How the Circular Economy Can Revive the Sustainable Development Goals

Economic

Energy

Summary:

Priorities for immediate global action, and a policy blueprint for the transition to 2050.

As concerns rise about the achievability of the 2030 Agenda for Sustainable Development, an opportunity is emerging to promote the circular economy as the solution of the future – and to put the concept at the heart of action on everything from tackling climate change to reducing poverty.

The transformative potential of the ‘circular economy’ in addressing global environmental and social challenges is receiving increasing international attention, with recent interest driven in particular by recognition that the existing UN-led sustainable development agenda is faltering. Until now, the circular economy has been largely peripheral to that agenda, despite featuring extensively in government thinking and having a rising profile as a sustainable alternative to today’s wasteful and polluting economic models. However, with the multilateral policy community considering as a matter of urgency both how to revive stalled progress on the Sustainable Development Goals (SDGs) and what any framework that replaces or extends the SDGs after 2030 should contain, there is an opportunity to embed circular economy principles more comprehensively and formally within the international system.

This research paper has been written with the express intention of contributing ideas to this emerging SDG reset, both at forthcoming events in the autumn of 2024 – most notably, the UN’s Summit of the Future – and in continuing discussions into 2025 and beyond. We make the case for accelerating and deepening the shift to circular economic models, taking into account the potential trade-offs and unintended consequences that disruptive innovations may bring. The paper underlines the vital role that expansion of the circular economy could play in supporting the SDGs and in shaping what comes after them. On the latter, specifically, we present a policy blueprint for development of the circular economy to 2050 (see Chapter 4, Table 2).

At the heart of our argument is the idea that the circular economy and the SDGs are naturally complementary. Prominence in the SDG framework could help the circular economy to reach a critical scale and breadth, which in turn would improve prospects for achieving many of the SDGs’ targets (see Table 1). Linking the two offers mutual benefits. The circular economy needs the imprimatur of the UN system and other multilateral institutions to establish itself globally. At the same time, the circular economy offers the prospect of vastly more effective action on the triple planetary crisis of pollution, climate change and biodiversity loss – precisely the sort of catalyst the UN’s ailing 2030 Agenda for Sustainable Development could use.

A ‘circular economy’ can be thought of as a system designed to deliver social and economic prosperity without requiring unsustainable levels of raw material extraction, consumption or pollution. In simplified terms, a circular economy combines three design principles: eliminating waste and pollution; extending the lifetime of products and materials for as long as possible; and regenerating natural systems. It can entail many different types of activity – ecodesign of goods, ‘product-as-a-service’ alternatives to product ownership, regenerative and restorative farming, and the use of refurbished and second-hand goods are just a few examples. Achieving a circular economy is not simply about recycling more: it requires reorienting and redesigning the fundamental goals and structures of societal provisioning systems (food, transport, energy, shelter) in ways that dramatically reduce raw material and energy consumption.

A robust scientific literature underlines the advantages of circular economic models over today’s predominantly extractive, resource-intensive ones (often described as ‘linear’ by researchers). By some estimates, moving to a circular economy could unlock up to $1.5 trillion in value in just three sectors of the US economy alone. It could help achieve 45 per cent of the global greenhouse gas emissions reductions needed to mitigate climate change by transforming the way products and materials are made and used. It could also restore global biodiversity to its 2000 levels within little more than a decade. Yet without introduction of the circular economy at scale, in contrast, resource consumption could increase by 60 per cent from 2020 levels by 2060, while over half of the 169 targets within the 17 SDGs may be unachievable. Put another way, the circular economy is becoming too important for policymakers to ignore, all the more so amid mounting concerns about rising global temperatures, the lack of progress on the SDGs, and the world’s failure to meet many environmental targets.

Yet the story of the circular economy so far has often been one of modest ambition, localized initiatives, and small-scale or experimental projects implemented incoherently. As we argue in this paper, the circular economy needs to be both scaled up and globally coordinated. One of the most basic challenges is that not enough circular economy activity is going on: according to one estimate, the global economy is just 7.2 per cent ‘circular’, if measured by the percentage of secondary (i.e. cycled) materials it consumes. A second problem is the lack of dedicated institutional representation. Whereas the UN Framework Convention on Climate Change (UNFCCC) exists for global climate policy coordination, and the International Energy Agency (IEA) provides a coordinating structure for the energy sector, no equivalent exists for the circular economy. What is needed is a kind of IEA for the circular economy, so to speak: a multilateral body that can champion the circular economy with policymakers and in the UN system, and that can coordinate policy, regulation and standards.

