Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, said on Thursday that the labor market is not a major driver of the inflation that the US central bank seeks to reduce, adding that harming the labor market is not necessary to achieve this goal.
Kashkari told Bloomberg TV: “I do not think that is necessary, because the labor market is not the main source of inflation today, so I do not see the need for that.” His statements came in response to a question about whether he agreed with a colleague at the Federal Reserve who feared that high interest rates would lead to an increase in unemployment rates.
He added: “But I do not want to completely rule out this possibility.” We have a dual mandate; One side of this mandate appears to be in a very good position currently, while the other side has remained far from achieving its target over the past five years.”
For his part, Jeff Schmid, President of the Federal Reserve Bank of Kansas City, said on Thursday that determining the impact of rising energy prices on inflation remains a major challenge for US central bank officials, who are trying to assess whether the current inflationary pressures will continue.
“This is perhaps one of the biggest challenges facing monetary policy today, namely understanding what lies behind this supply shock,” Schmid said, during a conference organized by the Federal Reserve Bank in Richmond on rural development, adding that the challenge is also to determine how long its impact on inflation rates may last.
Egypt is betting on new wells to meet its gas needs and reduce the import bill after production declined to its lowest levels, according to some estimates. However, this decline and dependence on imports does not prevent Cairo from highlighting its role as a regional energy center and continuing to conclude deals to export gas despite the inability of production to meet its needs.
The Egyptian Ministry of Petroleum announced, on Wednesday, the addition of 45 million cubic feet of gas per day to local production, along with 540 barrels per day of condensate, through three new wells and the restarting of the Rabaa well. It linked this increase to the return of partners' investments after settling late dues, and said that its program is based on accelerating putting new wells on production, repairing stalled wells, and benefiting from the existing infrastructure.
But this addition is not sufficient to bridge the gap between production and consumption, which is slightly more than half. According to statements by the Egyptian Minister of Petroleum and Mineral Resources, Karim Badawi, at the end of last August, the country’s gas production amounts to about 3.7 billion cubic feet per day, compared to a high consumption bill that reached 7.28 billion cubic feet per day, in July and August, and about 6.45 billion during the period from October to March, which means Cairo has to Imports to fill the gap between production and consumption, which is slightly more than half.
Hossam Hassan Al-Khasht, a member of the Egyptian House of Representatives (Parliament), told Asharq Al-Awsat that Egypt’s gas production has reached its lowest levels in about 15 years, pointing to what he described as “a financial and administrative structural defect in the management of the energy system.”
Energy economist Jamal Al-Qalioubi attributed the decline in Egypt’s gas production to “the nature of the fields themselves,” and told Asharq Al-Awsat that “production increases and decreases according to the capabilities of the reservoirs and their productive lives,” explaining that “one of the main changes was the decline in the production of the Zohr field, which at a previous stage acquired about half of Egypt’s gas production capabilities.”
He added: “The contributions of the Zohr field decreased to about 27 or 28 percent, which left a gap that no alternative field has yet emerged to compensate for.”
This decline prompted the Ministry of Petroleum to increase drilling and exploration activities over the past two years, with the aim of restoring previous production rates.
But until now, Egypt still relies on imports to provide its gas needs, especially in the summer, when power stations consume about 4.3 billion cubic feet of gas per day, compared to about 3.3 billion in the months with less consumption, according to Al-Qalyoubi.
Gas consumption for electricity generation and heating amounted to about 4.7 billion cubic feet per day during the month of last July, or approximately two-thirds of the total consumption in that month, according to official estimates.
In addition to electricity, Egypt needs gas in a number of industries, most notably fertilizers and petrochemicals. Al-Qalyoubi explained that “Egypt produces about 17.5 million tons of fertilizers, of which about 12 million tons are consumed locally, and the rest is exported, in addition to producing about 4.8 million tons of petrochemicals, a large portion of which goes to export.”
Al-Khasht explained that the average cost of one million thermal units of gas within the system amounts to about $10.5 in light of the current supply mix that combines local production and imports, while Petroleum sells it to the Ministry of Electricity for about $5, in an indication of what he described as a “financial and administrative structural defect.”
To meet its needs, Egypt imports Israeli gas according to an agreement signed in 2019, which was recently amended to stipulate the supply of 130 billion cubic meters of Israeli gas to Egypt, worth $35 billion, until 2040, at a daily rate of 1.8 billion cubic feet.
But at the same time, it continues to sign gas export deals to enhance and consolidate its regional and international position as a regional energy center, as at the beginning of this year it signed memorandums of understanding to export gas to Syria and Lebanon. According to recent official estimates, Egypt's exports of natural and liquefied gas increased by about 130 percent during the last fiscal year, reaching 835 thousand tons.
Al-Qalioubi explained the continuation of export deals despite the need for gas by “the nature of the gas market and the agreements of foreign partners,” and said that “international companies operating in Egypt, including Eni and BP, have shares and commercial obligations according to their agreements, and they may be able to sell their shares in markets with a return greater than the amount for which Egypt buys gas.”
He added: “The foreign partner contracts more profitable gas deals, and therefore requests to obtain and dispose of its share, while Egypt imports gas in smaller amounts, which achieves a profitable trade equation.”
Al-Qalioubi explained that the Ministry of Petroleum is exploring new wells and developing existing ones, which may increase production by about 1.5 billion cubic feet per day during 2027.
The 10-year US Treasury bond yield rose to 5.34 percent on Thursday, hitting its highest level since 2002, after recording its largest quarterly rise this century during the three months ending in September.
The 10-year bond yield is a key measure of global borrowing costs and asset prices. The record return reached about 5.32 percent in the latest trading, despite the entry of investors to buy to take advantage of the decline in prices.
HSBC's chief economist for Asia, Fred Newman, said that financial markets are going through a phase of determining the "new anchor" for long-term interest rates, as they respond to years of inflation that has exceeded target levels.
He added that bond markets will demand a premium for long-term borrowing “until monetary tightening is implemented,” noting that expansionary financial policies also bear part of the responsibility for continued inflation.
Bond yields rose globally as higher energy costs fueled inflation, while the artificial intelligence boom and the construction of data centers increased competition for capital and raised expectations about economic growth and the levels at which short-term interest rates will stabilize.
Traders were also quick to abandon their previous expectations about lowering US interest rates this year. After last month's rate hike, they now expect at least three more hikes from the Federal Reserve before mid-2027, although weaker inflation data on Wednesday helped dampen expectations of a near-term rate hike.
