It’s not what the Federal Reserve does, but what it says it could do in the future that will be most crucial when the central bank ends its two-day meeting Wednesday.



The Fed is expected to fire off another three-quarter point rate hike — its third in a row. It will also release quarterly forecasts for inflation, the economy, and the future path of interest rates Wednesday at 2 p.m. ET.



The Fed’s projections are always important, but this time they are even more so because investors have been trying to game how&nbsp;<a href="https://www.cnbc.com/2022/09/19/with-inflation-still-high-the-fed-may-be-far-from-where-it-can-stop.html">high it will raise interest rates</a>&nbsp;and how much officials expect their actions could affect the economy.



Fed Chair Jerome Powell speaks at 2:30 p.m. ET, and he is expected to emphasize the central bank will do what it takes to fight inflation and it is unlikely to reverse its rate hikes anytime soon.



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="547" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107094949-16589488462022-07-27t185755z_1401356456_rc2ikv9v3blg_rtrmadp_0_usa-fed-820x547.jpeg" alt="" class="wp-image-419969" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107094949-16589488462022-07-27t185755z_1401356456_rc2ikv9v3blg_rtrmadp_0_usa-fed-820x547.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107094949-16589488462022-07-27t185755z_1401356456_rc2ikv9v3blg_rtrmadp_0_usa-fed-300x200.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107094949-16589488462022-07-27t185755z_1401356456_rc2ikv9v3blg_rtrmadp_0_usa-fed-135x90.jpeg 135w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107094949-16589488462022-07-27t185755z_1401356456_rc2ikv9v3blg_rtrmadp_0_usa-fed-768x512.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107094949-16589488462022-07-27t185755z_1401356456_rc2ikv9v3blg_rtrmadp_0_usa-fed-1536x1024.jpeg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107094949-16589488462022-07-27t185755z_1401356456_rc2ikv9v3blg_rtrmadp_0_usa-fed-scaled.jpeg 2048w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption>Federal Reserve Board Chairman Jerome Powell speaks during a news conference following a two-day meeting of the Federal Open Market Committee (FOMC) in Washington, July 27, 2022. Elizabeth Frantz | Reuters</figcaption></figure>



“I think he puts up a bulletin board behind him that says ‘Inflation Has to Come Down,’” said Rick Rieder, BlackRock chief investment officer for global fixed income. “I think he’s going to talk tough.”



The new forecasts also come as the central bank moves into a rate hiking zone that some economists expect will be more restrictive and could more seriously impact the economy.



“It’s not what they do, it’s what they say. This is our first actual tightening road map. We had theoretical road maps up until now, but from the Fed’s point of view they’re crossing into a world of tightening. That’s an important thing,” said Diane Swonk, chief economist at KPMG.



The Fed has been lifting rates for seven months now, and will now be moving its target rate above what had been considered the neutral zone when inflation was low. Neutral is considered to be the interest rate level where Fed policy is no longer easy but not yet restrictive. The Fed has considered 2.5% to be neutral, and if it raises by three-quarters of a point, the fed funds rate will be in a range of 3% to 3.25%.



“This is really moving into restrictive monetary policy territory. We will be moving into no man’s land,” Swonk said. “We actually haven’t tightened policy to fight inflation since the early 1980s. Their goal is for a prolonged slowdown that grinds inflation slowly down and only gradually increases the unemployment rate. Whether they get there is another issue.”



<h3 class="wp-block-heading" id="h-rate-expectations-jumped">Rate expectations jumped</h3>



Economists have been ratcheting up their forecasts for how high they expect the Fed to take the fed funds target before stopping the hikes. That level is called the terminal rate.



Expectations for Fed tightening increased dramatically in the past week, after a surprisingly hot August consumer price index report. Fed funds futures on Monday were pricing in a terminal rate of 4.5% by April, up from just around 4% before the inflation report was released last Tuesday.



The&nbsp;<a href="https://www.cnbc.com/2022/09/13/inflation-rose-0point1percent-in-august-even-with-sharp-drop-in-gas-prices.html">CPI rose 0.1%</a>&nbsp;in August, while economists had expected a decline.



“The&nbsp;<a href="https://www.cnbc.com/2022/09/13/inflation-rose-0point1percent-in-august-even-with-sharp-drop-in-gas-prices.html">CPI number</a>&nbsp;last week caused a lot in&nbsp;<a href="https://www.cnbc.com/2022/09/14/stocks-could-retest-lows-after-augusts-inflation-shakes-up-markets.html?&amp;amp;qsearchterm=patti%20domm">terms of market repricing,”</a>&nbsp;said Peter Boockvar, chief investment officer at Bleakley Advisory Group. Stocks have been selling off, and bond yields shot higher after that report, with some short-term Treasury yields rising above 4%. The&nbsp;<a href="https://www.cnbc.com/quotes/US10Y">10-year Treasury yield r</a>ose to 3.59% Tuesday, the highest since April, 2011.



The Fed’s last forecast, in June, estimated the terminal rate for fed funds to be at 3.8% in 2023.



Economists now&nbsp;<a href="https://www.cnbc.com/2022/09/19/with-inflation-still-high-the-fed-may-be-far-from-where-it-can-stop.html">expect the Fed to raise the terminal rate forecast above 4%.</a>&nbsp;Citigroup economists said they could even see a scenario where it could go above 5% if the Fed needs to get more aggressive in its inflation fight.



Goldman Sachs economists, in a report, said they expect the median forecast of Fed officials to show the funds rate at 4% to 4.25% at year-end, with another hike to a peak of 4.25% to 4.5% in 2023. They then expect a cut in 2024 and two more in 2025.



<h3 class="wp-block-heading">Labor market pain</h3>



Swonk expects some of that pain to show up a jump in the unemployment rate to above 5% by the end of next year.



In June, the Fed forecast the unemployment rate would be 3.7% this year, the&nbsp;<a href="https://www.cnbc.com/2022/09/02/august-2022-jobs-report-.html">same level as August.</a>&nbsp;Fed officials also expected unemployment to rise to 3.9% in 2023 and 4.1% by 2024.



“I think they’re going to be a little light on the unemployment rate. I’m in the camp that they have to really increase the unemployment rate to really make progress with inflation,” said Jim Caron, Morgan Stanley Investment Management’s head of macro strategies for global fixed income. “They’re in the camp of ‘We don’t have to do that.’”



Caron said the Fed’s rate hiking is a process that will increase the risk of recession.



“By increasing recession risks, you lower inflation risks because it’s all about reducing demand in the economy,” he said. “The sacrifice is slower growth in the future.”



There are some investors betting the Fed will raise rates by a full percentage point, but most economists envision a 75 basis point increase. A basis point equals 0.01 of a percentage point.



“I think 75 basis points is pretty much baked into the cake,” said Caron. “Now, it’s going to be about what they actually tell us &#8230; . They don’t want to do forward guidance, but the reality is people are still going to look at them for forward guidance.”



<h3 class="wp-block-heading">‘Out-hawk’ the market</h3>



Powell has taken on a more hawkish tone. He gave a&nbsp;<a href="https://www.cnbc.com/2022/08/26/powell-warns-of-some-pain-ahead-as-fed-fights-to-lower-inflation.html">short and direct speech at the Fed’s annual Jackson Hole symposium</a>&nbsp;in late August, where he warned the economy could be in for pain from Fed tightening. The chair stressed that the Fed will use economic data to guide policy, and he has also emphasized that policymakers will hold rates at high levels until inflation eases.



“I think the message will be largely the same as Jackson Hole,” said Michael Gapen, chief U.S. economist at Bank of America. “It will be about getting policy restrictive, getting it there for a period of time with the overarching goal being price stability.”



Caron said it’s possible Powell could sound inadvertently dovish because the Fed has tilted very hawkish.



“I think a 75 basis point move is pretty darn hawkish, the third one in a row,” said Caron. “I don’t think they have to work very hard to ‘out-hawk’ the market.”

107094949-16589488462022-07-27t185755z_1401356456_rc2ikv9v3blg_rtrmadp_0_usa-fed

Fed expected to hike rates by three-quarters of a point again, but its forecast may matter most

<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="612" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107121790-1663737204555-gettyimages-1243390963-RUS_Russian_President_Putin_Attends_Official_Events_In_Moscow-820x612.jpeg" alt="" class="wp-image-419965" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107121790-1663737204555-gettyimages-1243390963-RUS_Russian_President_Putin_Attends_Official_Events_In_Moscow-820x612.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107121790-1663737204555-gettyimages-1243390963-RUS_Russian_President_Putin_Attends_Official_Events_In_Moscow-300x224.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107121790-1663737204555-gettyimages-1243390963-RUS_Russian_President_Putin_Attends_Official_Events_In_Moscow-121x90.jpeg 121w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107121790-1663737204555-gettyimages-1243390963-RUS_Russian_President_Putin_Attends_Official_Events_In_Moscow-768x573.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107121790-1663737204555-gettyimages-1243390963-RUS_Russian_President_Putin_Attends_Official_Events_In_Moscow-1536x1146.jpeg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107121790-1663737204555-gettyimages-1243390963-RUS_Russian_President_Putin_Attends_Official_Events_In_Moscow-scaled.jpeg 2048w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption>Russian President Vladimir Putin speaks during a meeting on the military-industrial complex at the Kremlin, September 20, 2022, in Moscow, Russia. Contributor | Getty Images News | Getty Images</figcaption></figure>



Russian President Vladimir Putin on Wednesday announced a partial military mobilization in Russia, putting the country’s people and economy on a wartime footing as Moscow’s invasion of Ukraine continues.



