Hello and welcome to the 27th episode of "Worldview: Central Bank Insights”. I am your host, Reagan Bossong, a sophomore at the Wharton School of Finance, and it is my pleasure to guide you through another exploration of the largest stories regarding global financial dynamics over the past week. In today's discourse, we will begin by discussing the implications of Powell emphasizing the cooling job market, then to political uncertainty in France, and lastly to Junta oppression facilitated by Myanmar's Central Bank.
Yeah, so to begin, Federal Chair Jerome Powell emphasized this past week that the Fed is increasingly focused on a slowing job market in addition to managing inflation, signaling that interest rate cuts may be imminent. Powell highlighted the Fed's dual mandate to maintain price stability and promote maximum employment. He noted that while the Fed has primarily focused on curbing inflation, which surged to a four-decade high in mid-2022, the current economic landscape necessitates attention to employment as well. Despite the past aggressive rate hike, the U.S. economy and job market have shown resilience, with job growth continuing, albeit at a slower pace. From April to June, U.S. employers added an average of 177,000 jobs per month, the slowest hiring rate since January 2021. Powell suggested that the Fed might not wait until inflation reaches its 2% target before beginning to cut rates to avoid harming the economy. Most economists predict that the Fed's first rate cut could occur in September, though Powell has not specified a timeline.
Next, France’s central bank governor has issued a warning about a political uncertainty “shock,” highlighting that business leaders are delaying investments and hiring due to fears of potential tax increases. Speaking on radio on Thursday, the governor noted that businesses are concerned about their customers adopting a wait-and-see approach, choosing to save rather than spend. This cautious behavior is attributed to the fragmented parliamentary assembly resulting from a snap election called by President Emmanuel Macron, which has intensified worries about France's growing public deficit. The central bank governor emphasized the importance of controlling deficits, stating that deeper deficits undermine sovereignty and increase financing costs. He stressed the need to avoid burdening companies with excessive wage costs and taxes, especially in a competitive global economy. This concern comes as various political factions, including the left-wing alliance NFP, push for high-tax and high-spending programs. The NFP, which emerged as the leading group in the recent election, has proposed increasing the net minimum wage and restoring a wealth tax. These measures could potentially lead to higher unemployment which would negatively impact household budgets. The alliance also seeks to reverse Macron’s pension reform, which raised the retirement age. Both conservatives and members of Macron’s Ensemble alliance have expressed reluctance to form a cabinet with the far left. The political uncertainty has affected France’s financial markets, with the risk premium on its benchmark 10-year debt rising significantly. However, investor concerns were somewhat alleviated after it became clear that neither the far-right nor the left alliance secured a parliamentary majority. France’s government, already under pressure from a budget deficit that exceeded its target in 2023, is now facing the challenge of drafting next year’s budget. Economy Minister has indicated that France needs to aim for €25 billion in spending cuts in 2024 to restore public finances, warning that failing to do so could lead to substantial tax increases and a strong market reaction.
Finally, over the past three years since Myanmar’s military coup, the Central Bank of Myanmar (CBM) has emerged as a pivotal part of the junta's machinery of public repression. According to a recent report from the US Institute of Peace, the CBM provides the financial resources necessary for the State Administrative Council (SAC) to wage its wars and circumvent international sanctions. The junta's economic mismanagement has led to an overwhelming reliance on the CBM to fund their operations. With budget deficits ballooning from collapsing tax revenues and rising military expenditures, over 70% of Myanmar’s budget deficit is financed through the CBM. This extensive money printing has resulted in high inflation, nearly 30% in 2024, and significant monetary instability, devaluing the kyat to less than a third of its pre-coup value and making it an unreliable currency. In addition to domestic financing, the CBM secures foreign exchange for the military to purchase sophisticated weaponry, despite the junta running down the country’s reserves to about $3.5 billion, little more than half of that available in 2020. The CBM, in cooperation with the Exchange Supervisory Committee (SESC), prioritizes foreign exchange procurement through measures like forced conversion of foreign currency accounts and export earnings into kyat at rates favorable to the junta. These efforts to move Myanmar’s trade away from the U.S. dollar to currencies like the Chinese RMB, Thai baht, and Russian ruble have had limited success due to the preferences of the junta’s allies for hard currency or gold. Furthermore, the CBM utilizes financial technology (fintech) for state surveillance, closing accounts and seizing assets of those deemed to oppose military rule. The CBM has also neglected efforts to separate the financial system from the illicit economy and is complicit in new forms of cyber-crime, leading the Financial Action Task Force to place Myanmar on its blacklist, alongside Iran and North Korea. Sanctioning the CBM would effectively embargo Myanmar's banking system, curtailing the resources the SAC uses to oppress the population. A recent report by the the U.N. on Myanmar indicates that sanctions on individual banks have reduced the SAC’s capacity to finance arms purchases, but these measures often lead to funding diversions. A comprehensive sanction on the CBM would be more effective in limiting the junta's financial capabilities. While some may argue that sanctions on the Central Bank would harm ordinary citizens, the reality is that the SAC already uses the CBM to harm the population. Sanctions will not themselves bring about change in Myanmar, but they will support those working to bring about the return of Myanmar's freedom.
So yeah, in conclusion, we began by discussing the implications of Powell emphasizing the cooling job market, then to political uncertainty in France, and lastly to Junta oppression facilitated by Myanmar's Central Bank. As we continue to live throughout this financial landscape, the ripples of change will definitely continue being felt across economies worldwide. That’s a wrap for this week's central bank roundup. If you have topics you want me to dive into or thoughts on today's podcast, let me know anytime. You'll find all my contact details in the show notes. Until next time. Thank you!
