Take Two: Fed’s Powell vows to fight inflation; Eurozone growth downgraded

What do you need to know?

US Federal Reserve chair Jerome Powell pledged to continue raising interest rates without “any hesitation” until inflation starts to ease, even if that were to increase unemployment levels slightly. In the UK, annual inflation reached its highest level in more than 40 years, jumping to 9% in April from 7% in March, driven by higher energy and food prices. Japan’s inflation was at 2.5%, or 2.1% excluding food, which exceeded the central bank’s target of 2% for the first time in seven years due to rising import costs. Expectations of higher interest rates and increased recession risks rattled investors, causing nervousness on equity markets but the MSCI World NR index was marginally up in the week to Thursday’s close.¹

Around the world

Eurozone economic growth in 2022 is expected to reach 2.7%, according to the European Commission, a sharp drop from the 4% it predicted before Russia’s invasion of Ukraine. Growth in 2023 is forecast at 2.3%, down from an earlier estimate of 2.8%. The region has suffered a significant shock from rising energy prices linked to the Ukraine crisis. Eurozone inflation held steady at 7.4% in April, a record high and well above the European Central Bank’s 2% target. The Commission raised its prediction for average inflation in 2022 to 6.1% from 3.5%.

Figure in focus

The European Union will need an additional €210bn of investment to help end its dependence on Russian fossil fuels and accelerate its rollout of renewable energy, the European Commission said as it presented its REPowerEU plan. The Commission called the additional funding needed between now and 2027 “a down-payment on our independence and security”, which it said would need to be met by both the private and public sector. Ultimately, cutting imports of Russian fossil fuels would also save almost €100bn a year, it added.

Words of wisdom

Carbon bombs: New or expanding projects in the oil and gas sector which have the potential to produce greenhouse gas emissions equivalent to at least one billion tonnes of carbon dioxide over their lifetime. Reports last week identified 195 such projects and estimated that they alone could exceed the global carbon budget – the amount of emissions which would give the world a better-than-50% chance of limiting warming to within 1.5°C above pre-industrial times. The US was identified as the leading source of potential carbon bombs.

What’s coming up

Germany’s Ifo Business Climate index for May is published Monday while Purchasing Managers’ Indices for Australia, Japan, the Eurozone and US arrive on Tuesday. On Wednesday the latest Federal Open Market Committee meeting minutes are published, which are followed on Thursday with a second estimate for first quarter (Q1) US GDP growth. The previous forecast showed the world’s largest economy retreated by 1.4% on a quarterly basis in the first three months of the year as supply challenges weighed on growth. On Friday a final estimate for France’s Q1 growth is announced.