US ECONOMY & POLITICS

Fed’s Bullard Says High Inflation May Warrant Liftoff in 2022 – Bloomberg, 6/18/2021

• Inflation risks may warrant the Federal Reserve beginning raising interest rates next year, St. Louis Fed President James Bullard said, backing an even-earlier liftoff than penciled in by many of his colleagues.
• “I put us starting in late 2022,” Bullard said Friday during a TV interview on CNBC, referring to interest-rate projections published Wednesday by the U.S. central bank after a two-day policy meeting.
• “But you do have to have the idea that these are related to what the forecast is. So, my forecast said 3% inflation in 2021 — core PCE inflation — and 2.5% core PCE inflation in 2022,” he said. “If that’s what you think is going to happen, then by the time you get to the end of 2022, you’d already have two years of 2.5-3% inflation.”
• “This is very much a debate about what’s going to happen in 2022. Is the inflation that we’re seeing in 2021 going to persist into 2022 or not?” Bullard said.

Fed Reverse Repos Surge to Record of $756 Billion After Rate Tweak – Wall Street Journal, 6/18/2021

• A day after the Federal Reserve boosted the return on a key part of its interest rate control tool kit, a record $756 billion flowed into the central bank’s reverse repo facility on Thursday.
• Until Wednesday, this facility offered a return of zero percent to eligible users, which the Fed moved up to 0.05%, while at the same time lifting another rate, called the interest on excess reserves rate, to 0.15% from 0.10%.
• The Fed said Wednesday that the rate changes were technical and designed to smooth money-market conditions and ensure the federal-funds rate, its chief lever for controlling the economy’s momentum, stays within the 0% to 0.25% range.
• The reverse repo rate and interest on excess reserves rate exist to help keep the funds rate within that range.

Bipartisan $1 Trillion Infrastructure Package Gains Steam – Wall Street Journal, 6/18/2021

• A growing bipartisan group of lawmakers and the White House haggled over how to finance a roughly $1 trillion infrastructure proposal, awaiting feedback from President Biden as Democrats began discussions on a separate economic package that could cost up to $6 trillion.
• Since negotiations between Mr. Biden and a group of Senate Republicans collapsed last week, an alternative set of Republican and Democratic senators have held talks on a infrastructure plan that would spend $973 billion over five years, with $579 billion of that funding above expected baseline levels.
• According to a draft outline of the proposal, the plan would dedicate $110 billion in new spending to bridges and roads, $65 billion to expanding access to broadband, and $48.5 billion to public transit, among other priorities.
• Extended over an eight-year timeline, the plan would spend a total of $1.2 trillion.
• The draft, first obtained by Politico, also includes a number of ways to finance the package, a central issue in the talks.
• It proposes indexing the gas tax to inflation, increasing IRS enforcement to collect unpaid taxes, collecting an annual fee from electric vehicles, and repurposing existing federal funds.
• An infrastructure financing authority, public-private partnerships, and direct-pay municipal bonds are also included as possible financing mechanisms.
• The White House has opposed raising the gas tax and placing fees on electric vehicles, and Democrats in the group met with top White House officials on Capitol Hill Wednesday.

U.S. FCC votes to advance proposed ban on Huawei, ZTE gear – Reuters, 6/18/2021

• The U.S. Federal Communications Commission voted unanimously on Thursday to advance a plan to ban approvals for equipment in U.S. telecommunications networks from Chinese companies deemed national security threats like Huawei and ZTE.
• The vote drew opposition from Beijing.
• Under proposed rules that won initial approval, the FCC could also revoke prior equipment authorizations issued to Chinese companies.
• The FCC action would prohibit all future authorizations for communications equipment deemed to pose an unacceptable risk to national security.

