MyIX welcomes appointment of Gobind Singh Deo and Ugak Anak Kumbong

Addition of these ministries will accelerate digital transformation in Malaysia
Aligns with forecasted 25.5% GDP contribution of digital economy by 2025

Malaysia Internet Exchange(MyIX) welcomes the appointment of Gobind Singh Deo and Ugak Anak Kumbong as Malaysia’s new Digital minister and deputy minister, respectively.
The introduction of two ministries, the Digital Ministry and Communications…Continue Reading

The secret sauce for Taiwan's chip superstardom

Taipei 101 and the nearby Nanshan Plaza dominate Taipei's skyline when viewed from the south of the city. (Getty Images

When 23-year-old Shih Chin-tay boarded a plane for the United States in the summer of 1969, he was flying to a different world.

He grew up in a fishing village surrounded by sugarcane fields. He had attended university in Taiwan’s capital Taipei, then a city of dusty streets and grey apartment buildings where people rarely owned cars.

Now he was off to Princeton University. The US had just a put a man on the Moon and the Boeing 747 in the skies. Its economy was larger than those of the Soviet Union, Japan, Germany and France combined.

“When I landed, I was shocked,” Dr Shih, now 77, says. “I thought to myself: Taiwan is so poor, I must do something to try and help make it better off.”

And he did. Dr Shih and a group of young, ambitious engineers transformed an island that exported sugar and t-shirts into an electronics powerhouse.

Today’s Taipei is rich and hip. High-speed trains zip passengers along the west coast of the island at 350km/h (218mph). Taipei 101 – briefly the tallest building in the world – towers over the city, an emblem of its prosperity.

Much of that is down to a tiny device no larger than a fingernail. The silicon semiconductor – wafer-thin and best-known now as a chip – sits at the heart of every technology we use, from iPhones to airplanes.

Taiwan now makes more than half the chips that power our lives. Its biggest manufacturer, Taiwan Semiconductor Manufacturing Company (TSMC), is the ninth-most valuable business in the world.

That makes Taiwan nearly irreplaceable – and vulnerable. China, fearing it could be cut off from the most advanced chips, is spending billions to steal Taiwan’s crown. Or it could take the island, as it has repeatedly threatened to do.

But Taiwan’s path to chip superstardom will not be easy to replicate – the island has a secret sauce, honed through decades of laborious work by its engineers. Plus, the manufacturing relies on a web of economic ties that the escalating US-China rivalry is now trying to undo.

Sugar to silicon

When Dr Shih arrived at Princeton, “the US was just beginning the semiconductor revolution”, he says.

It had just been a decade since Robert Noyce made the “monolithic integrated circuit”, packing electronic components onto a single wafer of silicon – an early version of the microchip which kickstarted the personal computer revolution.

Shih Chin-tay

For the two years after Dr Shih graduated, he designed memory chips at Burroughs Corporation, second then to IBM in computer-making.

At the time, Taiwan was hunting for a new national industry following an oil crisis that had pummelled its exports. Silicon seemed like a possibility – and Dr Shih thought he could help: “I thought it was time to come home.”

In the late 1970s, he joined Taiwan’s best and brightest electrical engineers at a new research lab – the staid-sounding Industrial Technology Research Institute would play an outsized role in recasting the island’s economy.

Work began in Hsinchu, a small city south of Taipei – today it’s a global electronics hub, dominated by TSMC’s enormous fabrication plants. These chip factories, each the size of several football fields, are some of the cleanest places on earth. The finer manufacturing details are a well-guarded secret, and no outside cameras are allowed.

The newest factory – the nearly $20bn fab 18 in southern Taiwan – will soon start producing three-nanometre chips destined for next-generation iPhones.

All of this is far beyond what Dr Shih and his colleagues imagined when they opened an experimental factory in the 1970s. They were hopeful because they had technology licensed from a major US electronics maker – but to everyone’s surprise, the factory outperformed its parent. It’s hard to explain why and, to this day, the precise formula for Taiwan’s success remains elusive.

