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NEW YORK (AP) — Retailers and marketers have been quick to commemorate Juneteenth with an avalanche of merchandise from ice cream to T-shirts to party cups.

But many are getting backlash on social media for what critics say undermines the day, designated as a federal holiday last year to honor the emancipation of enslaved African Americans. A search for Juneteenth items among online sellers like Amazon and J.C. Penney produced everything from toothpicks with pan-African flags to party plates and balloons.

Walmart, the nation’s largest retailer, apologized last month after getting slammed for a Juneteenth ice cream flavor — swirled red velvet and cheesecake — under its store label Great Value. Walmart said it’s reviewing its product assortment and will remove items “as appropriate.” As of Thursday, Walmart’s site was still offering lots of T-shirts and party plates.

Meanwhile, the Indianapolis Children’s Museum removed a Juneteenth watermelon salad from its menu and issued a mea culpa earlier this week. In a statement posted on its Facebook page, the museum blamed a lapse in vendor oversight, noting the label and salad were not reviewed by museum staff.

“We are an imperfect institution, but we are committed to improvement and will work tirelessly to regain your trust,” the museum wrote on its Facebook page.

The backlash comes as companies promised after the police killing of George Floyd in May of 2020 to no longer stay silent and vowed to take an active role in confronting and educating customers and employees on systemic racism. According to the preliminary results of a survey by Mercer of 200 employers, 33% are offering Juneteenth as a paid holiday to their staff. That’s up from 9% last year in a survey of more than 400 companies conducted shortly before Juneteenth was declared a federal holiday.

At the same time, many have cashed in on a holiday that Black Americans have observed since June 19, 1865, when Union Major General Gordon Granger proclaimed freedom for enslaved people in Galveston, Texas, in alignment with President Abraham Lincoln’s 1863 Emancipation Proclamation.

Many experts believe that if retailers and other marketers plan to recognize the day, they should either sell merchandise from Black-owned businesses or invest in campaigns that would help Black communities. Amazon. for instance, does have a Black-owned business storefront that’s live all year-round for customers who want to support and shop Black-owned businesses selling on the site.

“This is a serious and reflective moment — I am excited and grateful for the recognition,” said Ramon Manning, chairman of the board at Emancipation Park Conservancy, a nonprofit organization aimed to restore the park, which was purchased in 1872 by a group of former enslaved people to commemorate the anniversary of their emancipation.

“However, I feel like it is also brought back everybody else out of the woodwork who are opportunists more so than folks who are looking at the history of this country and looking at where a group of people have come from,” he added.

Manning, who is also founder and chairman of Ridgegate Capital, a private investment fund, further wondered: “Who is this going to benefit?”

Sheryl Daija, founder and CEO of Bridge, a group of marketing and diversity, equity and inclusion executives, noted there’s a disconnect between the seriousness of the holiday and the merchandise on display.

“A lot of companies have good intentions, but unfortunately good intentions can go awry, and this is what we have seen,” said Daija, who found Walmart’s Juneteenth ice cream particularly egregious because it used the holiday moniker to brand a new ice cream flavor.

Companies have a long history of commercializing holidays and other moments in order to cash in. Take Cinco de Mayo, which has become in the U.S a celebration of all things Mexican, with companies selling everything from beans to beer to sombrero hats. The holiday has spread from the American Southwest, even though most have no idea about its original ties to the U.S. Civil War, abolition and promotion of civil rights for Blacks. In fact, it’s often mistaken for Mexican Independence day.

Meanwhile, every October, retailers are awash in pink merchandise to celebrate Breast Cancer Awareness month, but critics say many make misleading claims about supporting cancer groups. And Memorial Day, a federal holiday day designated to mourn the U.S. military who have died while serving in the U.S. armed forces, has morphed into all-day mattress sales at stores.

But what makes the move by companies to cash in on Juneteenth worse is that it comes as the U.S. remains fraught with racial tensions, said Darnise Martin, clinical associate professor of African American studies at Loyola Marymount University in Los Angeles.

