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Europe’s economy has stalled, but an interest rate cut will likely have to wait
FRANKFURT, Germany | Inflation in Europe is way down from its painful double-digit peak, and the economy has stalled. But the European Central Bank left its key interest rate at a record high Thursday, and its leader suggested a much-anticipated cut to borrowing costs would likely wait until June.
The decision comes as central banks around the world, including the U.S. Federal Reserve, are trying to judge whether toxic inflation has been tamed to the point that they can start cutting rates — making it cheaper for consumers and businesses to borrow, spend and invest — and avoid an economic slowdown that throws people out of their jobs.
ECB President Christine Lagarde said at a news conference that the central bank was “making good progress” in pushing down inflation to its 2% target but that “we are not there yet.”
She dropped a clue about the timing of a rate cut, saying economic data would decide the bank’s next move and that “we will have a little in April and a lot more for our June meeting.”
Lagarde’s remark was “a not very subtle hint” that the ECB would wait until June for a rate cut, said analysts at ABN AMRO Financial Markets Research.
“The ECB is getting closer to the point where it will have sufficient confidence in the return of inflation to the 2% target,” said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management.
He pointed to Lagarde’s remark and to the ECB lowering this year’s inflation projection to 2.3% from December’s forecast of 2.7%.
The ECB raised its key rate from below zero to 4% between July 2022 and September 2023 to squelch double-digit inflation driven by supply chain issues during the rebound from the coronavirus pandemic and by an energy crisis after Russia invaded Ukraine.
Higher interest rates dampen inflation by making it more expensive to borrow and buy things on credit, reducing demand for goods. But high rates can weigh on economic growth, too.
The rate rises, for instance, have stalled construction activity in Germany, Europe’s largest economy, and put an end to a nearly decadelong rise in home prices in the 20 countries that use the euro currency as tighter credit deters borrowers and sellers.
The eurozone saw no growth in the fourth quarter of last year after shrinking 0.1% in the previous quarter. Germany expects growth of just 0.2% this year.
One reason the ECB can afford to wait on a rate cut: a strong jobs market that is keeping people in work and with paychecks to spend. Unemployment of 6.4% is the lowest since the euro currency was launched in 1999.
A similar situation is shaping up in the U.S., where Federal Reserve Chair Jerome Powell told Congress this week that the central bank needs more confidence inflation is under control before cutting rates. Fed officials have signaled three rate cuts this year, but Powell has given no indication when they might start.
In Europe, inflation was down to 2.6% in February, well below its peak of 10.6% in October 2022. But the consumer price index has been stuck between 2% and 3% for five months, raising concern that the last mile toward the ECB’s goal may be slower than hoped.
While the spikes in food and energy prices that helped drive the outbreak of inflation have eased, inflation has spread to services, a broad sector of the economy that includes everything from movie tickets and office cleaning to tuition and medical care.
Meanwhile, wages rose as workers started bargaining for higher pay to make up for lost purchasing power as inflation ballooned.
European regulators want to question Apple after it blocks Epic Games app store
LONDON | European Union regulators said they want to question Apple over accusations that it blocked video game company Epic Games from setting up its own app store, in a possible violation of digital rules that took effect in the 27-nation bloc Thursday.
It’s a fresh escalation of the high-stakes battle between the two companies. Epic, maker of the popular game Fortnite, has spent years fighting Apple’s exclusive control over the distribution of iPhone apps.
Epic asserted Wednesday that Apple thwarted its attempt to set up its own iOS app marketplace to compete with Apple’s App Store, calling it a breach of the EU’s new Digital Markets Act.
The sweeping set of rules, designed to stop big tech companies from cornering digital markets, have forced Apple to allow people in Europe to download iPhone apps from stores not operated by the U.S. tech giant — a move it’s long resisted.
The European Commission, the EU’s top antitrust watchdog, said in a statement Thursday that it has “requested further explanations on this from Apple under the DMA.” The rules threaten penalties that could reach into the billions for violations.
Apple has already been hit this week with a $2 billion EU antitrust fine for thwarting music streaming competition.
The commission said it’s “also evaluating whether Apple’s actions raise doubts on their compliance” with other EU regulations including the Digital Services Act, a second set of regulations in the bloc’s digital rulebook that prohibit tech companies from “arbitrary application” of their terms and conditions.
Epic contended that Apple was brazenly violating the DMA by rejecting an alternative iPhone app store that it planned to set up in Sweden to serve European Union users.
It accused Apple of retaliating for scathing critiques posted by CEO Tim Sweeney, who spearheaded a mostly unsuccessful antitrust case against the iPhone App Store in the U.S.
