But if the exchanges no longer allow Chinese people to trade, it can be very difficult for Chinese people to find buyers and sellers.

Marc Filippino
Yes, and how did the changes in crypto-currency react? Do they generally do what Beijing wants or not?

Ryan McMorrow
So far, Huobi, the largest exchange, has said it will take Chinese users on board. Binance made it a little harder. And other exchanges, I do not, I do not think they have really issued announcements yet. So it is not as if the whole foreign exchange world has not said any more Chinese users. This is definitely what Beijing wants. But so far, it seems that some are still willing to let Chinese users on board and let Chinese users trade.

Marc Filippino
Ryan McMorrow is the FT’s China Technology Reporter.

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You can read more about all these stories on FT.com. This was your daily FT News Briefing. Visit again tomorrow for the latest business news.

This transcript was generated automatically. If there is an error, please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.



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