“It is weird to merchandise around it, but that’s what America does,” Martin said.

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Follow Anne D’Innocenzio: http://twitter.com/ADInnocenzio

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BUDAPEST, Hungary (AP) — Hungary has discounted the price of gasoline at the pump. But not if you have a foreign license plate.

It’s also taxing what it calls “extra profits” of industries including airlines, with carriers like Ryanair and EasyJet increasing ticket prices to cope.

The nationalist government argues that it’s trying to ease an economic downturn and the highest inflation in nearly 25 years amid Russia’s war in Ukraine, but the unusual moves by the central European country are alienating companies and threatening a renewed standoff with the European Union.

With these interventionist measures, which also include price caps on some food items, right-wing populist Prime Minister Viktor Orban is jettisoning the conservative financial model of deregulation and free market capitalism.

The policies have helped lower some prices for Hungarians, but some multinational and domestic companies say they are damaging their bottom lines and competitiveness. Meanwhile, the EU has raised questions of whether the policies comply with its rules, following clashes between the 27-nation bloc and Hungary over rule-of-law concerns and corruption.

The EU takes issue with a requirement introduced in May that drivers with foreign license plates pay market prices for fuel at Hungarian gas stations, blocking them from purchasing gas and diesel that has been capped at 480 forints ($1.25) per liter since November.

Representing a price hike of as much as 60% for drivers with vehicles registered in other countries, the EU asked Hungary to scrap the requirement until it could determine if it complies with the bloc’s rules or face legal action, calling it “discriminatory.”

The fuel price cap gave Hungary among the lowest fuel prices in the EU, leading to fuel tourism and increased demand that caused lagging supply and shortages.

“The government had to act, but instead of opting for a more market-friendly solution, they have opted for something which goes straight against the values of the European Union,” Gyorgy Suranyi, an economist and former governor of Hungary’s central bank told The Associated Press.

In a radio interview last week, Orban blamed the war in neighboring Ukraine and EU sanctions against Russia for Hungary’s economic woes: its currency has weakened to record levels and core inflation soared to 12.2% in May. In comparison, consumer prices rose 8.1% in the 19 countries using the euro.

“We’re now in a wartime situation, and this must be resolved,” Orban said. “(Companies) will have to shoulder more of the burden than they normally do because Hungarian families cannot pay the price for this.”

His government, also facing a spiraling budget deficit after spending billions on handouts ahead of elections in April, said industries from banking to insurance to airlines that have enjoyed “extra profits” arising from soaring demand after the pandemic should contribute to the economic recovery.

It’s imposing a windfall profits tax July 1 that lasts through next year, hoping to raise 815 billion forints ($2.1 billion) to maintain a flagship program that reduces people’s utility bills and bolster Hungary’s military.

Some targeted industries like fossil fuels and banking are making higher-than-usual profits, but most are not, Suranyi said.

“This is not a windfall tax, this is a confiscation of the capital of these companies, which goes against the rule of law,” he said. “The airlines have definitely no windfall revenue.”

Several commercial airlines agree. The CEO of Ireland-based budget carrier Ryanair called the tax “highway robbery.”

“We call on (Hungary’s government) to reverse this idiotic ‘excess profits’ tax, or at least confine it to industries like oil or gas who are making windfall profits, and not airlines who are reporting record losses,” CEO Michael O’Leary said in a statement.

Ryanair, along with British low-cost airline EasyJet and Hungary-based budget carrier Wizz Air, said they would add around 10 euros (dollars) to each ticket to cover the costs of the new tax.

Hungarian commercial bank K&H Bank said it too would raise its fees.

A government statement said companies should not pass along the costs to customers because “Hungarian families should not have to pay the price of the war.”

“The government has already indicated that it will carry out a thorough investigation of each suspected case and will take firm action against harmful practices,” the statement reads.

Hungary has launched a consumer protection investigation against Ryanair for increasing ticket prices.

