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The U.S. Federal Reserve’s take on greening the economy: Not our job

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November 2, 2021

By Ann Saphir and Lindsay Dunsmuir

(Reuters) – The U.S. Federal Reserve trails other major central banks in tackling climate change, even as President Joe Biden pledges a “whole of government” approach and fights to salvage his ambitious climate agenda as global leaders meet in Glasgow to hash out responses to rising world temperatures.

In recent years the Fed has only begun to look at how changing weather patterns impact its ability to do its job, which includes safeguarding the financial system through bank regulation, and combating economic shocks through monetary policy.

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And while it is devoting more effort to studying climate-related impacts, it treats climate risk as just another element that affects the economic and financial landscape, like trade or childcare policy, rather than as anything the Fed might try to shape.

That puts it well behind its peers who are gearing up to buy green assets, crack down on fossil-fuel lending, and push companies toward lower-carbon choices.

The hesitance to prioritize action on climate risk at the world’s most powerful central bank will have consequences, analysts and activists say, not just for the U.S. economy but for a global financial system whose largest actors are in New York.

“If [the U.S.] are laggards, it won’t be good for our markets, it won’t be good for our companies,” said Sanjay Patnaik, a Brookings Institution fellow specializing in climate policies. “The U.S. doesn’t want to fall behind, or our financial system will be more vulnerable to climate risk.”

Fed policymakers could catch up relatively quickly “if they engage fully,” he said, particularly by implementing stress tests to gauge banks’ vulnerability to climate risks such as higher temperatures or exposure to loans financing fossil fuel. The Bank of England has already started such testing, with a view to using the results to nudge banks to be better prepared.

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Such tests could fall under the Fed’s own remit for financial stability and Fed officials have said they will explore the possibility. But, leery of blowback on what is a fraught U.S. political issue, they maintain it’s up to Congress, not them, to incentivize businesses to go green.

As Fed Chair Jerome Powell summed it up this summer: “We are not and we don’t seek to be climate policymakers as such.”

LETTING OTHERS LEAD

In the past year, the Bank of England and the European Central Bank have released comprehensive plans to help manage the transition to a greener economy, including using their asset-buying clout to selectively benefit less-polluting companies.

By contrast, the Fed, central bank to the largest greenhouse-gas producing country, remains stuck near the starting gate. It was the last major central bank to sign up to the Network for Greening the Financial System when it joined in December 2020, and has only just begun an effort to analyze financial-stability risks from climate change, but so far embracing no new policies to address it.

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“When I think about why are other banks ahead of us really – and they are – it’s because in those governments, they decided some years back that these are critical risks,” San Francisco Fed President Mary Daly said recently. Her bank has several economists leading the charge at the Fed on climate-change research.

Others such as the ECB and People’s Bank of China have started green bond programs — purchasing debt to finance environmentally friendly projects — to nurture a transition toward alternative energy. The Fed views such policies as beyond its economic and financial stability mandates.

Daly acknowledged that as fire seasons lengthen, droughts deepen, and severe weather disrupts more economic activity, the Fed may need to respond more assertively.

“If climate effects occur and they are bridling the growth of our economy and putting us below our potential, then it would be our job to lean against the risks,” she said, although she added that’s different to mitigating climate risk directly.

The Fed’s role is “not to even pull levers that would do that. It’s really to be students of it so we are well prepared,” Daly said.

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CALLS FOR ACTION

Last Friday, activists demonstrated at many of the regional Fed banks and at the Fed Board in Washington, demanding more action and the replacement of Powell with a leader more focused on climate. Powell awaits Biden’s decision on whether to nominate him for a second term, with critics seeing his assertion of climate change as a “longer-term issue” as a black mark against him.

“What we are pushing for is an aggressive level of regulation that we don’t think he has the appetite for,” said Kathleen Brophy, senior strategist at the Sunrise Project, a youth environmental activist group helping to organize the protests. “They have definitely stepped up on this issue for sure – but it doesn’t match the urgency.”

Others point out the Fed remains caught between an administration with a much bolder climate change agenda than in the Trump era and a Congress where Republicans and a few Democrats oppose action on climate change.

Even the small steps taken so far have drawn some rebukes.

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In a letter to Daly, Republican Senator Pat Toomey called the bank’s climate-change research “politically charged” and asked the Fed to abandon what he termed mission creep.

“Such activities are inconsistent with its statutory responsibilities; only Congress has the authority to reform the Federal Reserve or modify its mission,” Toomey said.

But while the Fed’s mandate is fairly narrow, its responsibilities are wide, and this is where it can take a stand on climate, analysts say.

“I think the Fed can and should be ahead, in the sense of that it’s their job to supervise banks,” said Paul Fisher, a former policymaker at the Bank of England who coordinated its climate initiatives. “Climate change is clearly a material threat to the banks and they have to supervise that… supervisors ought be getting on with this quietly in the background. Most of the banks recognize it’s a financial risk. It shouldn’t be that controversial.”

And the Fed is forging ahead on its exploratory path. In October it signed on to a report on climate-related financial risk with other U.S. regulators that, for the first time, framed global warming as a financial risk.

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“That’s the major contribution of the…report,” Patnaik said. “How do you get people to care about something? You tell them it’s a risk to their livelihood and their assets.”