U.S. senators propose 25% tax credit for semiconductor manufacturing – Reuters, 6/18/2021

• A bipartisan group of U.S. senators on Thursday proposed a 25% tax credit for investments in semiconductor manufacturing as Congress works to increase U.S. chip production.
• The proposal sponsored by Senate Finance Committee Chairman Ron Wyden and the top Republican on the panel, Senator Mike Crapo, along with Senators Mark Warner, Debbie Stabenow, John Cornyn and Steve Daines, would provide “reasonable, targeted incentives for domestic semiconductor manufacturing,” they said in a statement.
• The senators said up to 70% of the cost difference for producing semiconductors overseas results from foreign subsidies.
• The Semiconductor Industry Association praised the proposal, saying it said would “strengthen domestic chip production and research, which are critical to U.S. job creation, national defense, infrastructure, and semiconductor supply chains.”

EUROPE & WORLD

UK retail sales dip as consumers, freed from lockdown, dine out – Reuters, 6/18/2021

• British retail sales fell unexpectedly last month as a lifting of lockdown restrictions encouraged spending in restaurants rather than shops, according to official data.
• Retail sales fell 1.4% between April and May, the Office for National Statistics said.
• Food stores suffered the biggest hit, with a 5.7% drop in sales. Separately on Friday supermarket chain Tesco, Britain’s biggest retailer, reported a sharp slowdown in underlying UK sales growth in its first quarter.
• In annual terms, retail sales were 24.6% higher than May last year, short of the median expectation for a 29.0% increase.
• Household good stores bucked the wider decline with month-on-month growth of 9.0%, which the ONS linked to spending on outdoor goods.

Cathay Pacific expects lower first-half loss on cost savings, cargo flights – Reuters, 6/18/2021

• Cathay Pacific Airways said on Friday that losses in the first half are expected to be “somewhat” lower than last year, due to cost-saving measures and strong demand for cargo flights.
• Crew quarantine measures have eased since mid-April and that helped Cathay operate 24% more freighter flights and 18% more cargo-only passenger flights in May compared to April, the airline said in a statement.
• Cathay reported a first-half net loss of HK$9.87 billion ($1.27 billion) last year and a net loss of HK$11.78 billion in the second half.
• While passenger numbers climbed 30% in May to 24,006, the airline said they remain 99% lower than pre-pandemic levels.
• Cathay said it is “cautiously” adding more passenger flights and destinations, and plans to operate at around 30% of its pre-pandemic passenger capacity by the fourth quarter.

China Considers Lifting All Childbirth Restrictions by 2025 – Wall Street Journal, 6/18/2021

• Chinese officials are drawing up plans to further loosen birth restrictions and transition toward policies that explicitly encourage childbirth, according to people familiar with the matter, reflecting increased urgency in Beijing as economic growth slows and China’s population mix skews older.
• Policy makers are discussing the possibility of fully doing away with birth restrictions by 2025, the end of the ruling Chinese Communist Party’s current five-year economic plan, according to one of the people.
• According to that person, China will likely begin by eliminating birth restrictions in provinces where the birthrate is the lowest before enacting nationwide changes.
• The country’s population is expected to fall from the current 1.41 billion to roughly 730 million people by the end of this century, according to projections by an international team of scientists published last year in the British medical journal The Lancet.

China Steps Up Antitrust Pressure on Internet Firms – Wall Street Journal, 6/18/2021

• Chinese regulators have intensified scrutiny of dozens of domestic internet companies for possible antitrust violations, people familiar with the matter said.
• In recent weeks, agents from government agencies including the antitrust watchdog, the cyber police and tax authorities have paid surprise visits to some companies, according to the people.
• Those visited included Didi Chuxing Technology, according to the IPO prospectus of the ride-hailing firm.
• During some of the on-site inspections, agents have questioned senior executives, downloaded contracts and financial records and collected emails and internal communications, the people said.
• The agencies involved include the State Administration for Market Regulation, the Cyberspace Administration of China and the State Tax Administration, they said.

Factmonster – TODAY in HISTORY

• The War of 1812 began. (1812)
• Napoleon was defeated at the Battle of Waterloo by British, German, and Dutch forces. (1815)
• Suffragist Susan B. Anthony was fined $100 for attempting to vote in the 1872 presidential election. (1873)