Some Hungarians, who earn among the lowest wages in the EU, say the reduced fuel prices are keeping them afloat as costs of other goods, especially food, keep rising.

“I think it’s good for us, but I’m not sure it’s sustainable in the long term,” Nikoletta Palhidi, a nurse from the village of Hetes, said recently as she fueled her car. “I don’t know that the state can keep this all up.”

Jozsef Toth, a retired farmer from a small village in southwest Hungary, said that alongside his meager pension of around $250 per month, the gasoline price cap has eased the burden. But he wasn’t sure about charging foreign vehicles more for fuel.

“It’s good for us, but it’s a bit strange that the foreigners have to pay more. If we would go (to their countries), they’d sell it to us for more,” he said.

While drivers have experienced relief, the owners of small gas stations are seeing significant shortfalls as they make no profit, said Janos Baintner, owner of a small filling station in Somogyvar in southwest Hungary.

Baintner said the price cap has caused him a deficit of around 2 million forints ($5,200) per month since November and that it has endangered the livelihoods of around 10,000 families that rely on work at small filling stations.

“If our profit margins are guaranteed, then we agree that fuel should be cheap in the interests of protecting families,” Baintner said. “But we shouldn’t be the ones to pay the price.”

Suranyi, the former governor of Hungary’s central bank, agreed.

“I do have sympathy, if there is room for maneuvering, for reducing the burden on individual households once such external shocks arrive,” he said. “But to reduce the burden, the reasonable approach is definitely not a price cap.”

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GENEVA (Reuters) – The World Trade Organization’s 164 members approved a series of trade agreements early on Friday that included commitments on fish and pledges on health and food security after more than five gruelling days of negotiations. [L1N2Y400M]

Here are details on those agreements

PANDEMIC RESPONSE

India and South Africa and other developing countries have sought a waiver of intellectual property rights for COVID-19 vaccines, treatments and diagnostics for over a year, but faced opposition from several developed nations with major pharmaceutical producers.

A provisional deal between major parties – India, South Africa, the United States and the European Union – limited to vaccines emerged in May and this is largely what has been adopted.

Developing countries will be allowed to authorise the use of a patent for production and supply without the patent holder’s consent for five years, subject to a possible extension. The production need not be predominantly for the domestic market, meaning more exports are allowed to ensure equitable access.

Within six months, WTO members are to consider extending the waiver to therapeutics and diagnostics.

China has voluntarily opted out of the waiver, something the United States had insisted on.

Campaign groups had urged members to reject the text, saying it was too narrow and was not a real IP waiver at all.

The WTO also agreed a declaration on its response to COVID-19 and preparedness for future pandemics, stressing the needs of least developed countries.

Members further recognised that any emergency trade measures should be proportionate and temporary and not cause unnecessary disruptions to supply chains. Members should also exercise restraint in imposing export restrictions on essential medical goods.

FISHING

WTO members struck an agreement to reduce subsidies that contribute to over-fishing, a step that environmentalists say is vital to helping fish stocks recover.

Talks have been going on for 20 years and the deal is only the second multilateral agreement on new global trade rules that the WTO has agreed in its 27-year history. The fisheries outcome was seen as a critical test of the WTO’s own credibility.

The agreement says that no WTO member shall grant any subsidy for vessels or operator engaged in illegal, unreported and unregulated fishing or for fishing of an over-fished stock.

Developing countries will be exempt for two years.

Members themselves will carry out investigations into activities off their coasts and all member will be required to notify the WTO of their fishing subsidy schemes.

India had earlier been one of the biggest critics.

Talks will however continue to achieve a more comprehensive agreement to crack down further on fisheries subsidies, ideally for the next ministerial conference, likely to be in 2023.

FOOD SECURITY

The WTO sought to respond to a food supply and price hike crisis exacerbated by export disruptions from major cereal producers Ukraine and Russia.