Dr Shih’s recollection is more prosaic: “Output was better than the original RCA plant, with lower costs. So, this gave the government confidence that maybe we really could do something.”

The Taiwanese government put up the initial capital – first for the United Micro-electronics Corporation, and then in 1987 for what would become the world’s biggest chip factory – TSMC.

Shih Chin-tay (second from left at the back) along with other engineers in 1977

Courtesy: ITRI

To run it, they recruited Morris Chang, a Chinese-American engineer and former executive at US electronics giant Texas Instruments. It was a stroke of luck or genius, or both – today the 93-year-old is known as the father of Taiwan’s semiconductor industry.

Back then, he quickly realised that taking on US and Japanese giants at their own game was a losing proposition. Instead TSMC would only manufacture chips for others, and not design its own.

This “foundry model”, which was unheard of in 1987, changed the landscape of the industry and paved the way for Taiwan to become the pack leader.

And the timing couldn’t have been better. Silicon Valley’s new crop of start-ups – Apple, AMD, Qualcomm, Nvidia – did not have the funds to build fab plants of their own. And they would struggle to find manufacturers for the chips that they couldn’t function without.

“They would have to go to leading semi-conductor companies and ask if they had any excess production capacity they could use,” Dr Shih says. “But then TSMC came along.”

Now California’s “fabless” companies could partner with Taiwan’s chip makers, who had no interest in stealing their designs or competing with them.

“Rule number one at TSMC is don’t compete with your customers,” Dr Shih says.

The secret sauce

The world produces more than a trillion chips a year. A modern car has anywhere between 1,500 to 3,000 chips. The iPhone 12 reportedly had around 1,400 semiconductors. A shortfall in 2022, driven by soaring demand for electronics during the pandemic, hit sales of washing machines and BMWs alike.

Taiwan’s extraordinary success – the island ships more than half of those trillion-plus chips, and nearly all of the most advanced ones – has been driven by its mastery of volume. In other words, Taiwanese manufacturing is incredibly efficient.

Making silicon chips is expensive and painstaking. It starts off with a large ingot of ultra-pure silicon grown from a single crystal. Each ingot may take several days to grow and could weigh up to 100kg.

Taiwan Semiconductor Manufacturing Company (TSMC) founder Morris Chang speaks during the CW Semiconductor Forum in Taipei on March 16, 2023.

Getty Images

After a diamond cutter slices the slab into skinny wafers, a machine uses light to etch tiny circuits onto each wafer. A single wafer may contain hundreds of microprocessors, and billions of circuits.

What matters eventually is the yield – the area of each wafer that is usable as a chip. In the 1970s US companies had yields as low as 10% and, at best, 50%. By the 1980s the Japanese were averaging at 60%. TSMC has reportedly surpassed them all with a yield that hovers around 80%.

Over time Taiwanese manufacturers have managed to cram more and more circuits into mind-bogglingly smaller spaces. Using the latest extreme-ultraviolet light lithography machines, TSMC can etch 100 billion circuits on to a single microprocessor, or over 100 million circuits per square millimetre.

Why are Taiwanese companies so good at this? No-one seems to know exactly why.

Dr Shih thinks it’s simple: “We had brand new facilities, with the most up-to-date equipment. We recruited the best engineers. Even the machine operators were highly skilled. And then we didn’t just import technology, we absorbed the lessons from our American teachers and applied continuous improvement.”

A young man who spent several years working at one of Taiwan’s largest electronics companies agrees: “I think Taiwan’s companies are bad at making big breakthroughs in technology. But they are very good at taking someone else’s idea and making it better. This can be done by trial and error, continuously tweaking small things.”

This is important because in a semiconductor fab the machines need to be constantly calibrated. Making microchips is engineering. But it’s also more than that. Some have likened it to cooking – like a gourmet feast. Give two chefs the same recipe and ingredients – the better cook will make the better dish.

In other words, Taiwan has a secret sauce.

The Taiwan Semiconductor Manufacturing Co. logo atop a building at the Hsinchu Science Park in Hsinchu, Taiwan, on Tuesday, Oct. 17, 2023

Getty Images

But the young man, who did not want to reveal his name, or that of the company, says Taiwanese companies have another advantage.