In a rare pre-recorded televised announcement, Putin said the West “wants to destroy our country” and claimed the West had tried to “turn Ukraine’s people into cannon fodder,” in comments translated by Reuters, repeating earlier claims in which he has blamed Western nations for starting a proxy war with Russia.



Putin said “mobilization events” would begin Wednesday without providing many further details, aside from saying that he had ordered an increase in funding to boost Russia’s weapons production.



A partial mobilization is a hazy concept, but it could mean that Russian businesses and citizens have to contribute more to the war effort. Russia has not yet declared war on Ukraine, despite having invaded it in February, and it calls its invasion a “special military operation.”



In what was immediately greeted as an escalatory address, Putin also accused the West of engaging in nuclear blackmail against Russia and warned again that the country had “lots of weapons to reply” to what he said were Western threats — adding that he was not bluffing.



Putin has alluded to Russia’s nuclear weaponry at various points during the conflict with Ukraine but there are doubts over whether Moscow would actually resort to deploying such a weapon, with analysts saying it could be tantamount to starting a third world war.



British Foreign Office Minister Gillian Keegan told Sky News immediately after the speech that Putin’s comments should not be taken lightly.



“Clearly it’s something that we should take very seriously because, you know, we’re not in control — I’m not sure he’s in control either, really. This is obviously an escalation,” she said.



<h2 class="wp-block-heading" id="h-russia-under-pressure"><a></a>Russia under pressure</h2>



Putin’s comments come as Russia’s invasion of Ukraine, which began in late February, approaches the winter period with momentum appearing to be on Ukraine’s side after it launched lightning counteroffensives in the northeast and south to reclaim lost territory.



Speculation mounted Tuesday that Putin could be about to announce a full or partial mobilization of the Russian economy and society, paving the way for possible conscription of Russian men of fighting age, after Moscow-installed officials in occupied areas of Ukraine announced plans to stage immediate referenda on joining Russia.



The votes — set to take place in Donetsk, Luhansk, Kherson and Zaporizhzhia this weekend and with the results widely expected to be rigged in favor of joining Russia — would enable the Kremlin to claim, albeit falsely, that it was “defending” its own territory and citizens.



Plans to hold such votes were widely condemned by Ukraine and its Western allies who said they would not recognize the ballots and efforts to annex more of Ukraine, as Russia did with Crimea in 2014.



Putin on Wednesday repeated earlier claims from Moscow that Russia’s aim is to “liberate” the Donbas, a region in eastern Ukraine in which there are two self-proclaimed, pro-Russian republics, and said he had ordered the government to give legal status to volunteers fighting in the Donbas, Reuters reported.

107121790-1663737204555-gettyimages-1243390963-RUS_Russian_President_Putin_Attends_Official_Events_In_Moscow

Russia’s Putin announces partial military mobilization

<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="546" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107084717-16570507572022-07-05t191321z_273521157_rc2v5v9hednt_rtrmadp_0_britain-politics-820x546.jpeg" alt="" class="wp-image-419815" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107084717-16570507572022-07-05t191321z_273521157_rc2v5v9hednt_rtrmadp_0_britain-politics-820x546.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107084717-16570507572022-07-05t191321z_273521157_rc2v5v9hednt_rtrmadp_0_britain-politics-300x200.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107084717-16570507572022-07-05t191321z_273521157_rc2v5v9hednt_rtrmadp_0_britain-politics-135x90.jpeg 135w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107084717-16570507572022-07-05t191321z_273521157_rc2v5v9hednt_rtrmadp_0_britain-politics-768x512.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107084717-16570507572022-07-05t191321z_273521157_rc2v5v9hednt_rtrmadp_0_britain-politics-1536x1023.jpeg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107084717-16570507572022-07-05t191321z_273521157_rc2v5v9hednt_rtrmadp_0_britain-politics-scaled.jpeg 2048w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption>ONS figures showed that real wages in the U.K. over the three months to May experienced their steepest decline since records began in 2001. Henry Nicholls | Reuters</figcaption></figure>



LONDON — U.K. inflation slowed in August on the back of a fall in fuel prices, though food prices continued to rise as the country’s cost-of-living crisis persists.



The consumer price index rose 9.9% annually, according to estimates published Wednesday by the Office for National Statistics, fractionally below a consensus forecast of 10.2% among economists polled by Reuters. It was also down from July’s figure of 10.1%.



Month-on-month, consumer prices rose 0.5%, fractionally below forecasts. Core inflation, which excludes volatile energy, food, alcohol and tobacco, was up 0.8% month-on-month and 6.3% year-on-year, in line with expectations.



“A fall in the price of motor fuels made the largest downward contribution to the change in both the CPIH and CPI annual inflation rates between July and August 2022,” the ONS said in its report.



“Rising food prices made the largest, partially offsetting, upward contribution to the change in the rates.”



Sterling was roughly flat against the dollar on Wednesday morning, trading at around $1.1490.



The U.K. has been hit by a historic cost-of-living crisis this year as food and energy prices skyrocket and pay increases fail to keep pace with inflation, which has led to one of the sharpest falls in real wages on record.



Last week, new British Prime Minister Liz Truss announced an emergency fiscal package capping annual household energy bills at £2,500 ($2,881.90) for the next two years, with an equivalent guarantee for businesses over the next six months and further support in the pipeline for vulnerable sectors.



Analysts expect the measures — estimated to cost the public purse around £130 billion — to sharply reduce the inflation outlook in the short term, but increase it over the medium term.



<h2 class="wp-block-heading" id="h-could-likely-be-a-fluke"><a></a>‘Could likely be a fluke’</h2>



The Bank of England is set to announce its latest monetary policy decision next Thursday after a delay due to the death of Queen Elizabeth II, and is widely expected to opt for a sharp 75 basis point increase to interest rates as it looks to drag down inflation.



At its last meeting, the Bank projected that inflation would peak at 13.3% before the end of the year, and policymakers will be reappraising their outlook in light of Truss’s new energy cap announcement.



“With hope, the cap on energy bills may mean inflation is now close to peaking, though last month’s fall could likely be a fluke and we may see inflation climb further still in the months to come,” said Richard Carter, head of fixed interest research at Quilter Cheviot.



“While the energy plan may help, it comes at the cost of higher levels of borrowing and government spending which could encourage the Bank of England to hike rates even further than originally expected.”

107084717-16570507572022-07-05t191321z_273521157_rc2v5v9hednt_rtrmadp_0_britain-politics

UK inflation rate unexpectedly dips to 9.9% as fuel prices decline

<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="547" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/09/GettyImages-1243054738-820x547.jpg" alt="" class="wp-image-419725" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/09/GettyImages-1243054738-820x547.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/GettyImages-1243054738-300x200.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/GettyImages-1243054738-135x90.jpg 135w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/GettyImages-1243054738-768x512.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/GettyImages-1243054738-1536x1024.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/GettyImages-1243054738-scaled.jpg 2048w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption>LONDON, UNITED KINGDOM &#8211; SEPTEMBER 08: Members of the public gather outside Buckingham Palace following the announcement of the death of Queen Elizabeth II in London, United Kingdom on September 08, 2022. Buckingham Palace has announced today that Queen Elizabeth II has died peacefully at Balmoral at the age of 96. (Photo by Wiktor Szymanowicz/Anadolu Agency via Getty Images)</figcaption></figure>



LONDON — The death of Queen Elizabeth II marks the start of a new era for the U.K. — but it’s one fraught with economic uncertainty and dampening national sentiment.



The queen, who at 96 was the U.K.’s longest-reigning monarch, died “peacefully” Thursday at Balmoral Castle, Scotland, hours after doctors expressed concern for her ailing health.



Thousands of Brits gathered outside Buckingham Palace in the pouring rain following the news to pay their respects.



The queen — whose 70-year reign spanned the aftermath of WWII, the winding down of Britain’s vast empire, the 2016 Brexit vote and a global pandemic — had come to symbolize a rare constant in a world of constant change. She is succeeded by her eldest son, who was proclaimed King Charles III hours after her death.



Her passing will be marked by a period of solemn ceremony, during which no government announcements will be made until after her funeral, which will be marked with a public holiday in approximately 10 days.



<h2 class="wp-block-heading" id="h-suspension-of-normal-politics"><a></a>Suspension of normal politics</h2>



The suspension of normal politics comes just days after the U.K. installed its new prime minister Liz Truss, who was appointed Tuesday by the queen herself, in her final act of public service.



Truss enters 10 Downing Street at a time of unique flux for Britain, inheriting a country saddled with its worst economic outlook in years, a deepening energy crisis and increased inequality.



