Federal Reserve holds steady as inflation fears mount

0:28Today's markets move fast. Good morning from the Financial Times. Today is Thursday, March 19th, and this is your FT News Briefing. Venezuelan oil now has an easier path to the global market, and the Fed is staying the course. Plus, the fallout between Pakistan and the Taliban is having deadly consequences. We saw a particularly deadly episode in Monday showing that civilians are not being spared from this kind of violence. I'm Sonia Hudson, and here's the news you need to start your day.

1:12The U.S. relaxed sanctions on Venezuela's state-owned oil group yesterday. PDVSA will now be allowed to sell oil directly to U.S. companies and on the global market. But payments must be sent to U.S.-controlled accounts. The move comes as the Trump administration wants to open up Venezuela's oil sector. The U.S. abducted and arrested socialist leader Nicolas Maduro back in January. The administration is also looking to alleviate some of the crunch on the global oil market that was caused by the Iran war. But experts have warned it could take years to revitalize Venezuela's oil sector. And big international energy companies seem skeptical about investing in the country.

2:03The Federal Reserve is sticking to its plan, despite a huge surge in energy prices from the war in Iran. It held rates steady at its meeting yesterday and signaled that it expected to make a quarter-point cut by the end of the year. Here's Chair Jay Powell explaining why. This normalization of our policy stance should continue to help stabilize the labor market while allowing inflation to resume its downward trend toward 2%. But the implications of events in the Middle East for the U.S. economy are uncertain. Here to decode the Fed speak is the FT's U.S. economics editor, Claire Jones. Hi, Claire.

2:41Hi, Sonia. So tell us more about what Powell was saying in that clip that we just heard. Why did the Federal Reserve hold rates and signal that they're going to cut later this year? We've seen oil prices soar, but yesterday we heard the world's most important central bank say they expect interest rates to end the year lower than they are now. Now, that might surprise some because lower borrowing costs usually contribute to higher inflation. So what's the Fed up to here? Well, there's a lot of things going on in the US economy besides the war. The labour market is weakening and the impact of the war on oil prices may still be quite short-lived.

3:26And if that's what policymakers think will happen, then we could get a cut later this year once oil prices return to the sorts of levels they were at before the Iran war began. Yeah, but still lots of uncertainty about when that will happen. We also got some other economic projections from the Fed in what we call the dot plot, which is a very exciting graph for us monetary policy nerds. What else did we learn from that? What we saw from that was that even though officials are expecting to cut borrowing costs once this year, they also raise their expectations for inflation and also a little bit for growth too.

4:10A lot of questions were asked, you know, how can you assume there's going to be high inflation when you're also assuming you're going to cut interest rates? But the Fed chair Jay Powell's reply to that was to stress that we're in very uncertain times. Officials really don't know what's going to happen. But their best guess is that there'll be some short term impact on inflation. But right now, there's nothing to suggest it's going to have an enduring effect should the conflict end soon. So, Claire, Powell also touched on some other uncertainties around the Fed, one of which is the federal investigation into him surrounding the cost of renovations of the Federal Reserve building.

4:55I have no intention of leaving the board until the investigation is well and truly over with transparency and finality. And his term as chair is up in May, but his successor has run into some problems getting confirmed, right? Exactly. So Kevin Walsh, who's Trump's picked to succeed Powell, will struggle to get confirmed while the probe into Powell is ongoing. A lot of senators, including Republicans, have said they've got no problems with Walsh personally, but they're not going to back him while the Powell probe is still ongoing. Powell confirmed yesterday that if that scenario goes ahead and the process of confirm and wash goes beyond mid-May, he will stay on at the Fed as chair.

5:43And he can remain as a governor, though not necessarily chair, until January 2028. Claire Jones is the FT's U.S. economics editor. Thanks, Claire. Thanks, Sonia.

6:01Walmart has entered the debate on dynamic pricing. Prices that change in response to supply and demand are most commonly found in airfare and ride sharing. But the retail giant recently won patents that will give algorithms more sway over the cost of goods. Walmart said the patents are, quote, unrelated to dynamic pricing and that it doesn't participate in surge pricing. A patent issued in January is specifically for, quote, dynamically and automatically changing item prices to carry out markdowns in its e-commerce unit. The new patents come as Walmart is installing electronic shelf labels in all of its 4 ,600 U.S.

