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Support among top US Federal Reserve officials is growing for another 0.75 percentage point rate rise at the next policy meeting in July, as the central bank reinforces its commitment to tackling soaring prices.
On Thursday, Michelle Bowman became the latest Fed governor to indicate early backing for the move “based on current inflation readings”, adding that additional rate rises of “at least” half a percentage point were likely to be necessary in the next few subsequent meetings “as long as the incoming data support them”.
“Depending on how the economy evolves, further increases in the target range for the federal funds rate may be needed,” she said in remarks delivered at an event hosted by the Massachusetts Bankers Association.
Bowman joins Fed governor Christopher Waller, who affirmed on Saturday that the central bank was “all-in on re-establishing price stability” and said if the data come in as expected he would support another jumbo rate rise next month.
Neel Kashkari, the dovish president of the Minneapolis Fed, has also said such a move may be necessary, but added that it may be “prudent” to downsize to half-point rate rises after July.
Mounting support for another aggressive rate adjustment come just days after the Fed implemented the first 0.75 percentage point rate rise since 1994 and signalled its support for significantly more monetary tightening this year. Most officials now expect the federal funds rate to rise to around 3.75 per cent by December, up from the current target range of 1.50 to 1.75 per cent.
Bowman said she expected the labour market to remain strong as the Fed raises rates, noting historic demand for workers despite constrained supply, but added that the Fed’s actions “do not come without risk”.
“But in my view, our number one responsibility is to reduce inflation,” she said. “Maintaining our commitment to restore price stability is the best course to support a sustainably strong labour market.”
Bowman’s comment echo those of Fed chair Jay Powell as he testified in front of Congress this week. He told Senate lawmakers that a US recession was “certainly a possibility” as the central bank steps up its efforts to counter soaring prices, but added that failing to tame inflation would “hurt the people we’d like to help, the people in the lower-income spectrum”.
Anyone who wants to better understand the costly economic and political externalities that come with cheap food should spend some time in America’s Midwestern farm country. I did last week, driving from Wisconsin to Missouri through hundreds of miles of corn and soyabeans, the vast majority of which is grown not as food but as feed for cattle.
It was easy to find fast food and red meat in the small towns I passed, but it was often tough to find a decent supermarket with fresh fruits and vegetables. What a terrible irony that some of the richest farmland in America is often where you are most likely to find a “food desert”, or a place where it is challenging to source the components of a healthy diet.
Nearly a century on from the Great Depression, we still farm as we did then, trying to produce cheap calories for growing numbers of hungry people — and using huge amounts of fossil fuels — rather than providing better nutrition for an overfed yet undernourished population in ways that might support the planet and local communities.
Consumers have become used to cheap food. But it’s a model that makes little sense environmentally, and has led to tremendous consolidation on the production side.
Consider that in the middle of the biggest commodity price spike since the 1970s, some farmers are still struggling to stay in the black. Texas A&M University research shows that two out of three rice farmers will lose money this year, since input costs including fuel and fertiliser are rising even faster than commodity prices. Corn and soyabean producers will make money, but not as much as you’d think.
As Joe Outlaw, a professor at Texas A&M, put it in his testimony on the topic to the House Agricultural Subcommittee, consumer inflation may be 8.5 per cent but farmers have been hit with price increases at double that rate on seed. For other inputs, inflation is even higher. Herbicide is up 64 per cent from 2021 to 2022, and nitrogen fertiliser, perhaps the most important input of all, is up a whopping 133 per cent. Corn, meanwhile, is up only 4.84 per cent per bushel, and soyabeans are up a little over 7 per cent year on year.
Farmers have tried to hedge and hoard to account for these spikes, but they are outgunned by large, highly concentrated companies that control much of the agriculture supply chain. As Outlaw explained: “Simply put, the input suppliers would not lock in a price until the producers [meaning farmers] agreed to take delivery.”
The result is that many farmers, particularly small and medium-sized ones, will scale back on inputs this planting season, which will in turn hurt their future harvest. Grain trading giants such as Cargill are getting rich, as are many multinational energy companies. But growers themselves are barely in the black.
All of this speaks to a model that no longer works. Farming in America has been about cheap food for nearly a century. The New Deal encouraged the production of massive amounts of subsidised cereal grains to feed an influx of urban dwellers. The Reagan revolution encouraged further consolidation — as an illustration, consider that four companies control up to 85 per cent of the meat market.
Democratic President Bill Clinton then passed the “Freedom to Farm” act, which eliminated any government management of supply and demand. This is one reason farmers were dumping milk after the pandemic; overproduction encourages boom and bust cycles. It also makes it difficult to get food inflation under control now. While the US has strategic petroleum reserves, it has no grain reserves for domestic buyers despite being one of the world’s largest producers.