Hours before the queen’s death, Truss set to work outlining her plans to combat the U.K.’s cost-of-living crisis, unveiling a broad stimulus package designed to help Brits with energy bills, which have soared following Russia’s war in Ukraine.



It comes after a petition to boycott energy bills began gaining traction in the U.K.



The Treasury says the package, which is set to cost over £100 billion, will lower peak inflation by 4-5 percentage points. But economists have warned that the move could complicate the Bank of England’s already mammoth task of curbing record-high prices, by spurring spending on goods and wages.



The U.K. central bank delivered its biggest rate hike in 27 years last month, raising the benchmark to 1.75%, in a bid to bring down in inflation, which is currently the highest among G-7 nations at 10.1%. Investors had widely expected a further 50 basis point hike when the BoE meets next week, but some now say it will be forced to lift rates higher and more quickly.



<h2 class="wp-block-heading"><a></a>Rising recessionary risks</h2>



The uncertain outlook comes as the country faces rising recessionary risks. Goldman Sachs warned last week that the U.K. could fall into recession in the fourth quarter of this year, echoing earlier forecasts from the Bank of England.



Briton’s are now bracing for a winter of hardship for both household and businesses.



The British pound has already been on a downward trajectory over the past several months, hitting a 37-year low of $1.1469 on Wednesday.



It piles pressure not only on Truss but also King Charles, Britain’s two new leaders, whose role it will be to rally public sentiment during a period of crisis. The pair are set to meet later Friday in London.



The monarchy also faces ongoing criticism for being outdated and absorbing public finances. Indeed, the cost and ceremony of the queen’s funeral will not be lost on a country in the grips of a cost-of-living crisis.



“King Charles has already got plans — we’ll see them over the coming months and certainly years — to slim down the Royal Family,” Andrew Roberts, a historian and professor at King’s College London, told CNBC Friday.



“We are facing a massive cost-of-living crisis in the U.K., obviously, and what people want to see is the Royal Family reflecting that,” he said, adding that there may be fewer royals participating in high profile events going forward.



Truss on Thursday called on Britain to “come together as a people” and support its new head of state.



“Queen Elizabeth II was the rock on which modern Britain was built,” Truss said in a speech outside No. 10. “With the passing of the second Elizabethan age, we usher in a new era in the magnificent history of our great country.”&nbsp;



She added that Britons should rally round Charles III to “help him bear the awesome responsibility that he now carries for us all,” she added. “God save the King.”

Britain’s Queen Elizabeth II Dies at the Age of 96

Queen Elizabeth II’s death marks a new era for Britain, beset by economic uncertainty

<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="717" height="403" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107076151-1655299973535-gettyimages-1241323583-AFP_32CJ7Y3.webp" alt="" class="wp-image-419696" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107076151-1655299973535-gettyimages-1241323583-AFP_32CJ7Y3.webp 717w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107076151-1655299973535-gettyimages-1241323583-AFP_32CJ7Y3-300x169.webp 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107076151-1655299973535-gettyimages-1241323583-AFP_32CJ7Y3-160x90.webp 160w" sizes="auto, (max-width: 717px) 100vw, 717px" /><figcaption>The ECB announced a second consecutive interest rate rise to combat red-hot inflation. Daniel Roland | Afp | Getty Images</figcaption></figure>



The European Central Bank on Thursday announced a 75 basis point interest rate rise, taking its benchmark deposit rate to 0.75%.



“This major step frontloads the transition from the prevailing highly accommodative level of policy rates towards levels that will ensure the timely return of inflation to the ECB’s 2% medium-term target,” it said in a statement.



It added it “expects to raise interest rates further, because inflation remains far too high and is likely to stay above target for an extended period.”



It revised up its inflation expectations, forecasting an average 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024.



Markets had largely priced in a 75 basis point hike, with the euro remaining flat against the British pound and rising slightly against the dollar to 1.0005. On Monday the euro dipped below 99 cents for the first time in 20 years.



The ECB move follows a hike from -0.5% to zero at its July meeting. The central bank, which sets monetary policy for the 19 euro-using nations, has kept rates in negative territory since 2014 in a bid to spur spending and combat low inflation.



The central bank now faces a very different problem, with consumer prices in the euro zone rising by 9.1% in August, setting a ninth consecutive record.



Thursday’s rate rise keeps the ECB below its “neutral” rate of between 1% to 2%.



Konstantin Veit, portfolio manager at investment firm Pimco, told CNBC’s “Squawk Box Europe” Thursday that it was now “uncontroversial” within the Frankfurt-based institution to get within this range before the end of the year.



The “more interesting” question now, he said, was what its “terminal rate” — the highest point— will be during this hiking cycle.



Markets will now be hunting for clues as to whether it will move above the neutral range into tightening territory.

107076151-1655299973535-gettyimages-1241323583-AFP_32CJ7Y3

European Central Bank raises rates by 75 basis points to tackle soaring inflation

<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="547" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/09/GettyImages-1419815760-820x547.jpg" alt="" class="wp-image-419630" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/09/GettyImages-1419815760-820x547.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/GettyImages-1419815760-300x200.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/GettyImages-1419815760-135x90.jpg 135w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/GettyImages-1419815760-768x512.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/GettyImages-1419815760-1536x1025.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/GettyImages-1419815760-scaled.jpg 2048w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption>LONDON, ENGLAND &#8211; AUGUST 31: Foreign Secretary and Conservative leadership hopeful Liz Truss speaks during the final Tory leadership hustings at Wembley Arena on August 31, 2022 in London, England. Foreign Secretary, Liz Truss and former Chancellor Rishi Sunak are vying to become the new leader of the Conservative Party and the UK&#8217;s next Prime Minister. The winner of the contest will be announced on Monday. (Photo by Dan Kitwood/Getty Images)</figcaption></figure>



LONDON — After a drawn-out contest, the country’s ruling Conservative Party on Monday picked Liz Truss to be its new leader and the U.K.’s new prime minister.



Truss, until now the U.K.’s foreign minister, beat rival Rishi Sunak, the country’s former finance minister, to win the leadership race. With members of the Conservative Party asked to vote for their favorite candidate over the last few weeks, 81,326 members voted for Truss while 60,399 members voted for Sunak. Turnout was 82.6% with 172,437 party members voting in total.



Roughly, Truss has taken around 57% of the vote while Sunak achieved 42% of the vote.



Truss took to the stage to thank her supporters and ostensibly mentioned Boris Johnson, her “friend.” Saying she will govern as a Conservative, Truss said she intended to deliver “what we promised voters in 2019″ and said she would push a “bold plan to cut taxes” and grow the British economy. She said she will deal with long-term issues regarding the country’s energy supply too. Truss told delegates that she would deliver a victory for the party at the next election that’s expected in 2024.



Truss does not automatically become prime minister on Monday as ritual dictates that the outgoing prime minister (in this case Boris Johnson) first has to tender his resignation to Queen Elizabeth II, who then appoints Truss.



As the queen is currently staying in her Scottish residence Balmoral Castle, that event will take place there rather than in Buckingham Palace in London as the 96-year-old monarch experiences continuing mobility issues.



Johnson and Truss are set to travel up to Balmoral on Tuesday and the journey is likely to be cordial — Truss was among the high-level ministers that remained loyal to Johnson in the final death throes of his leadership, which by the end had been engulfed by several political controversies and scandals, while other top officials jumped ship.



Johnson dragged his feet but after repeated calls to resign he reluctantly announced on July 7 that he would step down as party leader, but would remain in office while his successor was chosen.



When Truss is appointed prime minister she is taking on the biggest challenge of her political career: Governing a fractious and divided political party and leading a country facing the biggest cost-of-living crisis in decades while maintaining support for Ukraine amid a continuing war on Europe’s doorstep.



The cost-of-living crisis and imminent energy bill spike is likely to be Truss’ priority and she’ll have to hit the ground running to deal with the immediate squeeze on Britons’ pockets, with inflation continuing its upward trend.



Truss has promised to unveil measures to help struggling Brits within a week of taking office but has so far ruled out energy rationing — although she might not be able to fulfil that promise.



Economists say the package of measures will need to be big, very big, in order to pull the U.K. through a winter of crisis.



“Once in power, Liz Truss will likely be forced to take more drastic action to prevent winter supply shortages,” Eurasia Group’s Mujtaba Rahman and Henning Gloystein said in a research note last week.



“Alongside her “fiscal intervention,” Truss is also likely to unveil an energy package, which while aimed primarily at domestic consumers, will cover questions like storage, raising production, and ensuring that the UK’s Norway stream is secure.”



“With little policy action undertaken so far, it seems likely that more significant steps will be required during the fall and winter, including nonessential industries being ordered to temporarily shut down or, curtailments on public energy use in order to avoid the worst-case scenario of rolling heating or power outages,” which they gave a 70% probability.



There is only a 30% chance that the U.K. “can get through this winter without additional severe measures to reduce consumption,” the analysts said.