WTO members agreed in a declaration that they would take concrete steps to facilitate trade of food and agriculture, including cereals, fertilizers and other agricultural inputs, and reaffirmed the importance of limiting export restrictions.

WTO members also agreed to a binding decision not to curb exports to the World Food Programme (WFP), which seeks to fight hunger in places hit by conflicts, disasters and climate change. Members would still be free to adopt measures to ensure their own food security.

E-COMMERCE MORATORIUM

WTO members have extended a moratorium on placing customs duties on electronic transmissions, from streaming services to financial transactions and corporate data flows, worth hundreds of billions of dollars a year.

The moratorium has been in place since 1998. South Africa and India had initially opposed an extension, saying they should not be missing out on customs revenues.

The extension runs to the next ministerial conference, which would normally be held by the end of 2023, but in any case will expire on March 31, 2024.

WTO REFORM

All WTO members say the organisation’s rule book needs updating, although they disagree on what changes are required.

Most pressingly, its dispute appeals court has been paralysed for nearly two years since then-U.S. president Donald Trump blocked new adjudicator appointments, which has curbed the WTO’s ability to resolve trade disputes.

Members committed to work towards necessary reforms of the WTO to improve its functions. This work should be transparent and address the interests of all members, including developing countries, which are afforded special treatment.

The WTO committed to conduct discussions so as to have a fully functioning dispute settlement system by 2024.

The declaration highlighted the growing importance of services trade and the need to increase the participation of developing countries.

The members also recognised global environmental challenges including climate change and related natural disasters, loss of biodiversity and pollution. Some experts believe issues about the environment have the potential to give the body a new vitality and purpose.

(Reporting by Emma Farge and Philip Blenkinsop; Editing by Toby Chopra)

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By David Shepardson

WASHINGTON (Reuters) – Volkswagen AG’s top U.S. executive said on Thursday the United States faces major challenges in ramping up battery production to facilitate a shift to electric vehicles including attracting skilled workers, mining for key metals and supply chain issues.

Scott Keogh, chief executive of Volkswagen Group of America, told an Automotive News forum in Washington that the move to EVs is the single biggest “industrial transformation in America.”

Automakers and battery companies are committing tens of billions of dollars to building new battery plants and EV assembly plants throughout North America as they scale up electric vehicle production. This move, focusing on vehicles powered by advanced new batteries rather than gasoline, requires the United States to overcome a series of challenges, Keogh said.

These challenges include attracting enough skilled workers, dramatically boosting and facilitating U.S. mining for critical minerals to produce the lithium batteries for EVs, supply chain issues and more broadly addressing healthcare, education and infrastructure, Keogh said.

Keogh told Reuters on the sidelines of the forum that potentially hundreds of thousands of people could be employed by 2030 in U.S. battery industry production.

“It comes down to labor, it comes down to the infrastructure, it comes down to the investment,” Keogh said.

President Joe Biden has set a goal of 50% of new-vehicle sales being electric or plug-in electric by 2030, but has not endorsed phasing out gasoline-powered vehicle sales by any specific date.

Keogh estimated that the United States is making 150,000-200,000 batteries a year and that seven years from now “we need to be making 8.5 million batteries” annually.

“This is a scale of investment that honestly is going to make the industrial revolution look like a cake walk. It’s massive,” Keogh said.

Keogh also said the United States needs to do more to boost manufacturing capacity. The U.S. manufacturing sector has fallen from than 17 million jobs in 2000 to 12.8 million today, which has rebounded to about pre-COVID-19 pandemic levels.

“We need to build a collective ecosystem turning America into a manufacturing society again. I think America has become a service economy,” Keogh said. “The challenge of getting somebody who’s been working at a Starbucks taking 20-minute breaks, smoking a cigarette out back and is now jumping into a factory … is a whole new world.”

Keogh said long shifts for factory workers are much different.

“This is brutal, difficult, challenging work,” Keogh said.