“Compared to software engineers in the US, even at the best companies here, engineers are paid quite badly,” he said. “But compared to other industries in Taiwan the pay is good. So, if you work for a big electronic company after a few years, you’ll be able to get a mortgage, buy a car. You’ll be able to get married. So, people suck it up.”

He described a six-day week which began each day with a meeting at 07:30 and would usually last until 19:00. He would also be called in on Sundays or holidays if there was a problem at the plant.

“If people weren’t willing to do the job the company would be finished. It’s because people are willing to put up with hardship that these companies succeed.”

The silicon shield

In December 2022 TSMC broke ground on a $40bn plant in the US state of Arizona. It was hailed by President Joe Biden as a sign that high-tech manufacturing was returning to American soil.

Since then the headlines have been somewhat less cheery.

They Wouldn’t Listen To Us: Inside Arizona’s Troubled Chip Plant, read one. Another said, TSMC Struggles To Recruit Workers While Facing Pushback From Unions.

Chip production was supposed to start next year. Now it’s been put back to 2025.

Former TSMC chairman Dr Chang was deeply sceptical from the start. Last year he described expanding chip production in the US as an “expensive, wasteful exercise in futility” because manufacturing chips in the US would be 50% more expensive than in Taiwan. But Taiwan’s chip-making prowess has put it at the centre of the tech war between the US and China.

Washington wants to prevent Taiwan supplying China with the cutting-edge chips it fears Beijing will use to accelerate its weapons programs and advance its artificial intelligence.

After Russia’s invasion of Ukraine, which strangled Europe’s gas supply, US politicians are jittery about Taiwan. They fear that the huge concentration of high-end chip production on the island makes the US economy hostage to a Chinese invasion.

But Taiwanese companies see little economic advantage in moving production off the island. They are doing so reluctantly under political pressure.

People in Taiwan resent the idea that they should be blamed for their success – and that Taiwan should voluntarily weaken what many regard as its “silicon shield”, while the rest of the world vacillates over whether the island and its democratic society is worth protecting from Chinese aggression.

People pose for photographs in front of the Taipei 101 building in Taipei, Taiwan, on Tuesday, Jan. 26, 2021.

Getty Images

Dr Shih says those who are seeking to forcibly restructure global chip production misunderstand its success.

“If you look at the history of semiconductors, no one country dominates this industry,” he says. “Taiwan may dominate the manufacturing sector. But there is a very long supply chain and innovation from every part of it contributes to the growth of the industry. “

Much of the world’s raw silicon comes from China, although most of it goes to the solar industry. Germany and Japan lead the charge in chemicals that are necessary to process the wafers.

Carl Zeiss, a German optoelectronics company better known for making eyewear and camera lenses, produces optical devices that go into the lithography machines made by a leading Dutch company, ASML. The laborious manufacturing works to designs that originate in American companies or the UK-based Arm.

Dr Shih is doubtful Beijing can recreate this supply chain – from materials to design to high-end production – inside China.

“If they want to create a different model then I wish them luck,” he says with a shrug. “Because if you really want innovation, you need everyone to work together from all around the world. It’s not one company or one country.”

He is just as doubtful about cutting China out as the US has been doing.

“I think that’s probably a major mistake,” he says. “When I look back, I feel lucky to have witnessed the extraordinary growth of Taiwan’s economy and this long period of peace. Now I see conflict in other parts of the world, and I worry it may come to Asia.

“I hope people appreciate the precious effort that we made and won’t destroy it.”

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Japan, ASEAN to boost security ties with eye on China

With Malaysia, Japanese Prime Minister Fumio Kishida said on Saturday that he had agreed with counterpart Anwar Ibrahim to deepen strategic ties and provide 400 million yen (US$2.8 million) for “warning and surveillance” equipment. Kishida said that with the world “at a historical turning point, Japan places great importance onContinue Reading

Indian visitors spark tourism recovery hopes

Indian visitors spark tourism recovery hopes
Indian tourists are warmly received at Phuket airport on Friday. (Photo: Achadthaya Chuenniran)

PHUKET: The outcome of the first direct flight from New Delhi to this resort island province has sparked optimism in the tourism industry.