Sunak And Truss Face Off In Final Tory Leadership Hustings

Liz Truss to become Britain’s next prime minister, replacing Boris Johnson

<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="461" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107104921-1660703209363-gettyimages-1242048853-fillon-notitle220721_nptgt-820x461.jpeg" alt="" class="wp-image-419606" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107104921-1660703209363-gettyimages-1242048853-fillon-notitle220721_nptgt-820x461.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107104921-1660703209363-gettyimages-1242048853-fillon-notitle220721_nptgt-300x169.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107104921-1660703209363-gettyimages-1242048853-fillon-notitle220721_nptgt-160x90.jpeg 160w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107104921-1660703209363-gettyimages-1242048853-fillon-notitle220721_nptgt-768x432.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107104921-1660703209363-gettyimages-1242048853-fillon-notitle220721_nptgt-1536x864.jpeg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/107104921-1660703209363-gettyimages-1242048853-fillon-notitle220721_nptgt.jpeg 1920w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption>10 and 5 euro notes. Adrien Fillon | Nurphoto | Getty Images</figcaption></figure>



The euro has fallen below $0.99 for the first time in 20 years after Russia said it would shut off its main gas supply pipeline to Europe indefinitely.



At 7.30 a.m. London time Monday, the euro was trading at 0.9898 versus the dollar, just off lows of around 0.9881 hit earlier in the morning.



The dollar index, which measures the greenback against six major currencies, breached a fresh two-decade high as the British pound slid on fears over energy supply and European economic growth.&nbsp;



On Friday, Russian energy supplier Gazprom announced it would not resume its supply of natural gas to Germany through the key Nord Stream 1 pipeline, blaming a malfunctioning turbine.



This is a developing story&#8230;

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Euro slides below $0.99 after Russia halts gas supplies to Europe

<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="461" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/09/106988042-1639175621183-gettyimages-1358314993-dscf4912_2021121042023370-820x461.jpeg" alt="" class="wp-image-419581" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/09/106988042-1639175621183-gettyimages-1358314993-dscf4912_2021121042023370-820x461.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/106988042-1639175621183-gettyimages-1358314993-dscf4912_2021121042023370-300x169.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/106988042-1639175621183-gettyimages-1358314993-dscf4912_2021121042023370-160x90.jpeg 160w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/106988042-1639175621183-gettyimages-1358314993-dscf4912_2021121042023370-768x432.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/106988042-1639175621183-gettyimages-1358314993-dscf4912_2021121042023370-1536x864.jpeg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2022/09/106988042-1639175621183-gettyimages-1358314993-dscf4912_2021121042023370.jpeg 1920w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption>Photo: via CNBC</figcaption></figure>



Job growth in August likely slowed from July’s frenzied pace, but it is still expected to have been quite strong, with broad-based hiring across many sectors.



Monthly jobs data is always important, but the August report, released at 8:30 a.m. ET Friday, is particularly key since the state of the labor market will be an important consideration in the Federal Reserve’s next interest rate decision later this month.



The economy is expected to have added 318,000 jobs in August, less than the surprisingly strong 528,000 jobs added in July, according to Dow Jones. The unemployment rate is expected to hold steady at 3.5%, while average hourly wages are forecast to rise 0.4%, or 5.3% on an annualized basis.



“The view from market participants is the employment report is more important than the CPI inflation report in determining whether a 75 basis point or larger hike in September is more appropriate than a 50 basis point hike, and I think that’s the right view,” said Michael Gapen, chief U.S. economist at Bank of America.



The other important data central bank officials will consider as they meet Sept. 20 and 21 is the August consumer price index, released Sept. 13. CPI is expected to be high but lower than July’s 8.5% pace, due to falling gasoline prices.



Stocks sold off ahead of the nonfarm payroll report this week on worries about inflation and rising interest rates. Strategists say the jobs report could be perceived as a “bad news is good news” type of report. A strong number could trigger more selling and a move up in bond yields, since investors will assume it will make the Fed more aggressive about raising interest rates.



“A weak number will lead to a rally in bonds,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “It will lead to weakness in the dollar and that will give us a relief rally in stocks, but I don’t know how long that will last because buying stocks into the teeth of a recession hasn’t been a great strategy. I think it’s going to be a recession for some and maybe not for others.”



Fed Chair Jerome Powell spooked the market last week when he emphasized the central bank is committed to battling inflation with higher rates, and it does not plan to back down. Many market pros expected the Fed to reverse some of its rate increases next year.



Powell used his Jackson Hole speech to bluntly warn that the economy and labor market will likely feel “pain,” as the Fed uses rate hikes to try to bring inflation under control. Investors have been debating whether the Fed will use its September meeting to fire off a third three-quarter point hike, or pare back to half a percentage point.



On Wednesday, Cleveland Fed President Loretta Mester, a voting member of the Fed policy setting committee, said the central bank will have to move it key lending rate above 4% by early 2023 and keep it there.



<h2 class="wp-block-heading" id="h-focus-of-the-fed"><a></a>Focus of the Fed</h2>



“The labor market situation has been a focus of the Fed,” said Diane Swonk, chief economist at KPMG. “It’s one thing to say that unemployment is unsustainably low, and it’s another thing to say we’re going to raise unemployment. They mean the same thing. &#8230; Pain in the labor market is raising unemployment.”



Swonk said there is a lot of emphasis on the August jobs report, but it is the one month when economists expect the government’s monthly payroll data to be misleading.



“August tends to be the lowest response rate for the payroll survey of any month of the year, which makes it subject to some of the largest revisions,” she said. “This number is likely to get revised a lot. It’s a number you have to take with a little bit of a grain of salt.”



Swonk said small business hiring has probably been more affected by the pinch of inflation and higher rates than the larger employers. She expects there could be some degree of labor “hoarding,” as companies hold on to workers rather than lay them off because of the difficulties in finding workers.



Leisure and hospitality, for instance, may not see its usual end-of-summer downturn because businesses were already short staffed going into the summer vacation season, she added.



<h2 class="wp-block-heading" id="h-negative-by-early-next-year"><a></a>Negative by early next year</h2>



Both Swonk and Gapen expect the job market to begin turning out negative monthly numbers by early next year, as the Fed’s tightening takes a toll on the labor market.



Yet the jobs market remains surprisingly resilient so far. The Bureau of Labor Statistics this week reported a stunning 11.2 million job openings in July, 1 million more than expected.



Tom Gimbel, founder of LaSalle Networks, a recruiting firm, said he is not really seeing a slowdown despite high-profile announcements of layoffs in the technology sector.



“We’re seeing a big uptick in technology&#8230;It continues to grow. The biggest numbers tend to be in cybersecurity. I’m seeing a 20% increase year over year in the number of job openings,” he said. “I’m seeing an increase of 15% in project management. Companies are still doing special projects within the tech space.” He said sales jobs are also up by 10% since last year.



“We just heard the message again from Jackson Hole, the Fed is serious and we’re going to get inflation under control. The labor market is clearly out of balance,” said Gapen. “The stronger it is across the board, the more Fed tightening it’s going to bring.”

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Critical August jobs report expected to run hot and that could lead to a more aggressive Fed

<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="547" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/08/DLULD7LDGFJCNKWJJUQTBTLYLI-820x547.jpg" alt="" class="wp-image-419555" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/08/DLULD7LDGFJCNKWJJUQTBTLYLI-820x547.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2022/08/DLULD7LDGFJCNKWJJUQTBTLYLI-300x200.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/08/DLULD7LDGFJCNKWJJUQTBTLYLI-135x90.jpg 135w, https://cms.cnbcafrica.com/wp-content/uploads/2022/08/DLULD7LDGFJCNKWJJUQTBTLYLI-768x512.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2022/08/DLULD7LDGFJCNKWJJUQTBTLYLI.jpg 960w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption>A World Meteorological Organization (WMO) headquarter is pictured before a news conference to launch state of global climate report at the United Nations in Geneva, Switzerland, May 18, 2022. REUTERS/Denis Balibouse</figcaption></figure>



GENEVA, Aug 31 (Reuters)&nbsp;&#8211;&nbsp;The La Nina weather pattern will last until at least the end of the year, becoming the first time this century it will have spanned three consecutive northern winters, the World Meteorological Organization predicted on Wednesday.



La Nina conditions in the tropical Pacific strengthened as trade winds intensified in mid-July to mid-August, affecting temperatures and precipitation patterns and exacerbating drought and flooding in different parts of the world.



The WMO&#8217;s El Nino/La Nina Update foresaw the current La Nina &#8211; which started in September 2020 &#8211; continuing over the next six months, with a 70% chance in September-November 2022 and decreasing to 55% in December-February 2022-2023.



La Nina refers to the cooling of ocean surface temperatures coupled with winds and rainfall. It usually has the opposite impact on weather and climate as El Nino, which is the warm phase of the so-called El Nino Southern Oscillation (ENSO).&#8221;It is exceptional to have three consecutive years with a La Nina event. Its cooling influence is temporarily slowing the rise in global temperatures – but it will not halt or reverse the long-term warming trend,&#8221; WMO Secretary-General Petteri Taalas said in a statement.



He said the worsening drought in the Horn of Africa and southern South America bore the hallmarks of La Nina, as did above-average rainfall in southeast Asia and Australasia.