(Reporting by David Shepardson; Editing by Will Dunham)

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NEW YORK (Reuters) – U.S. housing finance giant Freddie Mac said on Thursday the average contract rate on a 30-year fixed-rate mortgage rose by more than half a percentage point to 5.78%, the greatest one-week jump in 35 years.

Rates on the most popular type of U.S. home loan surged after the Federal Reserve announced it was raising interest rates by 75 basis points in an attempt to slow the economy and quell inflation, which is at 40-year-highs.

“These higher (mortgage) rates are the result of a shift in expectations about inflation and the course of monetary policy,” said Sam Khater, Freddie Mac’s chief economist. “Higher mortgage rates will lead to moderation from the blistering pace of housing activity that we have experienced coming out of the pandemic, ultimately resulting in a more balanced housing market.”

Mortgage rates have risen sharply since this time last year when the average rate on a 30-year fixed-rate mortgage was 2.93%.

Still, more homebuyers sought properties compared to a week earlier, perhaps signaling a flurry of activity before aggressive tightening by the Federal Reserve further impacts the sector, the Mortgage Bankers Association (MBA) said on Wednesday.

The MBA’s Purchase Composite Index, which covers mortgage loan applications for single family homes, increased 8.1% from a week ago. The MBA’s Refinance Index rose 3.7%.

Purchase applications, however, were down more than 15% from last year as low housing stock and lack of affordability, alongside climbing rates, appeared to have impacted demand.

(Reporting by Elizabeth Dilts Marshall; Editing by David Gregorio)

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By Jody Godoy and Jonathan Stempel

(Reuters) -Lyft Inc has reached a $25 million settlement to resolve shareholder claims that the ride-hailing company concealed safety problems, including sexual assaults by drivers, prior to its 2019 initial public offering.

The preliminary all-cash settlement was filed on Thursday with the federal court in Oakland, California, and requires approval by U.S. District Judge Haywood Gilliam Jr.

Lyft denied wrongdoing in agreeing to settle.

The San Francisco-based company raised $2.34 billion in its IPO, becoming the first ride-hailing business to go public.

But its share price fell below the $72 IPO price less than two weeks after trading began on March 29, 2019, and never recovered.

Shareholders accused Lyft of trying to appear more socially responsible than rival Uber Technologies Inc by failing to disclose known problems in its IPO registration statement, and that its share price fell as the problems surfaced.

The shareholders said dozens of people brought claims against Lyft related to driver sexual misconduct in the months after the IPO, an “existential risk” to its brand that should have been disclosed.

Lyft was also accused of concealing braking issues plaguing its bike-share program, which surfaced in April 2019 when the company pulled its electric bike fleet from the New York, San Francisco and Washington, D.C. markets.

Shareholders said Lyft also concealed its dependence on promotions to boost market share, resulting in a price war that saw Uber reclaim market share it had lost.

The shareholders’ lawyers called the settlement an “excellent” result given the “exceedingly unlikely” prospect of recovering up to $777 million of potential damages at trial.

They expect to seek up to $6.25 million from the settlement for legal fees.

Lyft shares closed Thursday down 8.4% at $13.88. They have fallen 78% since last July, as tight labor supply forces greater spending to hire drivers.

(Reporting by Jody Godoy in Santa Ana, California and Jonathan Stempel in New York; Editing by Leslie Adler and Lisa Shumaker)

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By Jihoon Lee and Cynthia Kim

SEOUL (Reuters) -South Korea’s economy will grow at its slowest pace in three years in 2022 as the world faces supply bottlenecks, surging inflation and rapidly rising interest rates, the finance ministry said on Thursday.

Setting out its first economic policy initiatives, the new government of President Yoon Suk-yeol said it had lowered this year’s growth forecast to 2.6% from 3.1% and raised the inflation forecast from 2.2% to 4.7%, the fastest since 2008.

“Our economy and markets are being shaken as we are thrown into a complex crisis amid fears of stagflation,” Yoon said in a speech on Thursday.