It is expected that direct flights from the Indian capital, operated by Air India, will increase from four days a week to every day starting next month.

The positive outlook follows the inaugural flight of AI378, which arrived in Phuket on Friday. Visitors were welcomed by provincial governor Sophon Suwanrat and Phuket Airport Director Monchai Tanod.

Lertchai Wangtrakuldee, director of the Tourism Authority of Thailand’s (TAT) Phuket office, said Indians comprise the third largest number of arrivals to the province, after Russian and Chinese tourists.

He said direct flights will bring more travellers from India, and it is hoped that their arrival will offset a slow recovery in the Chinese market.

There are about 1,000 Indian visitors in Phuket per day, and the number from January to November stood at 235,070, according to the TAT.

Overall, there are about 14,000 to 15,000 foreigners in the province per day, an increase from 10,000 in September, TAT data showed. Phuket hotels have seen an 85% occupancy rate.

Patsee Permvongsenee, director of TAT’s Asean, South Asia and South Pacific department, said direct flights to the resort island will boost local tourism after the government began a visa exemption programme for Indian visitors until May 10 next year.

Air India currently operates four direct flights a week, and each can carry 162 passengers, she said. The airline now plans to operate daily flights starting next month, she noted.

She said the TAT offices in New Delhi and Mumbai are currently carrying out marketing campaigns with their partners to target golfers and newlyweds. Thailand will also be promoted as a wedding destination, she said.

Since the start of the visa exemption programme, the number of Indian visitors to Thailand has jumped from 4,000 daily to about 5,000, the TAT said. More than 1.5 million Indian travellers visited the country from the beginning of January to Dec 10, which represents a 77% recovery when compared with pre-Covid levels in 2019, it said.

It said that the top destinations in Thailand are Bangkok, Chon Buri, Phuket, Krabi and Phangnga. Tourism revenue from the Indian market is estimated to exceed 65.6 billion baht this year, with average spending per head per trip at 39,500 baht.

Thanet Tantipiriyakit, Phuket Tourist Association president, said India is a key market for tourism operators thanks to the short travel time to Thailand.

“Tourists are looking for travel convenience. In addition to travel regulations like visa, a direct flight is also key. There are several segments, from luxury lifestyle travel to honeymoons,” he said.

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Commentary: COP28 raises questions about the future of Singapore’s fossil fuel-reliant industries

DATA CENTRES, MARITIME AND AVIATION

Another area to keep an eye on is the information and communications technology (ICT) sector. Currently, the ICT industry is responsible for a relatively modest 8 per cent of electricity consumption in Singapore. However, ICT power use has quadrupled over the last 10 years.

According to consultancy Cushman and Wakefield, Singapore is now the largest data-centre market on a city basis in the Asia-Pacific outside China, with more than 40 data centres. Given the growth potential of this industry, it is important for data centres to adopt the latest smart cooling technologies. 

A further concern is maritime transport and aviation, business activities which Singapore is a hub for. The emissions associated with these sectors are generally not included in national estimates, because the fuels used are categorised as “international bunkers” and are not included in the Paris Agreement. This loophole has limited the pressure to address these sectors’ emissions until recently.

If the aviation industry fails to abate its emissions, it could consume more than a quarter of the world’s carbon budget for 1.5 degrees Celsius of warming by 2050. Although the aviation industry has recently agreed to reach net zero emissions by 2050, this is a voluntary agreement which risks being reneged upon if procuring enough sustainable aviation fuel or commercialising electric planes proves too challenging.  

A rigorous carbon accounting model would include all emissions attributable to Singaporeans’ air travel. It would also include the emissions due to shipping of goods they buy. Ideally, it would additionally account for the emissions due to the production of goods imported into the country.