&#8220;The new La Nina Update unfortunately confirms regional climate projections that the devastating drought in the Horn of Africa will worsen and affect millions of people,&#8221; he added.



(Reporting by Michael Shields; Editing by Mark Heinrich)

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WMO forecasts first ‘triple-dip’ La Nina of the century

<figure class="wp-block-image size-large is-resized"><img loading="lazy" decoding="async" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107111800-1661935577906-GettyImages-1241892086-820x462.jpg" alt="" class="wp-image-419549" width="820" height="462" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107111800-1661935577906-GettyImages-1241892086-820x462.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107111800-1661935577906-GettyImages-1241892086-300x169.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107111800-1661935577906-GettyImages-1241892086-160x90.jpg 160w, https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107111800-1661935577906-GettyImages-1241892086-768x432.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107111800-1661935577906-GettyImages-1241892086.jpg 929w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption>Photo via: CNBC</figcaption></figure>



Euro zone inflation hit a new record high in August of 9.1%, according to flash figures from Europe’s statistics office Eurostat, with high energy prices the main driving force.



The rate was above expectations, with a Reuters poll of economists anticipating a rate of 9%. It is the ninth consecutive record for consumer price rises in the region, with the climb starting back in November 2021. Headline inflation in the euro zone hit 8.9% (year-on-year) in July.



Energy had the highest annual inflation rate at 38.3%, Eurostat said Wednesday, down slightly from 39.6% in July. Food, alcohol and tobacco were up 10.6% compared to 9.8% in July, with the knock-on effects of recent heatwaves across the continent contributing to increases.



Non-energy industrial goods, such as clothing, household appliances and cars were up 5% compared to last year, a 0.5 percentage point increase on last month, while services were up by 3.8% in price year-on-year, 0.1 percentage points more than in July.



<h2 class="wp-block-heading" id="h-french-and-spanish-inflation-slows"><a></a>French and Spanish inflation slows</h2>



Drilling down into national figures, the French inflation rate decreased to 6.5% in August, down from 6.8% in July. The rate was lower than expectations, with economists polled by Reuters having anticipated a drop to 6.7%.



Spain also released slowing inflation figures for August, at 10.3% year-on-year compared to 10.7% for July, according to the Eurostat flash estimate.



Meanwhile, the region’s largest economy, Germany, saw inflation reach its highest level in almost half a century at 8.8% year-on-year in August.



Estonia currently has the highest inflation rate in the euro zone at 25.2%, followed by Lithuania (21.1%) and Latvia (20.8%). Malta and Finland follow France with the lowest inflation rates, at 7.1% and 7.6% respectively.



<h3 class="wp-block-heading" id="h-the-ecb-has-some-catching-up-to-do">The ECB ‘has some catching up to do’</h3>



Inflation continues to hit new records just as the European Central Bank mulls another large interest rate hike for next month.



The ECB increased interest rates by 50 basis points to zero on July 21 – its first rate hike in 11 years – and a similar, or larger, hike is now expected on Sept. 8.



“Some members are inclined to advocate a 75 basis points interest rate increase,” Peter Schaffrik, global macro strategist at RBC Capital Markets, told CNBC’s “Squawk Box Europe” on Wednesday.



“Despite the slowdown in the economy that we will almost certainly be getting, the central banks won’t let up on their hiking path,” he said.



The outlook for Europe’s economy is “pretty bleak,” Kenneth Wattret, head of economics at S&amp;P Global Market Intelligence, told CNBC’s “Street Signs Europe” on Aug. 23.



“It looks inevitable that the euro area is headed for a recession. The question is only how deep it will be and how long it will last,” he said. The ECB “has some catching up to do,” according to the economist.



“The ECB is way behind the curve, inflation is exceptionally elevated and likely remain that way for at least the next seven months,” Wattret said.



France’s Finance Minister Bruno Le Maire told CNBC’s Charlotte Reed Tuesday that inflation is a main focus for the nations of Europe in the short term. “The key challenge that we all have to face for the next weeks and the next months, is to reduce the level of inflation everywhere in Europe,” Le Maire said.



“So it’s up to the ECB to take the right decisions, and we fully trust the ECB to take the right decisions, but the key point is to have a decrease in the level of inflation everywhere in Europe,” he said.

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Euro zone inflation hits another record of 9.1% as food and energy prices soar

<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="546" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107111594-1661891333246-gorb-820x546.jpg" alt="" class="wp-image-419545" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107111594-1661891333246-gorb-820x546.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107111594-1661891333246-gorb-300x200.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107111594-1661891333246-gorb-135x90.jpg 135w, https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107111594-1661891333246-gorb-768x512.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107111594-1661891333246-gorb-1536x1024.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107111594-1661891333246-gorb-scaled.jpg 2048w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption>Photo: via CNBC</figcaption></figure>



Mikhail Gorbachev, the final leader of the Soviet Union and a reformer who helped end the Cold War and lead his country from communism to capitalism, died Tuesday at 91, according to the Gorbachev Foundation.



“Mikhail Sergeevich Gorbachev died this evening after a serious and long illness,” the Central Clinical Hospital reported, according to the Interfax news agency.



He&nbsp;will be buried at the Novodevichy Cemetery in Moscow next to his wife, Raisa Gorbachev, according to the agency.



Born in the village of Privolnoye, Gorbachev grew up a committed communist during World War II. After he graduated from Moscow State University with a law degree in 1955, he rose through the ranks of the Communist Party and ascended to its top position — general secretary — in March 1985.



Gorbachev ushered in sweeping changes like “perestroika” and “glasnost,” reforms that sought to restructure the Soviet Union’s lagging economy and make its government more transparent.



Gorbachev and his wife <a href="https://www.washingtonpost.com/archive/politics/1985/03/16/wow-a-soviet-first-lady/65148ba4-bbba-4eec-8e88-dfa98873786c/" target="_blank" rel="noreferrer noopener">were also known</a> for a stylish charm at odds with the images of their predecessors. The Daily Mail dubbed them “the Gucci couple.”



When pro-democracy rallies began in Poland and swept across the Soviet bloc in 1989, Gorbachev did not send in Soviet tanks to crush the uprisings. The following year, he won the&nbsp;<a href="https://www.nobelprize.org/prizes/peace/1990/gorbachev/facts/" target="_blank" rel="noreferrer noopener">Nobel Peace Prize</a>&nbsp;for helping end the Cold War.



The Soviet Union quickly began to disintegrate as the captive Baltic nations of Lithuania, Latvia and Estonia peeled away and other nations that had long been under Moscow’s yoke, including Ukraine, sought independence.



Months after an attempted coup, Gorbachev resigned on Dec. 25, 1991. The Soviet Union was dissolved a day later.



“I see myself as a man who started the reforms that were necessary for the country and for Europe and the world,” Gorbachev&nbsp;<a href="https://apnews.com/article/russia-ukraine-mikhail-gorbachev-obituaries-5cb7a604243668f08dfaed953c09559e" target="_blank" rel="noreferrer noopener">told The Associated Press</a>&nbsp;in 1992 shortly after he left office.



“I am often asked, would I have started it all again if I had to repeat it? Yes, indeed. And with more persistence and determination,” he told the AP.



A journalist and close friend of Gorbachev’s,&nbsp;Alexey Venediktov,&nbsp;<a href="https://odessa-journal.com/mikhail-gorbachev-he-destroyed-my-lifes-work/" target="_blank" rel="noreferrer noopener">told Forbes Russia</a>&nbsp;this year that Gorbachev was “disappointed” by Russian President Vladimir Putin’s invasion of Ukraine.



“It was his life’s work,” Venediktov said, recalling perestroika and glasnost. “Freedom is Gorbachev’s business.”



Venediktov told the outlet he believed Gorbachev’s legacy was being destroyed.



On Tuesday, Putin expressed “deep condolences” over his death, the Russian state news agency Tass reported.



U.N. Secretary-General&nbsp;<a href="https://twitter.com/antonioguterres/status/1564739704284651526" target="_blank" rel="noreferrer noopener">António Guterres</a>, European Union Commission President&nbsp;<a href="https://twitter.com/vonderleyen/status/1564726250358317061" target="_blank" rel="noreferrer noopener">Ursula von der Leyen</a>&nbsp;and other officials praised Gorbachev’s leadership Tuesday, saying he changed the course of history and paved the way for a free Europe.



“The world has lost a towering global leader, committed multilateralist, and tireless advocate for peace,” he said. “I’m deeply saddened by his passing.”



U.S. President Joe Biden said that Gorbachev was a rare leader because he had the “imagination to see that a different future was possible and the courage to risk his entire career to achieve it.”



“After decades of brutal political repression, he embraced democratic reforms. He believed in glasnost and perestroika — openness and restructuring — not as mere slogans, but as the path forward for the people of the Soviet Union after so many years of isolation and deprivation,” Biden said in a statement Tuesday night.