“We will make bold moves to remove any regulations that hampers corporate competitiveness and entrepreneur spirit and take action against unfair practices that disrupt market order in accordance with laws and principles.”

To help South Korean businesses facing inflationary pressures, the government proposed to lower the maximum corporate tax rate to 22%, the average of countries in the Organization for Economic Cooperation and Development (OECD).

The rate on about 100 of the largest companies has been 25% since 2018, when the former government increased it to pay for more social welfare.

South Korea’s economy, Asia’s fourth largest, last year recorded its fastest annual expansion since 2010. But as the Yoon administration came to office last month, the country was suddenly facing global supply chain disruptions and resulting difficulty in sustaining exports.

The ministry said the global economy was suffering from bottlenecks, plus the Ukraine crisis, inflation, faster monetary tightening in major countries, and COVID-19 lockdowns in China.

Yoon pledged in his election campaign to support a “private-sector-led economy”. His measures would help corporate South Korea cope with higher minimum wages, rising borrowing costs and the previous administration’s limits on working hours.

Markets are predicting the Bank of Korea will keep moving aggressively after hiking interest rates by 125 basis points since mid-2021. The expected further rises will likely hit private consumption for households saddled with the world’s highest debt loads.

On Thursday, the ministry said boosting capital investment in key technology sectors was one of its main policy initiatives. Between 8% and 12% of big conglomerates’ investment in making semiconductors and organic light-emitting diodes will be deductible from corporate tax, up from the current 6% to 10%.

Separately, South Korea would improve foreign dealers’ access to U.S. dollar/Korean won (USD/KRW) trading. This will help the country in its quest for inclusion in the MSCI developed markets index.

The government plans to extend trading time of the USD/KRW spot market to 17 hours — 0000 GMT to 1700 GMT. It will also allow dealers based abroad to participate, with details to be disclosed in the third quarter.

Currently, onshore USD/KRW trading hours are 0000 GMT to 0630 GMT and only locally licensed financial institutions can participate.

To revive share prices after the market’s fall of almost 18% this year, the government has decided to remove capital gains taxes on retail stock investors, except for holdings worth more than 10 billion won ($7.74 million) in any one stock.

The government also plans to cut tax on stock transactions to 0.20% from 0.23% beginning next year.

($1 = 1,291.1900 won)

(Reporting by Jihoon Lee and Cynthia Kim; Editing by Bradley Perrett and Kim Coghill)

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By Florence Tan

SINGAPORE (Reuters) -Oil prices recovered on Thursday from a steep drop in the previous session, supported by tight oil supply and peak summer consumption, after a hefty U.S. rate hike sparked fears of slower economic growth and less fuel demand.

Brent crude futures rose 86 cents, or 0.7%, to $119.37 a barrel by 0644 GMT while U.S. West Texas Intermediate (WTI) crude futures climbed to $116.27 a barrel, up 96 cents, or 0.8%.

Prices slipped more than 2% overnight after the Federal Reserve raised its key interest rate by three-quarters of a percentage point, the biggest hike since 1994.

The dollar index retreated from a 20-year high, easing downward pressure on oil prices. A stronger greenback makes U.S. dollar-priced oil more expensive for holders of other currencies, curtailing demand.

Investors remained focused on tight supplies and robust demand as Western sanctions restricted access to Russian oil.

“It was overall a volatile session across almost all markets yesterday,” said Howie Lee, an economist at Singapore’s OCBC bank.

“Tight fundamentals suggest any dips in oil prices are likely to be short-lived, or shallow, or possibly both.”

In Libya, oil output has collapsed due to the shutdown of production and export facilities as a tactic in the country’s political stalemate. Production fell to 100,000-150,000 barrels per day, a spokesman for the oil ministry said on Tuesday, a fraction of the 1.2 million bpd seen last year.

Also, optimism that China’s oil demand will rebound as it eases COVID-19 restrictions supported the price outlook.

