Take Two: Powell warns of rate hike risk; record highs for US-China trade and FTSE 100

What do you need to know?

Further US interest rate rises are likely as inflation is set to remain above target into 2024, Federal Reserve (Fed) Chair Jerome Powell said at an event last week. The Fed expects “significant” declines in inflation this year but “it has a long way to go”, he said, and if the labour market remains strong or inflation does not fall quickly enough, “it may well be the case that we have to do more and raise rates more than is priced in”. Meanwhile in his annual State of the Union address, President Joe Biden said he intended to “finish the job” on the economy, putting in place new policies to boost growth and help US citizens.

Around the world

Trade between the US and China climbed to a record high in 2022, official US figures showed. Despite their longstanding diplomatic tensions and trade wars, imports and exports between the world’s two largest economies reached $690.6bn last year – with US imports from China increasing to $536.8bn and its exports to China rising to $153.8bn. Meanwhile, in a speech to senior party officials, Chinese President Xi Jinping reaffirmed the need for greater self-reliance as the country modernises. China’s Consumer Price Index rose 2.1% in January, on an annualised basis, up from 1.8% in December, but below expectations despite a boost from the Lunar New Year amid the easing of COVID-19 restrictions.

Figure in focus: 8,000

The UK’s FTSE 100 index reached a record high last week, edging closer to the symbolic 8,000 points level. On Thursday the blue-chip benchmark closed at 7,911.15 – and was even higher during the trading day, reaching 7,949.57, but at the time of writing on Friday morning had slipped back slightly. The market has a large international exposure and has been buoyed this year by signs inflation pressures may be easing worldwide. New data showed the UK economy narrowly avoided recession, with zero growth in the fourth quarter (Q4). Meanwhile, a new UK GDP forecast from the National Institute for Economic and Social Research, an independent thinktank, predicted the country would avoid recession this year, but grow by just 0.2%, against a forecast of 0.7% made in November.

Words of wisdom:

A-growth: A model of economic development that prioritises social and environmental outcomes – sometimes known as ‘growth agnostic’. In this approach, GDP is effectively ignored while other goals such as equality, increases in leisure time, improved air and water quality as well as better healthcare, dictate policy and define success. This could also accommodate the idea of the circular economy, where the lifecycle of goods is managed in a way that seeks to drastically reduce waste and minimise energy usage. It is one of several proposed models discussed in academic circles for how future sustainable economies might be structured.

What’s coming up

On Tuesday, a preliminary estimate for Japan’s economic growth rate during the final quarter of 2022, and a second estimate for the Eurozone’s, are published. On the same day US inflation numbers and Eurozone employment data are also announced. On Wednesday the UK follows with its own inflation numbers while on Thursday, Australia updates markets with employment numbers. A final estimate for France’s inflation rate during January is reported on Friday.