6:45stores over the next year. But critics of the technology say it could be used to mislead customers by changing prices too often or in confusing ways.

7:02Pakistan and Afghanistan agreed to a temporary pause in hostilities yesterday. The ceasefire comes ahead of the Islamic holiday of Eid al-Fatur and will continue until early next week. The agreement was struck days after an airstrike on a hospital in Afghanistan Monday that killed hundreds of people. The Taliban blamed Pakistan, which denied it was behind the attack. But the incident was a dramatic escalation. There's been a weeks-long cross-border conflict between the two sides that were once allies. The FT's Hamza Jelani has been covering the conflict, and he joins me now. Hi, Hamza. Hi. Great to be here.

7:42Great to have you. So what do we know about the attack on the hospital in Kabul? Well, on Monday night, there was a very large explosion at a facility that serves drug addicts in the capital of Afghanistan, Kabul. It was part of the Taliban's initiative to try and get drug users off the streets. And what they say is help them get treatment. But around 9 p.m., shortly after the last night prayer, large sections of the facility were destroyed in an apparent Pakistani airstrike. Now, the Taliban officials have claimed that about 400 people were killed. The UN, for example, has not shared a specific casualty number, but has said that Pakistan was responsible for the strike.

8:29Pakistan denies targeting the hospital, but does say that it was conducting airstrikes over Kabul against what it calls military facilities that were helping to provide ammunition or training to militant groups operating in Pakistan. And what got the two countries to this point? Well, ever since the Taliban came to power in 2021, there was a very short-lived honeymoon with their former backers in Pakistan feeling very happy to have their ally in power. And that has absolutely nosedived in recent years because Pakistan has lost about 4 ,000 people to militancy, specifically a Pakistani version of the Taliban called the Tariq Taliban Pakistan and separatist groups in Balochistan, who Pakistan say receive safe haven financing weapons and other kinds of support from the Taliban government in Afghanistan.

9:22Pakistan has decided that enough is enough and that they wanted to take the fight directly to Afghanistan and put pressure on the Taliban to rein in these groups. And in this February, the defense minister of Pakistan, Khwaja Asif, declared open war against the Afghan Taliban, saying that the time for diplomacy had ended. So, Hamza, how bad could this conflict get and how damaging is it for both sides? Well, it's already been quite devastating. I mean, even before the horrific attack on the drug facility, 88 civilians had been killed and over 100 ,000 have been displaced in cross-border firing and airstrikes and artillery fire.

10:03And the border between the two countries, which is 2 ,600 kilometers long, is the economic lifeline to Afghanistan and to border communities in Pakistan. Afghanistan, of course, is landlocked. That has been closed since October, which is having a big economic impact on both sides of the border, but particularly in Afghanistan, which relies on Pakistan for many of its food imports or for key inputs to housing and to industry. So people are already suffering, but it could get much worse. We saw a particularly deadly episode in Monday that showing that civilians are not being spared from this kind of violence.

10:40And Afghanistan has been battered by four decades of war and people fear that it could be going back to another war, this time with Pakistan. Now, regional neighbors have helped broker this short ceasefire. Is there pressure, though, for a longer lasting agreement? Well, after the attack on Monday, what we've seen is many of Pakistan's allies, including China, reiterating their calls for immediate peace. There's been condemnations pouring in from the European Union, from Iran, from other kinds of countries that see themselves as close to both sides or see a stake in having stability in the region.

11:19For countries like China or Qatar and Saudi Arabia, the last thing they want is another war on Iran's doorstep. at the same time that U.S. and Israel are waging a war on Iran. But it's very unclear how things could change from here because Pakistan says their red line is the level of militant violence that they're facing from Afghan soil, and that's not abated enough to make Pakistan happy, and they feel like they need to take matters into their own hands. Hamza Jelani is the FT's Pakistan correspondent. Thanks, Hamza. Thank you. Before we go, are you a business owner who's been impacted by Donald Trump's tariffs?

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