“A rebound in China demand sentiment, and expected seasonal ramp-up in OECD oil demand into August leaves price risk to the upside through 3Q 2022,” said Baden Moore, head of commodities research at the National Australia Bank.

U.S. crude production, which has been largely stagnant over the last few months, edged up 100,000 barrels per day last week to 12 million bpd, its highest level since April 2020, data from the Energy Information Administration showed. [EIA/S]

U.S. crude stocks and distillate inventories rose while gasoline inventories fell in the week through June 10, the EIA said.

(Reporting by Florence Tan in Singapore and Sonali Paul in Melbourne; editing by Richard Pullin and Kim Coghill)

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By John O’Donnell, Huw Jones and Marc Jones

LONDON (Reuters) – A markets sell-off has brought back memories of the euro zone debt crisis more than a decade ago, highlighting divisions that have plagued the currency bloc’s efforts to forge a closer bond.

While the years since the debt crisis have seen the 19 countries in Europe’s euro area centralise and toughen bank controls, many planned economic reforms in Italy and elsewhere were watered down as vast money printing buoyed the economy.

Spurred by fears higher borrowing costs will choke economic growth, the markets rout has exposed cracks in the uneasy alliance which – unlike the United States – is held together largely by the central bank rather than a government with power to tax and spend.

Two events this week expose the fragility of the union: the ECB’s efforts to restore confidence in weaker states facing surging borrowing costs as its debt-buying programme ends, and ministers’ decade-long failure to put the bloc’s savers on a solid footing.

After a rare emergency meeting on Wednesday, the ECB promised fresh measures to temper the market selloff but the lack of a concrete plan to help debt-laden countries like Italy and Greece disappointed some.

This was in sharp contrast to 2012, when then ECB president Mario Draghi tackled a crisis of confidence in the currency’s future with a pledge to do “whatever it takes”, followed by a vast programme of money printing.

Now, however, rocketing prices, triggered by that money printing, as well as soaring energy costs in the wake of Russia’s invasion of Ukraine and pandemic lockdowns in China, makes this feat difficult to repeat.

“It was easy to do whatever it takes when inflation was low,” said Guntram Wolff of think-tank Bruegel, adding that rising prices would push the ECB to reverse course.

“The emergency meeting created a lot of expectations that the ECB cannot ultimately meet,” he said. “Only governments can address the real economic divergence and incomplete set up of the euro zone.”

GRAPHIC: ECB interest rates and balance sheet (https://fingfx.thomsonreuters.com/gfx/mkt/egvbkwrngpq/Pasted%20image%201654781200997.png)

French Finance Minister Bruno Le Maire cautioned against a fragmentation of the bloc, the type of public warning once common but that largely disappeared since vast money printing eased the debt crisis.

Speaking to students in London, Lagarde gave no further clues as to how ECB action could look, talking instead about climate change and the impact of war on global grain supplies.

‘GONE BACKWARDS’

The divisions in the euro zone are likely to come to the fore at a ministers’ meeting later on Thursday to discuss a deadlocked plan to reinforce the bloc’s financial system.

A central pillar of financial crisis reform, the so-called banking union remains mired in debate, with the critical question of region-wide protection of deposits still unresolved.

“We have gone backwards rather than forwards,” said Karel Lannoo of the Centre for European Policy Studies.

“If there is a bank failure, it will be the same as 2008,” he said, adding that individual states rather than the wider bloc would be left to shoulder the burden. “The Draghi period is over.”

The ministers are expected to further delay plans for the single safety net for the bank deposits, long opposed by Germany which did not want to be on the hook for problems elsewhere, prolonging the decade-long push to unify the sector to better withstand crises.

Thomas Huertas, a former alternate chair of the EU’s banking watchdog and now at the Leibniz Institute, said the absence of such a safety net put European banks at a disadvantage to American rivals.

“It is one of those benefits that the person can see and recognise. It’s an important element not only for finance, but I think also of the Union itself,” he added, commenting on the need for cross-border saver protection.