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Mikhail Gorbachev, Soviet leader who helped end the Cold War, has died

<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="594" height="396" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107110541-1661769241421-gettyimages-1415035764-l1002592-2_ee1b7a90-eac5-4799-8c3e-f45c21b73c55.jpeg" alt="" class="wp-image-419509" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107110541-1661769241421-gettyimages-1415035764-l1002592-2_ee1b7a90-eac5-4799-8c3e-f45c21b73c55.jpeg 594w, https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107110541-1661769241421-gettyimages-1415035764-l1002592-2_ee1b7a90-eac5-4799-8c3e-f45c21b73c55-300x200.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107110541-1661769241421-gettyimages-1415035764-l1002592-2_ee1b7a90-eac5-4799-8c3e-f45c21b73c55-135x90.jpeg 135w" sizes="auto, (max-width: 594px) 100vw, 594px" /><figcaption>Photo: via CNBC</figcaption></figure>



Market watchers use the broad M2 measure as an indicator of total money supply and future inflation. M2 includes cash, checking and savings deposits and money market securities.



In recent months, money supply has stagnated and that’s likely to lead to an economic slowdown, Hanke warned.



“We’re going to have one whopper of a recession in 2023,” he said.



Meanwhile, inflation is going to remain high because of “unprecedented growth” in money supply in the United States, Hanke said.



Historically, there has never been “sustained inflation” that isn’t the result of excess growth in money supply, and pointed out that money supply in the U.S. saw “unprecedented growth” when Covid began two years ago, he said.



“That is why we are having inflation now, and that’s why, by the way, we will continue to have inflation through 2023 going into probably 2024,” he added.



In 2020, CNBC reported that the growth in money supply could lead to high inflation.



“The bottom line is we’re going to have stagflation — we’re going to have the inflation because of this excess that’s now coming into the system,” he added.



“The problem we have is that the [Fed Chair Jerome Powell] does not understand, even at this point, what the causes of inflation are and were,” Hanke said.



“He’s still going on about supply-side glitches,” he said, adding that “he has failed to tell us that inflation is always caused by excess growth in the money supply, turning the printing presses on.”



Powell, in his policy speech at the annual Jackson Hole economic symposium on Friday, said he views the high inflation in the U.S. as a “product of strong demand and constrained supply, and that the Fed’s tools work principally on aggregate demand.”



CNBC has reached out to the Federal Reserve for comment.



<h2 class="wp-block-heading" id="h-sacrificial-lamb"><a></a>‘Sacrificial lamb’</h2>



David Rosenberg, president of Rosenberg Research, also expressed skepticism over the Fed’s direction, but in other respects. He said the Fed is now “more than happy” to overtighten to get inflation down quickly.



“Overtighten means that if the economy slips into a recession, you know — so be it,” he told CNBC’s “Squawk Box Asia” on Monday, adding that Powell said this is short-term pain for long-term gain.



He said he’s “a little disappointed” that the central bank is chasing lagging indicators like the unemployment rate and inflation, but that the Fed is “not going to take any chances” after being “thoroughly embarrassed” for calling inflation transitory.



″[Powell] basically said the economy will be, near term, a sacrificial lamb,” Rosenberg said.



“I think this Fed, after being on the wrong side of the call for the past say 12 to 15 months, are going to need to see probably at least six months of intense disinflation in the price data before they call it quits,” he added.

107110541-1661769241421-gettyimages-1415035764-l1002592-2_ee1b7a90-eac5-4799-8c3e-f45c21b73c55

Steve Hanke says we’re going to have one ‘whopper’ of a recession in 2023

<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="547" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/06/42753534974_9afb2d746d_b-820x547.jpg" alt="" class="wp-image-407618" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/06/42753534974_9afb2d746d_b-820x547.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/06/42753534974_9afb2d746d_b-300x200.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/06/42753534974_9afb2d746d_b-120x80.jpg 120w, https://cms.cnbcafrica.com/wp-content/uploads/2021/06/42753534974_9afb2d746d_b-768x512.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/06/42753534974_9afb2d746d_b.jpg 1024w" sizes="auto, (max-width: 820px) 100vw, 820px" /></figure>



Federal Reserve Chairman Jerome Powell delivered a stern commitment Friday to halting inflation, warning that he expects the central bank to continue raising interest rates in a way that will cause “some pain” to the U.S. economy.



In his much-anticipated annual policy speech at Jackson Hole, Wyoming, Powell affirmed that the Fed will “use our tools forcefully” to attack inflation that is still running near its highest level in more than 40 years.



Even with a series of four consecutive interest rate increases totaling 2.25 percentage points, Powell said this is “no place to stop or pause” even though benchmark rates are probably around an area considered neither stimulative nor restrictive to growth.



“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” he said in prepared remarks. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”



Stocks fell after the Powell speech, with the Dow Jones Industrial Average off more than 500 points. Treasury yields were off their highs of the session.



The remarks come amid signs that inflation may have peaked but is not showing any marked signs of decline.



Two closely watched gauges, the consumer price index and the personal consumption expenditures price index, showed prices little changed in July, owing largely to a steep drop in energy costs.



At the same time, other areas of the economy are slowing. Housing in particular is falling off rapidly, and economists expect that the huge surge in hiring over the past year and a half is likely to cool.



However, Powell cautioned that the Fed’s focus is broader than a month or two of data, and it will continue pushing ahead until inflation moves down closer to its 2% long-range goal.



“We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%,” he said. Looking into the future, the central bank leader added that “restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy.”



The economy is coming off consecutive quarters of negative GDP growth, a commonly held definition of a recession. However, Powell and most other economists see the underlying economy as strong if slowing.



“In essence, Powell is clearly stating that right now, fighting inflation is more important than supporting growth,” said Jeffrey Roach, chief economist at LPL Financial.



<h2 class="wp-block-heading" id="h-to-the-point"><a></a>To the point</h2>



The speech was unusually brief.



Whereas Fed leaders, including Powell, often have used the Jackson Hole symposium as an opportunity to outline broad policy shifts, Powell’s remarks Friday clocked in at just about eight minutes.



He introduced the speech by noting that his “remarks will be shorter, my focus narrower, and my message more direct.”



“Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy,” Powell said. “Without price stability, the economy does not work for anyone.”



Markets are awaiting the Fed’s next meeting in September to see if the rate-setting Federal Open Market Committee will enact a third consecutive 0.75 percentage point increase. Powell said the decision “will depend on the totality of the incoming data and the evolving outlook. At some point, as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases.”



Traders are currently pricing a close call between a half-point and three-quarter point increase. As of Friday morning after Powell’s speech, the probability for a 0.75 point move was at 54.5%, according to the CME Group’s FedWatch measure.



<h2 class="wp-block-heading" id="h-looking-to-history"><a></a>Looking to history</h2>



The Fed is using a lesson from the past as its guidepost for current policy.



Specifically, Powell said the inflation of 40 years ago provides the current Fed with three lessons: That central banks like the Fed are responsible for managing inflation, that expectations are critical and that “we must keep at it until the job is done.”



Powell noted that the Fed’s failure to act forcefully in the 1970s caused a perpetuation of high inflation expectations that led to the draconian rate hikes of the early 1980s. In that case, then-Fed Chairman Paul Volcker pulled the economy into recession to tame inflation.



While stating repeatedly that he doesn’t think recession is an inevitable outcome for the U.S. economy, Powell noted that managing expectations is critical if the Fed is going to avoid a Volcker-like outcome.



In the early 1980s, “a lengthy period of very restrictive monetary policy was ultimately needed to stem the high inflation and start the process of getting inflation down to the low and stable levels that were the norm until the spring of last year,” Powell said. “Our aim is to avoid that outcome by acting with resolve now.”



One concept molding Powell’s thinking is “rational inattention.” Essentially, that means people pay less attention to inflation when it is low and more when it is high.



“Of course, inflation has just about everyone’s attention right now, which highlights a particular risk today: The longer the current bout of high inflation continues, the greater the chance that expectations of higher inflation will become entrenched,” he said.

Federal Reserve Chairman Jerome Powell Photo: via Flickr

Powell warns of ‘some pain’ ahead as the Fed fights to bring down inflation

Investors are looking for new guidance in Federal Reserve Chairman Jerome Powell’s Jackson Hole, Wyoming, speech Friday, but he could instead deliver the same inflation fighting message, just with a much tougher edge.



Powell is expected to emphasize that the central bank will use all the fire power it needs in the form of interest rate hikes to snuff out inflation. He is also likely to point out that after the Fed finishes raising rates, it is likely to hold them there, contrary to market expectations that it will actually start to cut interest rates next year.



Fed watchers say Powell is also unlikely to provide any substantive clues to resolve the market debate about whether the central bank will raise rates by a half point or three-quarters of a point at its next policy meeting on Sept. 21. Instead, Powell will likely reiterate that the Fed is highly dependent on incoming economic data. Before the Fed meets in September, there is another major employment report next Friday and the August consumer price index on Sept. 13.