While these indirect emissions are more challenging to estimate, they are crucial in getting the full picture of Singapore’s carbon footprint. It is time for individuals, companies and countries to take responsibility for their own actions and the environmental impacts they cause.

The transition away from fossil fuels is now official. The urgency of the climate crisis behoves all countries to take stock of and apportion responsibility for their emissions. The conclusion of COP28 is a chance for Singapore to review its climate strategy and decide where it should strengthen its efforts.

Roger Fouquet is Senior Research Fellow at Energy Studies Institute, National University of Singapore.

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IN FOCUS: Low birth rate, ageing society could cripple Thailand but it's not a done deal yet

Its Hire Me project – “Jangwan Ka” in Thai – seeks to provide jobs for people who cannot enter the employment system due to factors such as old age.

“Thailand hardly provides jobs for the elderly … they’re often perceived as having less ability to work,” said the Hire Me project manager, Mr Sittiphol Chuprajong.

“Actually, many of them still want to be employed because working isn’t just about earning income but also living their life, socialising and having friends,” he added.

Since 2020, Hire Me has attracted 160 participants and counting. Most of them are the elderly and about 20 per cent are people in their fifties who do not have enough funds to start a new life on their own.

Today, Mr Wattana earns 2,500 baht per week from working in the foundation’s warehouse. He can afford to pay 2,100 baht a month for a room, pay for his meals and buy a second-hand mobile phone to watch TikTok videos during his free time.

“It’s like my life was illuminated again after everything had gone dark. There is hope,” he said.

“I’m happy, very happy.”

SAVE UP FOR RETIREMENT

Thailand is facing considerable challenges as the elderly population shifts in the opposite direction to the birth rate.

Even should moves be made to return the elderly to the workforce, concerns remain over their financial security and health issues as well as how existing infrastructure can accommodate more seniors.

Ms Kingkan Ketsiri from the Bank of Thailand told CNA not much has been done to improve their welfare benefits and that the burden would fall on the working-age population in the future if nothing changes.

“Given that we have fewer newborn babies, we may not have enough people to take care of the elderly and that means more responsibilities for working-age individuals,” said Ms Kingkan, assistant director of the macroeconomic department.

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China wants role in US-Vietnam rare earths plan

Following the conclusion of President Xi Jinping’s Hanoi trip earlier this week, China has claimed itself to be Vietnam’s best choice for trade and diplomatic partnerships in the Asia Pacific region.

Perhaps, but the proof will be in the pudding. Will Vietnam directly export its rare earths, as the US hopes, or send them for processing in China? Chinese pundits want to know. They also want to know whether Hanoi will lease a military port to Washington.

On Wednesday, China and Vietnam signed 36 agreements, covering the Belt and Road Initiative, development cooperation, digital economy, green development, transportation, inspection and quarantine, defense and law enforcement and maritime cooperation. But Vietnamese media said Beijing and Hanoi have failed to reach agreements on nine other issues, including metals and rare earths mining. 

During his own trip to Hanoi in September, US President Joe Biden signed deals with Vietnam on semiconductors and rare earths. He encouraged US investment in rare earth exploration in Vietnam – which is ranked third in the world in its rare earths potential – to counter China’s world domination of the minerals.

Rare earths

Some Chinese pundits said China will boost trade and investments with Vietnam as long as Hanoi continues to maintain a good relationship with Beijing. They said if Vietnam is going to use US investment to explore its rare earth reserves, it should consider shipping the deposits to China for refining. 

According to the US Geological Survey, Vietnam’s rare earth reserves stand at 22 million metric tons, compared with China’s 44 million metric tons. 

Rare earth deposits in Vietnam have remained largely untapped, due to the low prices that are effectively set by China, which was the largest rare-earths supplier in the world last year.

This week, Beijing said it is ready to offer grants to Vietnam to build the railway between Kunming and the Vietnamese port city of Haiphong. The railway will pass through Vietnam’s rare-earths heartland. 

“If Vietnam asks China to build a railway in its territory, it’s natural for both sides to form a rare earth partnership,” a Shanxi-based columnist says in an article published on Friday. “It will be embarrassing if China is building the railway while the US is extracting the minerals in Vietnam.”