(Reporting by Ann Saphir and Lindsay Dunsmuir; Editing by Dan Burns and Andrea Ricci)

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Apple starts legal action against Russian regulator in App Store dispute -RIA

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December 6, 2021

MOSCOW (Reuters) – Apple has started legal proceedings against Russia’s anti-monopoly regulator in a dispute concerning alternative payment options on its App Store platform, the RIA news agency reported on Sunday citing court filings.

Russia opened an antitrust case against Apple in late October, accusing it of failing to allow app developers to tell customers about alternative payment options when using its App Store. It said Apple could face a fine based on its revenue in Russia if found guilty.

In documents published on Dec. 1, the Moscow Arbitration Court listed Apple as a claimant and Russia’s Federal Anti-monopoly Service (FAS) as a defendant in “economic disputes over administrative legal relations.”

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Apple, which did not immediately respond to a Reuters request for comment, demanded that additional documents be added to the case on Dec. 2, RIA reported.

Forbes Russia cited a FAS representative as saying that the proceedings related to a warning it issued on Aug. 30 over Apple’s alleged failure to inform users they could also pay for purchases outside the App Store.

The FAS did not immediately respond to a request for comment.

Apple faced pushback over its App Store rules in the United States in September when a federal judge issued a ruling forcing the company to allow developers to send their users to other payment systems.

(Reporting by Alexander Marrow; Editing by Andrew Osborn)

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Weaker foreign demand sinks German industrial orders in October

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December 6, 2021

By Michael Nienaber

BERLIN (Reuters) -Weaker demand from abroad drove a much bigger than expected drop in German industrial orders, including cars, in October, data showed on Monday, further clouding the growth outlook for manufacturers in Europe’s largest economy.

A pandemic-related scarcity of microchips and other electronic components has caused massive supply bottlenecks and production problems in Germany’s mighty automobile industry and other important sectors of the economy.

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Orders for goods ‘Made in Germany’ dropped 6.9% on the month in seasonally adjusted terms after a revised rise of 1.8% in September and a plunge of 8.8% in August, figures from the Federal Statistics Office showed.

A Reuters poll of analysts had pointed to a smaller decline of 0.5% on the month in October.

“After incoming orders climbed to an all-time high in mid-2021, the index has lost more than 16 points in recent months,” the economy ministry said, adding that the second sharp decline within three months put a further damper on the economic outlook.

Excluding distorting factors from bookings for big ticket items such as planes, industrial orders were still down 1.8%, the data showed.

The drop was driven by a decline in foreign orders of more than 13% on the month, with demand from countries outside the euro zone such as China particularly weak. Orders from domestic clients rose 3.4%.

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“New lockdowns in Asia are slowing industry in Germany,” VP Bank analyst Thomas Gitzel said. He added that the current wave of coronavirus infections across the globe was putting a renewed burden on the world economy.

Gitzel said that domestic demand should remain strong, helped by the new ruling coalition’s commitment to massive investment in the green economy.

“The decarbonization of the economy requires major investments in new technologies. German industry can and will benefit from this,” Gitzel said.

The weak orders data suggest that manufacturing will hamper overall economic growth in the coming months, with analysts expecting stagnation at best in the final quarter of this year.

(Reporting by Michael Nienaber, editing by Kirsti Knolle and Philippa Fletcher)

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Marketmind: Chasing the Omicron dip

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December 6, 2021

A look at the day ahead from Julien Ponthus.

Buying the dip triggered by the Omicron COVID-19 variant across global markets has proven a costly strategy so far. But some investors seem determined to have another go.

European and U.S. stocks futures are trading sharply higher after ending last week on a sour note and notwithstanding a dismal day in Asia where an MSCI index of Asia-Pacific shares outside Japan lost about 0.9%.

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The region has seen a series of corporate setbacks after ride-hailing giant Didi decided to withdraw from the New York stock exchange last week.

Shares in China Evergrande, the world’s most indebted developer, plunged 14% after it said there was no guarantee it would have enough funds to meet debt repayments.

Another giant, Alibaba dropped 5% after announcing it would reorganise its international and domestic e-commerce businesses. And U.S. regulatory opposition to the sale of Softbank-owned chip firm Arm pushed the Japanese conglomerate 8% lower.

But the mood is lighter already across Europe, allowing 10-year Treasury yields to claw back some of Friday’s falls which took them below 1.4% for the first time since late September.

There are five trading sessions left before Friday’s U.S. consumer price report which some reckon will provide the green light for the Federal Reserve to accelerate its tapering of bond purchases.

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Oil prices too rose by more than $1 a barrel after Saudi Arabia raised prices for its crude sold to Asia and the United States.

And if the market mood is perking up, there is no sign of that in Bitcoin which has fallen further and is now at $48,244 — some $20,000 below peaks hit a month ago.

Key developments that should provide more direction to markets on Monday:

-Vivendi is open to discuss with Rome over state control on TIM’s network

-Alibaba overhauls e-commerce businesses, names new CFO

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-Swiss National Bank Vice Chairman Zurbruegg to retire in July 2022

-Weaker foreign demand sinks German industrial orders in October

-CBI cuts UK economic growth forecasts on supply chain hit

-Euro zone finance ministers to discuss 2022 draft budgets, euro summit

– Russian President Vladimir Putin visits India

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– UK construction PMI/new car sales

-Euro zone finance ministers to discuss 2022 draft budgets, euro summit

BOE deputy Governor Broadbent, ECB Governor Lagarde and board member Panetta speak:

(Reporting by Julien Ponthus; editing by Sujata Rao)

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