(Washington)

Fed Governor Lael Brainard issued comments on Thursday regarding the Fed’s position on climate change. Brainard said the Fed is developing a series of scenario tools to model the risk of climate change to the financial system. The models will see how our financial system holds up to hypothetical climate change hazards such as floods, droughts, and fires. This will bring the Fed closer to the rest of the leading central banks around the world, such as the ECB and Bank of England, who already are doing this at a minimum. Many progressive Democrats have been critical of the Powell Fed for their lack of green policy and financial regulation and this is a correction step that may allow Powell to get renominated in 2022.

FINSUM: These action steps are important by the Fed, but they will not be accompanied by any regulatory steps, meaning banks won’t be punished for over-exposure to climate risks. Thus, the risk to asset prices seems lower.

(New York)

Investors in India have by in large part stayed away from their own high yield corporate bonds, but wary investors from China have done the opposite. India’s high yield bond issuers set a $9 billion-dollar record from international investors which tripled last year’s inflows. Many of these investors are coming from China, specifically Evergrande, whose liabilities alone double India’s entire corporate debt market. Many investors are worried that other sectors in China’s economy may come to suffer from Xi Jinping’s ‘common prosperity’. In the meantime, there are still risks to India’s debt, most notably energy prices, as India imports most of its energy. Higher energy prices increase input costs, which could cut margins.

FINSUM: Developing countries outside China are all receiving inflows in corporate and non-corporate debt investments with China’s turmoil.

Federal Reserve Bank Chairman Jerome Powell spoke last week on a panel hosted by the ECB, and relayed his frustration about the ongoing inflation pressures in the US economy. Powell said the economy’s most important concern is getting people vaccinated and containing Covid’s delta variant. Powell said the key inflationary pressures remain supply chain bottlenecks in the US economy. These supply constraints have the U.S.’s key inflationary measure (core personal consumption expenditure) elevated to its highest level in 30 years. The FOMC has raised their expectation for inflation from 3% to 3.7%, and Powell said this could continue into 2022. Powell’s Analysis was backed up by both Japan and the ECB’s respective leaders.

FINSUM: The supply shock to the economy remains as chip shortages still persist. As long as supply chains remain disrupted the unemployment/GDP and inflationary goals of the Fed will remain in conflict.