He says the proposed construction of a Sino-Vietnam cross-border railway will make it more difficult for Vietnam and the US to form a rare earth partnership. He says, even if the US starts mining, it will have to send the minerals to China for refining. 

“The US offered to help Vietnam develop its mining industry in a bid to obtain its rare minerals, but such a move will only increase the cooperation between Vietnam and China,” Huang Xuan, a Heilongjiang-based writer, says in an article, adding that China is good at refining rare earths.

‘The outsiders’

The same writer praises Vietnam for maintaining a friendly relationship with China, for example, by importing Chinese raw materials and intermediate products, refusing to condemn Russia in the Ukraine war and supporting Palestine. She says Vietnam and China agree that maintaining stability in the South China Sea fulfills both countries’ interests.

Xi Jinping told Vietnamese President Vo Van Thuong on Wednesday that both China and Vietnam should be “alert to and oppose any attempts to mess up Asia Pacific.”

The Chinese Foreign Ministry had in the past said that the US and NATO were the “outsiders” who tried to mess up Asia Pacific. It had criticized the US and Philippines for strengthening their military ties after Philippine President Bongbong Marcos took office in June 2020.

“We have to admit that the encirclement deployed by the US in the South China Sea is taking shape and posing security risks and threats to China,” a writer using the pen name “Zhenjiang” says in an article published on Friday. 

“Fortunately, China has also strengthened its military power in the region over the past few decades,” he says. “If the US wants to gather its allies to cause trouble at China’s doorstep, it needs to take into consideration the naval and air power of the People’s Liberation Army.”

He says the US definitely wants to rebuild a navy base in Vietnam’s Cam Ranh Bay, an American military port during the Cold War period. He says, if this is the case, the PLA will deploy J-20 fighter jets and launch Dongfeng-21D anti-ship ballistic missiles to punish the trouble-makers.

Chinese President Xi Jinping (left) shakes hand with Vietnamese Communist Party’s General Secretary Nguyen Phu Trong in Hanoi on December 12, 2023. Photo: Xinhua

‘Historic significance,’ ‘new milestone’

But, getting back to the fancy words: The Chinese Foreign Ministry said Friday that Xi’s visit to Vietnam on December 12-13 is of great historic significance and marks a new milestone in the two countries’ bilateral relations.

The ministry would say that, of course, especially with a view back to Biden’s meeting with Vietnamese Communist Party General Secretary Nguyen Phu Trong in Hanoi on September 10. Those two had agreed to elevate the US-Vietnam relationship to “Comprehensive Strategic Partnership” for the purposes of “peace, cooperation and sustainable development.”

Mao Ning, a spokesperson of the Chinese Foreign Ministry, said the Vietnamese side firmly supports and will actively participate in the Belt and Road Initiative, the Global Development Initiative, the Global Security Initiative and the Global Civilization Initiative proposed by Xi.

“The Vietnamese side emphasized that China is the only country that can contribute to all the priorities of Vietnamese diplomacy and growing relations with China is the top priority and strategic choice made by Vietnam, which will not be disturbed or sabotaged by any external forces,” Mao said. “This sets a solid political foundation for building a China-Vietnam community with a shared future.”

Xi’s trip to Vietnam is aimed at telling the mainland Chinese people and the West that Beijing has still had a strong influence on its neighboring countries, Huong Le Thu, deputy director of the Asia Program at the International Crisis Group, told the United Daily News in an interview.

“Vietnamese leaders have so far managed its relations with the US and China quite well,” she said. “They understand the challenges and opportunities created during the competition between great powers, and how to make use of Vietnam’s strategic position.”

She said the question is how long Hanoi can sustain the situation. She said Vietnamese leaders need to deal with the US and China carefully as both had fought with Vietnam in the past. 

Read: US friend-shoring becoming China’s export enemy

Follow Jeff Pao on Twitter at @jeffpao3

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Finally, some good news on interest rates

If you’re trying to build up your savings account, these are happy times. For years, you earned almost nothing on your savings, even if you parked them in certificates of deposit. Today you can get a 5.5% CD without much difficulty.