That lack of progress with a banking union, in turn, has weighed on the stocks of Europe’s banks, which have been trailing their U.S. rivals for years.

The ministers’ debate takes place against the backdrop of a rise in Italy’s borrowing costs, exacerbated by the ECB’s plans to raise interest rates and wind down its debt-buying to temper rising prices. Spanish, Portuguese and Greek bonds are under similar pressure.

GRAPHIC: Euro zone yields (https://fingfx.thomsonreuters.com/gfx/mkt/lbvgnxnmwpq/Pasted%20image%201655281213512.png)

How Europe responds is being closely watched by bankers and investors.

“So much of what we do is a confidence game,” said Vis Raghavan, CEO of EMEA and Co-Head of Global Investment Banking at JPMorgan. “A lot of what we are seeing is about confidence in policy and achieving an orderly route out of stagflation.”

But with the ECB running out of road to keep investors happy, the ball is back in the court of politicians to act.

“While the ECB could keep markets happy with a bazooka, it’s getting harder to do this in a time when it has to fight inflation,” said Carsten Brzeski, an economist with Dutch bank ING.

“That leaves it up to the governments to finally get their act together in finding a proper union.”

(Writing By John O’Donnell; additional reporting by Leigh Thomas in Paris and Sinead Cruise in London; editing by Emelia Sithole-Matarise)

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By Howard Schneider and Ann Saphir

WASHINGTON (Reuters) – The Federal Reserve raised its target interest rate by three-quarters of a percentage point on Wednesday to stem a disruptive surge in inflation, and projected a slowing economy and rising unemployment in the months to come.

The rate hike was the biggest made by the U.S. central bank since 1994, and was delivered after recent data showed little progress in its inflation battle.

U.S. central bank officials flagged a faster path of increases in borrowing costs to come as well, more closely aligning monetary policy with a rapid shift this week in financial market views of what it will take to bring price pressures under control.

“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices and broader price pressures,” the central bank’s policy-setting Federal Open Market Committee said in a statement at the end of its latest two-day meeting in Washington. “The committee is strongly committed to returning inflation to its 2% objective.”

The statement continued to cite the Ukraine war and China lockdown policies as sources of inflation.

The action raised the short-term federal funds rate to a range of 1.50% to 1.75%, and Fed officials at the median projected the rate increasing to 3.4% by the end of this year and to 3.8% in 2023 – a substantial shift from projections in March that saw the rate rising to 1.9% this year.

The stricter monetary policy was accompanied with a downgrade to the Fed’s economic outlook, with the economy now seen slowing to a below-trend 1.7% rate of growth this year, unemployment rising to 3.7% by the end of this year, and continuing to rise to 4.1% through 2024.

While no policymaker projected an outright recession, the range of economic growth forecasts edged toward zero in 2023 and the federal funds rate was seen falling in 2024.

The projections are a break with recent Fed efforts to cast tighter monetary policy and inflation control as consistent with steady and low unemployment. The 4.1% jobless rate seen in 2024 is now slightly above the level Fed officials generally see as consistent with full employment.

Since March, when Fed officials projected they could raise rates and control inflation with the unemployment rate remaining around 3.5%, inflation has stubbornly remained at a 40-year high, with no sign of it reaching the peak Fed policymakers hoped would arrive this spring.

Even with the more aggressive interest rate measures taken on Wednesday, policymakers nevertheless see inflation as measured by the personal consumption expenditures price index at 5.2% through this year and slowing only gradually to 2.2% in 2024.

Kansas City Fed President Esther George was the only policymaker to dissent in Wednesday’s decision in preference for a half-percentage-point hike.

Fed Chair Jerome Powell is scheduled to hold a news conference at 2:30 p.m. EDT (1830 GMT) to elaborate on the latest policy meeting.

Inflation has become the most pressing economic issue for the Fed and begun to shape the political landscape as well, with household sentiment worsening amid rising food and gasoline prices.

(Reporting by Howard Schneider; Editing by Paul Simao)

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