Apple said its action was justified because of Epic’s previous unlawful actions and litigation that resulted in the U.S. court decision in 2021.
Apple ousted Epic from its App Store after it tried to get around restrictions that Apple says protect the security and privacy of iPhone users, while also helping recoup some of the investment that powers one of the world’s most ubiquitous devices.
“Epic’s egregious breach of its contractual obligations to Apple led courts to determine that Apple has the right to terminate ‘any or all of Epic Games’ wholly owned subsidiaries, affiliates, and/or other entities under Epic Games’ control at any time and at Apple’s sole discretion,’” Apple said in a statement. “In light of Epic’s past and ongoing behavior, Apple chose to exercise that right.”
Investigators say they confirmed pilots’ account of a rudder-control failure
Federal investigators said Thursday they confirmed pilots’ account of a brief failure of rudder controls on a Boeing 737 Max after it landed at Newark Liberty International Airport in New Jersey last month.
United Airlines pilots said pedals that control rudder movement on the plane were stuck as they tried to keep the plane in the center of the runway during the Feb. 6 landing.
The pilots were able to use a small nose-gear steering wheel to veer from the runway to a high-speed turnoff. The rudder pedals began working again as the pilots taxied to the gate with 155 passengers and six crew members on the flight from Nassau, Bahamas, according to a preliminary report by the National Transportation Safety Board.
Boeing said this is the only rudder-response issue reported on a Max, although two similar incidents happened in 2019 with an earlier model of the 737 called NG or next generation, which has the same rudder-pedal system.
The manufacturer said the issue was fixed by replacing three parts. The plane has made dozens of passenger-carrying flights since then, according to data from FlightAware.
United said the parts were related to a landing feature that was designed for other airlines, and United has only nine planes with those parts. The airline said it will work with Boeing, the NTSB and the Federal Aviation Administration “on next steps for these aircraft.”
The NTSB said preliminary information from the plane’s flight data recorder, one of the so-called black boxes, confirmed the captain’s description of the event. United was able to recreate the same problem on the 2-year-old plane during a test flight at the Newark airport three days later, and reported the problem to the NTSB.
Mechanics couldn’t find an obvious cause for the malfunction during an inspection, but they replaced parts of the rudder control system, and the plane operated normally during a second test flight, the NTSB said.
The NTSB said that when it subjected one of the removed parts to cold for one hour in a laboratory, it failed to produce the torque needed for the rudder pedals to work. The NTSB said it plans further testing of the part.
Pedals in the cockpit control the rudder, which is attached to the vertical part of the tail and can be used to point the nose of the plane left or right.
United, Boeing, parts supplier Collins Aerospace and the Federal Aviation Administration are taking part in the ongoing investigation. Collins did not immediately comment.
U.S. applications for jobless claims hold at healthy levels
U.S. applications for jobless benefits were unchanged last week, settling at a healthy level as the labor market continues to show strength in the face of elevated interest rates.
Unemployment claims for the week ending March 2 were 217,000, matching the previous week’s revised level, the Labor Department reported Thursday.
The four-week average of claims, a less volatile measure, fell by 750 from the previous week to 212,250.
Weekly unemployment claims are broadly viewed as representative of the number of U.S. layoffs in a given week. They have remained at historically low levels since the pandemic purge of millions of jobs in the spring of 2020.
In total, 1.9 million Americans were collecting jobless benefits during the week that ended Feb. 24, an increase of 8,000 from the previous week and the most since November.
The Federal Reserve raised its benchmark borrowing rate 11 times beginning in March of 2022 in an effort to bring down the four-decade high inflation that took hold after the economy roared back from the COVID-19 recession of 2020. Part of the Fed’s goal was to loosen the labor market and cool wage growth, which it believes contributed to persistently high inflation.
Many economists thought the rapid rate hikes could potentially tip the country into recession, but that hasn’t happened. Jobs have remained plentiful and the economy has held up better than expected thanks to strong consumer spending.
U.S. employers delivered a stunning burst of hiring to begin 2024, adding 353,000 jobs in January in the latest sign of the economy’s continuing ability to shrug off the highest interest rates in two decades.
The unemployment rate is 3.7%, and has been below 4% for 24 straight months, the longest such streak since the 1960s.
The Labor Department issues its February jobs report on Friday.
Though layoffs remain at low levels, there has been an uptick in job cuts recently, mostly across technology and media. Google parent company Alphabet, eBay, TikTok, Snap, and Cisco Systems and the Los Angeles Times have all recently announced layoffs.
Outside of tech and media, UPS, Macy’s and Levi’s also recently cut jobs.
—From AP reports