If you’re in the market to buy a house, these are definitely not happy times. With mortgage rates around 7%, monthly payments will be out of range for many potential buyers. Would-be home sellers with low-rate mortgages aren’t inclined to list, which makes houses scarcer and pushes prices higher. As a Wall Street Journal headline recently put it, “The Math for Buying a Home No Longer Works.”

If you’re a farmer or other business person who normally borrows operating money and occasionally investment money, today’s rates make you want to tear your hair out. Many farmers have scrambled to find ways to borrow less.

In the economy generally, business fixed investment is down. It hardly needs saying that a prolonged period of rates at today’s levels would be very bad for economic growth.

And worse for the federal budget. Interest costs on the federal debt have risen 39% this year from the year before and 91% from three years ago, to $659 billion. According to the Committee for a Responsible Federal Budget, those interest costs now equal 2.5% of the nation’s GDP, up from 1.6% in 2020. They’re the third largest federal expenditure category after Social Security, Medicare and defense, and in shooting distance of overtaking defense.

It would, in other words, be good in many ways and for many people, savers excepted, for interest rates to come down. Good news: The odds of them coming down are improving.

Thanks mainly to some very good inflation news, Federal Reserve policymakers have become more dovish. At their meeting on December 12 and 13, they not only left their benchmark interest rate unchanged for the fourth month in a row after 11 consecutive increases, they seem increasingly unlikely to be raising interest rates again, and they projected (projected, not promised) that they will cut rates three times next year. They didn’t indicate when they’d start cutting.

In their latest quarterly Survey of Economic Projections, the Fed policymakers forecast that their benchmark rate would be 4.6% at the end of next year, down from 5.4% at the end of 2023, with further declines to 3.9% at the end of 2025 and 2.9% at the end of 2026. In September they had forecast that the 2024 ending rate would be 5.1%.

This dovishness represents a real change from as recently as six weeks ago. At its meeting ending November 1, the Fed seemed much less certain about whether the decline in inflation was sustainable. Markets seemed to agree. The yield on the 10-year Treasury note had recently hit 5%.

Since then, inflation has continued to soften. By the most-used measures, it’s down to around 3% and by one less-used measure down near the Fed’s 2% target. Using the Fed’s preferred measure, the policymakers projected inflation would end this year running at a 2.8% rate, down from their 3.3% projection in September. They forecast it would end next year at 2.4%.

That would still be above the Fed’s target. But at the post-meeting press conference Fed Chair Jerome Powell said the Fed would not wait for 2% to begin cutting once it felt assured inflation was on a sustainable path to 2%.

In addition to the good news on inflation, the job market has cooled; while there are still more jobs than job seekers economy-wide, the gap is closing rapidly. The Fed doesn’t want a recession, but a hot labor market leaves worries about inflation heading north again.

After the Fed announced its latest decision and released the Survey of Economic Projections, the yield on the 10-year was 4.02%, down nearly 20 basis points on the day.

Much has changed on the interest-rate front in recent weeks. (DTN graphic)
Much has changed on the interest-rate front in recent weeks. (DTN graphic)

Now please, farmers and other business borrowers, take this news with the normal caveats about when to tally poultry. There’s always the danger that a surprise future turnaround in inflation will force the Fed to reconsider its dovishness.

While Powell indicated policymakers think interest rates have peaked, they haven’t taken a rate increase off the table. “No one is declaring victory; that would be premature,” Powell warned at the press conference.

Still, six weeks ago there was good news (no rate increase) and bad news (inflation uncertainty) about interest rates. The news from the latest Fed meeting as well as from financial markets is just plain good.

Former longtime Wall Street Journal Asia correspondent and editor Urban Lehner is editor emeritus of DTN/The Progressive Farmer. 

This article, originally published on December 14 by the latter news organization and now republished by Asia Times with permission, is © Copyright 2023 DTN/The Progressive Farmer. All rights reserved. Follow Urban Lehner on Twitter (X) @urbanize

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