The “pile it high, sell it cheap” paradigm assumes that simply driving down prices will create a healthy market. But it comes with obvious costs for the planet, our health, and in some parts of the country, for politics. One would think that a state like Missouri, for example, would be fertile ground for Democrats campaigning on a message of corporate greed. In fact, the state voted for Donald Trump in the last election — in part because the failed industrial farming model hasn’t been replaced by much else, creating a disenchanted population that’s ripe for the former president’s dog whistles and his brand of populism, with its empty promises of help for the white working class.
Plenty of neoliberal economists might shrug at all this and note that farmers make up less than 2 per cent of the labour force (the agricultural sector as a whole is slightly over 10 per cent). They might even shrug at the fate of a state like Missouri, since they tend to think about overall numbers, not individual people in so-called flyover states. But in America’s electoral college system, states like this still matter — a lot. Taken together, they can make the difference between winning or losing.
So, what’s to be done? The Biden administration is correct to go after concentration in agriculture and energy, as in other industries. Indeed, the discrepancy between input costs and raw commodity prices makes me think that the White House has a point about corporate price gouging. If the commerce department gets its way, more rural broadband would help too. But ultimately, we are going to have to rethink the entire way we farm in America. Like so much of our economic system, it was built for a different era.
The Chinese memory chip producer Yangtze Memory Technologies plans to bring online a second plant in its home city of Wuhan as early as the end of this year, sources familiar with the matter say, in a move that could further close the company’s technology and output gap with global leaders such as Samsung of South Korea and Micron Technology of the US.
The company, also known as YMTC, needs to expand production after a growth spurt that put it on the world’s semiconductor map and delivered a notable success in Beijing’s attempt to reduce China’s reliance on imported chips.
Its original plant has been running near capacity and churned out 100,000 wafers a month at the end of 2021, two people told Nikkei Asia.
YMTC held a global market share of nearly 5 per cent last year, according to analyst and industry estimates. It has become the world’s sixth-largest Nand flash memory maker behind Samsung, SK Hynix, Kioxia, Western Digital and Micron, and the only one from China.
About 40 per cent of its output at present is 128-layer 3D Nand flash memory, the most advanced produced so far by a Chinese chipmaker. But that is one or two generations behind global leaders Samsung, SK Hynix and Micron. The rest of YMTC’s output is of older 64-layer 3D Nand flash memory.
This article is from Nikkei Asia, a global publication with a uniquely Asian perspective on politics, the economy, business and international affairs. Our own correspondents and outside commentators from around the world share their views on Asia, while our Asia300 section provides in-depth coverage of 300 of the biggest and fastest-growing listed companies from 11 economies outside Japan.
The new plant would first build mainly 128-layer flash memory and could later shift to even more cutting-edge chips, such as 196-layer or 232-layer 3D Nand flash memory, assuming development goes smoothly in 2023 and 2024.
Apple has been testing YMTC’s flash memory products since last year and could place its first order for “limited quantities” as soon as this year, two people familiar with the matter told Nikkei Asia. The US tech giant has been talking with the Chinese chipmaker since 2018 in hopes of finding a cost-effective source of storage components.
Securing a deal with Apple would be a milestone, highlighting the quality of Yangtze Memory’s chips, industry executives say. Apple’s Chinese suppliers, including those from Hong Kong, already outnumber those from Taiwan, making China the largest source of suppliers to the US company, according to a Nikkei Asia analysis. Apple also has close ties with several Chinese electronics manufacturers, including Luxshare, Goertek and BYD.
Yangtze Memory’s success is also viewed as a victory for China, as the world’s second-largest economy strives to localise semiconductor production and build industry champions. Yangtze Memory is backed by the China Integrated Circuit Industry Investment Fund, Beijing’s most important chip investment funding vehicle. And YMTC is bullish on its growth prospects, increasing its investment budget from $24bn in 2016 to the equivalent of $32.8bn this year.
The Chinese chipmaker is currently installing equipment at the new chip plant, a key step before it goes into production. The factory will eventually have twice the capacity of the first, several people briefed on the matter said. The total capacity for the two factories will reach 300,000 wafers per month and could help YMTC expand its market share to more than 10 per cent globally.
The company is split into two parallel teams composed of hundreds of top engineers tasked with developing 196-layer and 232-layer flash memory, one of the people said. Its aim is to catch up with foreign rivals.
The most advanced products on the market, which Samsung, Micron and SK Hynix have all succeeded in producing, are 176-layer 3D Nand flash memory chips. They are now racing to create chips composed of more than 200 layers. Kioxia and Western Digital said they will be making 162-layer 3D Nand flash memory by the end of the year.
The more layers a flash memory chip has, the more advanced the chips are — and the harder they are to develop and produce commercially. Nand flash memory is a vital storage component used in all kinds of electronic devices, from smartphones and PCs to data centre servers and connected cars.