<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="740" height="416" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107094976-16589499762022-07-27t184707z_1210647843_rc2ikv998avt_rtrmadp_0_usa-fed.jpeg" alt="" class="wp-image-419452" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107094976-16589499762022-07-27t184707z_1210647843_rc2ikv998avt_rtrmadp_0_usa-fed.jpeg 740w, https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107094976-16589499762022-07-27t184707z_1210647843_rc2ikv998avt_rtrmadp_0_usa-fed-300x169.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107094976-16589499762022-07-27t184707z_1210647843_rc2ikv998avt_rtrmadp_0_usa-fed-160x90.jpeg 160w" sizes="auto, (max-width: 740px) 100vw, 740px" /><figcaption>Federal Reserve Board Chairman Jerome Powell speaks during a news conference following a two-day meeting of the Federal Open Market Committee (FOMC) in Washington, July 27, 2022. Elizabeth Frantz | Reuters</figcaption></figure>



The futures market has been betting that a three-quarter point hike — or 0.75 of a percent — is more likely at the September meeting. The central bank raised rates by 0.75 of a point in both June and July. The fed funds rate is now in a range of 2.25% to 2.5%, and the Fed is targeting an end rate, or terminal rate, of 3.50% to 3.75% by the first quarter of next year.



“The challenge for Powell is going to be the tone he adopts. I think he came across as slightly too dovish, not hawkish enough in July,” said David Page, head of macroeconomic research at AXA Investment Managers. “I think he wants to avoid that now, with markets expecting him to be relatively hawkish. &#8230; It’s a very difficult game. It’s a game of expectations. &#8230; It becomes a fine tune issue.”



Stocks rallied after Powell’s comments following the July meeting and bond yields fell, signaling that markets perceived the chairman to be more dovish, or easy when it comes to interest rate expectations. But in the last week, bond yields have risen on a chorus of hawkish comments from other Fed officials.



Page said Powell is trying to avoid another big stock market rally and lower rates, which mean that financial conditions are loosening. The Fed is trying the difficult maneuver of cooling inflation by tightening financial conditions as it slows the economy and job market without causing a recession.



“The difficulty he will have is there’s already quite an expectation that he’s going to be quite hawkish, so he has to be at least quite hawkish for that rally not to happen,” said Page.



The message from last year’s Jackson Hole symposium was far different. Powell was still characterizing inflation as “transitory” and Fed expectations for rate hikes were much lower.



“It was a lower for longer policy stance,” said Michael Gapen, chief U.S. economist at Bank of America. “Compared to that, this is going to sound super hawkish.” But the environment has changed dramatically since then, too, as inflation showed itself to be persistent rather than passing. Consumer inflation topped out at 9.1% in June, and it may have just peaked — months after the Fed had first expected.



“I think that will be the message &#8211; we’re going to slow down at some point. We’re tightening, but don’t expect a quick shift to cuts,” said Gapen.



Powell said after the July Fed meeting that the central bank could downsize the rate cuts at some point, but he did not mention reversing them, Gapen said.



“As monetary policy was premised lower for longer and needing a hot labor market, this is higher for longer and not needing a hot labor market in order to achieve price stability,” said Gapen.



Fed watchers say Powell may have confused market expectations when he said after July’s Fed meeting that the central bank was close to the neutral rate. The neutral rate is the level where the Fed does not have to raise or lower rates, and it had long been considered by central bank Fed officials to be 2.5%.

107094976-16589499762022-07-27t184707z_1210647843_rc2ikv998avt_rtrmadp_0_usa-fed

Powell is not likely to tell investors what they want to hear in Jackson Hole speech

<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="740" height="416" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107107699-1661220858934-photo_2022-08-23_101338.jpeg" alt="" class="wp-image-419426" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107107699-1661220858934-photo_2022-08-23_101338.jpeg 740w, https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107107699-1661220858934-photo_2022-08-23_101338-300x169.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107107699-1661220858934-photo_2022-08-23_101338-160x90.jpeg 160w" sizes="auto, (max-width: 740px) 100vw, 740px" /><figcaption>Hunter Jarratt was a frequent buyer of Quaker’s apple oats bars — until he realized the size of his favorite snack has decreased in size, even though the packaging looks the same. Hunter Jarratt</figcaption></figure>



Hunter Jarratt was a frequent buyer of Quaker’s apple oats bars — until he realized the size of his favorite snack was decreasing in size, even though the packaging looked the same.&nbsp;



In his TikTok video, he pointed out that an old bar weighed 26 grams and costs $1.90 normally. But an oat bar now costs “well over $2,” at 24 grams, he claimed.



That means each gram in the 26-gram bar costs $0.073 while it costs slightly more — at least $0.083 per gram — for the smaller 24-gram bar, according to CNBC’s calculations.



“What it does have — is more air,” he said tongue-in-cheek.



That’s when Jarratt realized “shrinkflation” was at work — where some companies are reducing the contents of their packaging without raising the sticker price, and in so doing, charging consumers more.



PepsiCo — which owns Quaker and other household names, such as beverages like Gatorade and Lipton Tea, as well as Lays potato chips — did not respond to CNBC’s request for comment.



Not only are consumers spending more on everyday goods, they’re also getting less than what they used to — and young people like Jarratt are not happy.



Like Jarratt, many are now taking to TikTok to call out companies that have reduced the size of products.



There were more than 261 million views of short videos related to “shrinkflation” on TikTok as of Thursday, according to the social media platform.



In July, PepsiCo raised its revenue outlook for the year as inflation pushed up prices and consumers paid more for its products. 



Expecting costs to rise even higher in the second half of the year, the global food and drink giant said at that time it plans to keep shrinking product sizes and deploying other ways to manage rising expenses.



How has shrinkflation impacted young people and are there ways to overcome it? CNBC Make It finds out.



<h2 class="wp-block-heading" id="h-why-is-shrinkflation-happening"><a></a>Why is ‘shrinkflation’ happening?</h2>



In times of rising inflation, companies have to grapple with rising costs for ingredients, packaging, labor and transportation.



Even fast food chains like McDonald’s and Domino’s Pizza are shrinking their value meals and increasing prices to protect their margins. 



For Krishnan Kara, 23, it was Cadbury’s chocolate bars.



“They used to be 200g for £2 and are now 180g for £2. A 10% drop in size but the price is still the same,” the digital marketer from London said.



“I was annoyed &#8230; Instead of openly increasing the prices of goods with inflation, these big brands chose to make the amount of product less.”



In an email response to CNBC Make It, a Mondelez International spokesperson said that “significantly increased production costs” have made it much more expensive to produce its goods.



Mondelez International owns Cadbury and other snacks like Oreo, Ritz and Toblerone.



“We understand that consumers are faced with rising costs too, which is why we look to absorb costs wherever we can,” Mondelez International said, without elaborating.



The spokesperson added that it is the first time since 2012 that the size of medium Cadbury Dairy Milk bars have been reduced.



Drew Lee, 31, acknowledged that it’s as important as ever for companies to “do whatever they need to do to maintain their profit levels.”



“As a consumer, I don’t like [shrinkflation].&nbsp;But I get why companies are doing it. Everyone has to make money,” said the industrial engineer.



<h2 class="wp-block-heading"><a></a>Food ‘not lasting as long’</h2>



Even so, individuals whom CNBC Make It spoke to remain adamant that shrinkflation will hurt consumers.



“Inflation and shrinkflation are really having a huge impact on groceries and the bottom line of just about everyone,” said Lee.&nbsp;



Lee added that he noticed shrinkflation was at work because he would typically pour his packaged oatmeal from Target’s private-label brand Good &amp; Gather into a different storage container. 



“I noticed that it did not fill up the entire container like it normally would. If I didn’t pour the oatmeal into a different container, I definitely would not have noticed this,” he said.



CNBC Make It reached out to Target for comment and a spokesperson said the company has not made any changes to its oatmeal packaging or product since its release in 2020.



“Shrinkflation is an attempt to trick customers into thinking they are paying the same price for an item when in reality they are paying a higher cost per unit for that item,” insisted Lee, the engineer.



Claudia Valladares, a financial advisor, said that shrinkflation is a cause for concern especially for “individuals who are on a tight budget.”&nbsp;



“It’s difficult enough to keep up with the rising cost of living already, and when businesses start reducing the sizes of their items, it makes things worse.” 



Jarratt agreed, saying that that food is “not lasting as long” now that inflation and shrinkflation have become more intense.



“I am a university student on student loans … I have an allocated amount of money for food,” the 22-year-old added. 



“Either I am choosing alternative products or unfortunately, having to spend more money on food … that is just adding more debt in the long-run.”&nbsp;



<h2 class="wp-block-heading"><a></a>Here’s what you can do&nbsp;</h2>



Jarratt’s personal experiences with rising costs of living and shrinkflation propelled him to create a TikTok video — even though he admitted it’s not his “usual content” as an environmental educator.



“It is hard to truly be a conscientious consumer at the grocery store when most products are owned only by a handful of companies. But when you do spot a change, it’s important to speak up,” he said.



“People are definitely starting to catch on. A slight package change isn’t going to fool anyone.”&nbsp;



Other than creating awareness, here’s what some are doing to get by:



<h2 class="wp-block-heading"><a></a>1. Pay close attention to prices and quantities&nbsp;</h2>



It is more important now than ever to pay attention to prices and make comparisons between stores when doing grocery shopping, said Lee.&nbsp;



“You could be throwing away a dollar here and there which will have a huge impact over time.”



Kara added that he is now paying more attention to the price per gram of food items.&nbsp;



“Something may look cheaper but the price per gram is higher than the same product that’s more expensive,” he pointed out.



<h2 class="wp-block-heading"><a></a>2. No shame in ‘no-name’&nbsp;</h2>



Another way to tackle shrinkflation could be to abandon your loyalty to particular brands.&nbsp;



Jarratt said when he notices an item has shrunk, he would switch to another brand.&nbsp;



“For example, instead of buying Quaker’s oats bars, I would rather buy Nature Valley’s bars by General Mills, which at least still leave me feeling like I ate something,” he said. 



“I may also buy a ‘no-name’ brand granola bar which is cheaper than other brands, and still somewhat filling as a snack.



He observed that smaller, lesser-known companies may have increased their prices but the sizes of products seem to have stayed the same.



“I would purchase from companies like that, and where possible and affordable, local businesses too.”&nbsp;



<h2 class="wp-block-heading"><a></a>3. Consider buying in bulk&nbsp;</h2>



Valladares, the financial advisor, said that buying in bulk would typically allow you to “get a discount on the overall purchase.”



“This is because retailers know that they will be selling a larger quantity of the product and are willing to give a price break,” she explained.&nbsp;



“It also allows you to take advantage of economies of scale – the per-unit cost of the product decreases as the quantity increases.”



Stocking up on sale items may also help you save in the long-run, but there are a few things to keep in mind when buying in bulk, said Valladares.&nbsp;



For example, you should check the expiry dates of non-perishable items, and not assume they’re always cheaper.



“Sometimes, retailers charge more per unit when selling in larger quantities. It’s always a good idea to compare the price per unit before making your purchase,” Valladares added.

107107699-1661220858934-photo_2022-08-23_101338

Tired of paying more for less, shoppers take to TikTok to call out companies for ‘shrinkflation’

<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="740" height="416" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107104066-1660587702448-nys1.jpg" alt="" class="wp-image-419382" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107104066-1660587702448-nys1.jpg 740w, https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107104066-1660587702448-nys1-300x169.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107104066-1660587702448-nys1-160x90.jpg 160w" sizes="auto, (max-width: 740px) 100vw, 740px" /><figcaption>Traders work the floor of the New York Stock Exchange during morning trading on August 15, 2022 in New York City. Michael M. Santiago | Getty Images</figcaption></figure>



The euro traded at a two-decade low of 0.9903 against the U.S. dollar Tuesday morning, with analysts predicting the single currency will continue to slide.



“Our outlook and our trades and our position on the strategist side are definitely biased towards further euro depreciation from where we are now,” Luis Costa, head of CEEMEA strategy at Citibank, told CNBC’s “Squawk Box Europe” on Tuesday.



“This is the primary point of euro vulnerability now,” Costa said.&nbsp;



There are multiple factors at play when comparing the euro and the dollar, working in tandem with the ongoing conflict in Ukraine and mounting inflation across both regions.



Wholesale gas prices in Europe rose sharply on Monday after Russia announced unscheduled maintenance on its main pipeline to Germany, Nord Stream 1, while heat waves have put additional strain on energy supplies.



For the full picture, you also have to look beyond Europe and the United States, says Costa.



“Let’s not forget there is an additional layer of complexity here from the China slowdown which obviously hits Europe with a much higher magnitude when compared to the impact in the States,” he said.



China missed GDP expectations with growth of just 0.4% in the second quarter. The world second-largest economy has struggled with the aftermath of the country’s worst Covid-19 outbreak since the start of 2020.



Until May, markets were “considering hawkish flight paths” for the European Central Bank and the Bank of England, according to Costa, but those plans have “imploded” in recent months.&nbsp;



“Talking about ECB liftoff… It’s absolutely glaring that ECB room to lift rates will be minimal,” he said.



Global finance institution ING’s Roelof-Jan Van den Akker made similar predictions on CNBC’s “Squawk Box Europe” last week, suggesting a widening in the interest rate differential between the U.S. dollar and the euro, as well as a further weakening of the single currency.



″[The dollar] broke below the 103.60 support level. That’s a very crucial horizontal support … And I suggest that there’s further downside potential to go. Longer-term target of between $0.80 to $0.75 in the coming months,” Van den Akker said.



“It confirms there is dollar strength as well as euro weakness,” he told CNBC.



The predictions echo concerns that inflation will continue to rise and that a recession in Europe is now unavoidable.



The dollar’s strength may not last though, according to Societe Generale Macro Strategist Kit Juckes.



“Maybe, all in all, the dollar rally has run about as far as it can on the current news,” he wrote in an email Tuesday morning.



“That’s not to say Europe’s energy woes, China’s economic weakness and policy easing, and US jobs/inflation data can’t send it further, but when I read that buying the dollar is ‘the easiest trade in FX’ the hairs on the back of my neck warn me to be careful,” Juckes wrote.



And Europe should be able to recover from those “woes,” according to the strategist.



“I still can’t see how it can rally much on anything other than short covering, but if risk markets don’t interfere, the euro can find a base here,” he wrote.

107104066-1660587702448-nys1

Euro trades at two-decade low against the dollar. And some think it could slide much further

<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="740" height="416" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107091224-1658291324652-gettyimages-1398315006-vcg111383372885.jpeg" alt="" class="wp-image-419344" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107091224-1658291324652-gettyimages-1398315006-vcg111383372885.jpeg 740w, https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107091224-1658291324652-gettyimages-1398315006-vcg111383372885-300x169.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/08/107091224-1658291324652-gettyimages-1398315006-vcg111383372885-160x90.jpeg 160w" sizes="auto, (max-width: 740px) 100vw, 740px" /><figcaption>A man looks at his smartphone as he walks past the People’s Bank of China building on May 20, 2022 in Beijing. Jiang Qiming | China News Service | Getty Images</figcaption></figure>



China trimmed its key lending rates again on Monday, one week after it cut two interest rates in a surprise move.



The moves are seen as an attempt to revive credit demand and fire up the economy hurt by extended Covid lockdowns and property debt problems.



The People’s Bank of China cut its five-year loan prime rate by 15 basis points to 4.30% from 4.45%, and lowered its one-year loan prime rate by 5 basis points to 3.65%.



Most new loans in China are based on the one-year LPR.



Last week, the Chinese central bank lowered the rate of one-year medium-term lending facility (MLF) loans to some financial institutions by 10 basis points. It also cut the the seven-day reverse repo rate by 10 basis points to 2%.



Positive reactions to last week’s rate changes were short-lived, said analysts such as Navigate Commodities managing director Atilla Widnell.



“Fresh monetary easing/stimulus was seen as futile as ‘flogging a dead horse,’ given that China’s economy desperately needs consumers back on the streets spending money,” he said in a note.



In relation to the latest round of cuts, David Chao, global market strategist for Asia Pacific (ex-Japan) at Invesco said it hinted at the seriousness of the property market downturn.



However, he conceded that these cuts won’t be enough to increase liquidity.



“It sends a strong message that policymakers are willing to take more forceful actions to stabilize the ailing market,” he said in a note.



“Though the LPR cut may provide&nbsp;near-term relief, easing liquidity alone is unlikely to&nbsp;lead to a turnaround to the property market.”



He added that lower mortgage rates haven’t&nbsp;translated into&nbsp;higher property sales so far, “due to the lack of confidence in&nbsp;large&nbsp;developers and&nbsp;the&nbsp;presales&nbsp;model.”



Chao said he doesn’t expect these to be last of the monetary policy fixes to come from the Chinese authorities, especially when “central and local governments have the financial tools to provide an excess of 3 trillion yuan to boost the property sector.”



While today’s rate cuts won’t be a game changer, they are for now an encouraging sign, said asset manager Joshua Crabb, who is head of Asia Pacific equities at Robeco.



A more positive move would be for China to open up through changes to its Covid-19 policies, as that would be the repair the economy needs, he said.



“For now, it’s a positive sign in the right direction … but I think people are looking for something bigger in order to get a bit more excited about the market,” Crabb told CNBC’s “Squawk Box Asia” on Monday.



While the rate cuts will have “zero impact” on the current trajectory of both the economy and the property sector, China’s slowdown has been inevitable, ACY Securities Chief Economist Clifford Bennett said.



The pandemic and China’s economic reset were a coincidence, he added.



Last week, several economists downgraded their forecasts for China’s growth. Goldman Sachs lowered its 2022 full-year forecast to 3.0% from 3.3% growth, while Nomura cut its full-year growth projections to 2.8% from 3.3%.



“If you will, Covid-19 has masked a far more fundamental and permanent shift in the nature of the China economy. From boom growth period, agrarian, to consumer society,” Bennett said.



“As impressive as all that be, the rapid and far easier growth pace of the past is at an end.”



But even at 2% GDP growth, China would remain a powerhouse as economies in Europe and the U.S. slow, Bennet said.



—&nbsp;Correction: This story has been updated to remove a quote about rate cuts that was wrongly attributed to Joshua Crabb from Robeco.

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