Most YMTC flash memory is currently used to make consumer-grade solid-state drives (SSDs), mainly for the Chinese market. Its clients include leading storage makers Lenovo, Longsys and Kimtigo of China, as well as Adata of Taiwan. YMTC has also introduced its own brand, ZhiTai, to sell SSDs directly to consumers.
Its share of the global flash memory market has risen quickly from 1.3 per cent in 2019, when it first put 64-layer Nand flash memory into production, according to Counterpoint Research, which believes it could grab nearly 6 per cent of the market by 2023, up from 4.8 per cent in 2021.
Brady Wang, an analyst at Counterpoint, told Nikkei Asia that Yangtze Memory had been working on its technology even before the company was formally launched in 2016. It had demonstrated its capabilities and gradually become a viable global player after years of effort, Wang said. It had also more than doubled its payroll in four years, to about 8,000 employees currently.
“It recruits many engineers and veterans who have Chinese backgrounds but used to work for multinational tech and chip companies,” Wang said. “Managing a plant, however, is different from managing several plants at a massive scale. It remains to be seen if it [can] successfully ramp up production.”
Political tension between the US and China also increases uncertainties for Chinese companies like YMTC, Wang said.
Washington has slowed the advance of China’s semiconductor industry by adding the country’s top chipmaker, Semiconductor Manufacturing International Co, and the telecom equipment group Huawei, to a trade blacklist to restrict their use of American technology. Yangtze Memory has been among the most aggressive companies in pushing ahead with the development of domestic chipmaking equipment, but it continues to maintain good relationships with US and other foreign vendors to ensure its expansion plans come to fruition.
YMTC declined to comment for this story.
A version of this article was first published by Nikkei Asia on June 23, 2022. ©2022 Nikkei Inc. All rights reserved.
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Hello and welcome to the working week.
Now would seem a good time for central bankers to get together and brainstorm some ways of getting their economies out of a global inflationary crisis. So thank goodness for the European Central Bank’s annual Forum on Central Banking, a gathering amid the palaces in the pretty Portuguese Riviera town of Sintra to discuss the challenges for monetary policy in a rapidly changing world: a title that organisers admit was only recently agreed upon given the, er, rapidly changing world that the eurozone economies now face. Federal Reserve chair Jay Powell, World Trade Organization head Ngozi Okonjo-Iweala and Bank of England governor Andrew Bailey are among the top drawer list of speakers.
Geopolitical summits are again a bit of a theme this week. Nato will gather in Madrid on Tuesday for three days of discussion, including its expansion in the wake of Russia’s invasion of Ukraine. Among the topics for deliberation are maintaining support for Ukraine, reinforcing partnerships and maintaining an open door, and strengthening transatlantic unity.
This also happens to be the week for Ukraine’s Constitution Day, a public holiday for the country marking the foundation of an independent state in 1996.
Talking of separation, Scottish first minister Nicola Sturgeon is expected on Tuesday to set out in detail how she plans to hold a second independence referendum. Read Robert Shrimsley’s excellent opinion piece to appreciate the reasons why Sturgeon is choosing to do this now. The future of Britain is the subject of a conference taking place in London, jointly organised by the Tony Blair Institute and the Britain Project, a cross between a campaign group and a think-tank.
Of course, reorganising countries is a controversial business as will no doubt be debated on Friday, the 25th anniversary of the handover of Hong Kong by the UK to China. The story of journalist-turned-political-activist Claudia Mo, powerfully told in this weekend’s FT Magazine, recalls the battles fought and ultimately lost by those seeking to maintain autonomy for the city region in the last quarter century — although that will not stop protesters from taking to the streets on Friday.
This week will also see the next instalment of the UK’s summer of discontent with barristers walking out on Monday in ongoing protests over cuts to legal funding — although the Ministry of Justice questions this, saying that criminal legal aid is increasing by £135mn a year. Postal workers may follow the lawyers on to picket lines as the Communication Workers Union this week sends out ballots for industrial action to more than 115,000 of its members.
In need of a little lighter entertainment? Well, it’s a good week for major sporting tournaments with the start of both Wimbledon fortnight and the Tour de France, which this year begins in Copenhagen. The FT has also published its list of summer reading recommendations.
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Consumer confidence reports, inflation and gross domestic product updates this week will give some indication of the effectiveness of the various monetary policy tightening measures in play, and will no doubt give the central bankers in Sintra food for thought.
Sweden and Hungary’s central bankers are making interest rate decisions this week.
A quieter week for diaried corporate announcements. The most significant earnings announcements are all from the US. Investors in Nike, the global sports brand, might be more interested in the senior leadership team than the numbers. Nike’s head of diversity Felicia Mayo will leave the company at the end of next month after just two years in the role.
Here is a more complete list of what to expect in terms of company reports and economic data this week.
The annual European Central Bank Forum on Central Banking begins in Sintra, Portugal
US, May durable goods orders data
Results: Nike Q4
France, consumer confidence figures
Germany, consumer confidence figures
Hungary, interest rate decision
UK, Office for National Statistics publishes the first results from the 2021 Census in England and Wales
US, monthly consumer confidence and house price index figures
Germany, preliminary consumer price index (CPI) figures
Japan, May retail figures
Spain, flash inflation and retail sales data
Sweden, Riksbank’s monetary policy meeting
UK, British Retail Consortium shop price index
UK, EU chief Brexit negotiator Maroš Šefčovič will speak at Bloomberg’s London HQ on the EU-UK partnership
US, Q1 GDP figures
Results: General Mills Q4
Canada, April GDP data
EU, May unemployment figures
France, May producer price index (PPI) data and June CPI data
Germany, June unemployment figures, May import prices plus May retail trade data. Also, ECB president Christine Lagarde’s speech at the first meeting of the Simone Veil Pact, organised by Renew Europe.
Italy, May unemployment figures plus May PPI data
Japan, May industrial production data
UK, final Q1 GDP figures and consumer trends report plus Nationwide’s June house price data
Results: Walgreens Boots Alliance Q3
China, France, Italy, UK, US: Caixin and S&P Global manufacturing purchasing managers’ index (PMI) data
The ECB will end its long-running bond-buying scheme, part of stimulus measures introduced a decade ago, to help battle stubbornly high inflation
EU, flash June inflation figures
Italy, May CPI data
Japan, monthly unemployment rate
UK, consumer credit figures
US, construction spending statistics
Finally, here is a rundown of other events and milestones this week.
The UN Ocean Conference, co-hosted by the governments of Kenya and Portugal, begins in Lisbon
UK, the Wimbledon tennis tournament begins at the All England Lawn Tennis and Croquet Club in south west London amid controversy over the banning of Russian players
UK, lawyers who are members of the Criminal Bar Association begin strike action in an escalating dispute with the government over funding of trials. The walkout by criminal defence barristers is likely to cause widespread disruption to court hearings across England and Wales.
France, the new National Assembly holds its first session after the June 12 parliamentary election results created a hung parliament — read Martin Sandbu’s (premium) Free Lunch newsletter for a more complete explanation. Also, Australia’s new prime minister Anthony Albanese is due to visit Paris to “reset” relations with France after tensions erupted over a scrapped submarine deal.
Spain, Nato’s summit in Madrid begins with heads of government from its 30 member countries expected to attend and discussions to include Sweden and Finland’s applications to join the military alliance. 2022 marks the 40th anniversary of Spain joining Nato.
Ukraine, Constitution Day marking the anniversary of the signing of the Constitution of Ukraine in 1996
UK, London mayor Sadiq Khan hosts the State of London debate at the O2 in Greenwich plus the Henley Royal Regatta begins on the river Thames
US, British socialite Ghislaine Maxwell is due to be sentenced after being found guilty in a sex abuse trial
Belgium, the Ommegang festival, including a pageant re-enacting the historical entry of Charles V, begins in Brussels
UK, Committee on Climate Change publishes its 2022 progress report to parliament, assessing the UK’s chances of achieving net zero by 2050. Plus another strike threat looms with a ballot for industrial action at Royal Mail over plans to remove 542 frontline delivery managers amid wider restructuring.
Philippines, Ferdinand “Bongbong” Marcos Jr, son and namesake of the notorious late dictator, takes office as the country’s new president
UK, the Future of Britain conference, organised by the Tony Blair Institute to discuss progressive solutions to the country’s problems, begins in London
Brazil takes over the presidency of the UN Security Council for July
Canada Day, federal holiday commemorating the formation of the union of the British North America provinces that created Canada in 1868
Denmark, the Tour de France begins in Copenhagen. It will end on the Champs-Élysées in Paris on July 24.
EU, the Czech Republic assumes the six-month presidency of the EU
Hong Kong, 25th anniversary of the reversion of the former colony from British to Chinese rule
India, annual Rath Yatra, or Chariot, Hindu festival
Rwanda, National Day commemorating independence from Belgium
Somalia, National Day commemorating the country’s creation from British Somaliland and Italian Somaliland
UK, deadline for WikiLeaks founder Julian Assange to launch an appeal against the decision to extradite him to the US to face espionage charges
Italy, the Palio di Siena, Italy’s most famous (and controversial) horse race, takes place in the street of Siena’s Piazza del Campo
UK, 50th anniversary of the Pride in London parade
US, World UFO Day takes place on the anniversary of the Roswell incident in New Mexico in 1947
Belarus, Independence Day
UK, the 134th annual Wenlock Olympian Games — believed to have inspired the modern games — begin in Wenlock, Shropshire
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