A third problem, partly stemming from the above, is that action on the circular economy remains fragmented at a global level. All countries depend to varying degrees on foreign trade for the materials, goods and services associated with circular activities. Equally, ‘ecodesign’ standards requiring products to meet strict circularity criteria will affect global supply chains, with implications potentially beyond the jurisdictions where such standards are enacted. However, the basic interconnectedness of the circular economy is not fully reflected in policy. More than 75 national circular economy action plans, roadmaps and strategies have been launched to date (another 14 are in development). These documents have been drafted unilaterally by the countries in question, resulting in a kaleidoscope of around 3,000 rapidly evolving commitments spanning 135 policy areas and 17 sectors. While the amount of activity is a positive sign of rising interest in the circular economy, fragmentation of its operating and regulatory environments risks increasing barriers to trade (for example, when regulations on the export of industrial waste or recycled electronics are incompatible between one country and another).

A fourth concern is that current government practice on the circular economy risks encouraging counterproductive resource nationalism and zero-sum economic competition, hurting resource-poor developing countries in particular and undermining the SDGs. In some cases, the national action plans and roadmaps mentioned above have narrow domestic goals, such as boosting competitiveness against trade partners, supporting the (often politically motivated) reshoring of industry and jobs, and reducing dependence on imported critical materials. Trends towards deglobalization and nationalism increase the temptation for governments to treat the circular economy as an opportunity to assert, or contest, control over supplies of critical raw materials.

Summary of recommendations

To address these challenges, this paper proposes solutions and ideas in two parts. The first part covers the period to 2030, the UN’s currently envisioned deadline for achieving the SDGs. The second focuses on 2030–50, a period during which the SDGs may be extended (most likely in modified form) or replaced with new goals as part of a refreshed sustainable development agenda.

In terms of immediate action on salvaging the SDGs between now and 2030, we have identified five priority areas for international collaboration on the circular economy. These proposed actions draw on input from stakeholder workshops and consultations with participants from Africa, Asia, Europe and Latin America, and are intended for a varied audience of multilateral institutions, governments and businesses. With the 2030 SDG deadline approaching, work on implementing these recommendations would need to begin immediately. The five priorities are as follows:

Embed principles of justice and inclusivity in circular economy development

This is more than a moral imperative; it is a pragmatic necessity both for engagement with the UN system, where such values already underpin the SDGs, and for achieving political and popular support around the world for the economic reforms implied by the circular economy. Key tasks include rectifying environmental injustices such as illegal dumping of waste in low- and middle-income countries, providing decent work and meaningful employment, and consulting a wide range of countries and stakeholders on the design of circular economy policies. Other recommendations include establishing UN guidelines on social equity in the circular economy; setting up a platform under the UN’s Economic and Social Council (ECOSOC) to facilitate sharing of expertise and best practices of Indigenous communities; and launching a global information campaign on the benefits of the circular economy.

Enhance global policy coordination on the circular economy

A multilateral or intergovernmental policy coordination mechanism is needed to help governments develop and implement national circular economy roadmaps. One option would be to establish a cross-sectoral circular economy alliance between UN development agencies. Such an alliance could work with national governments, multilateral development banks (MDBs), the private sector and civil society to offer guidelines, best-practice examples and technical knowledge. The Global Alliance on Circular Economy and Resource Efficiency (GACERE) – which currently consists of just 16 countries plus the EU – could conceivably be repurposed and expanded for this role. Another option would be to set up an international resource agency,6 akin to the International Energy Agency (IEA) in some respects but with a mandate specific to material resources and the circular economy. Additionally, the G7 and G20 should be encouraged to increase their ambition on the circular economy and to align policy in areas such as product and producer standards (see Chapter 3). International coordination between environmental agendas could also be improved by applying circular economy principles to achieve the targets set in multilateral environmental agreements such as the Convention on Biological Diversity and the Paris Agreement on climate change.

Reform the global financial architecture

Scaling up the circular economy will require significant investment. At present, the circular economy is poorly integrated into the global financial architecture, and thus largely off the radar of many investors or perceived as too risky. Creating a circular economy-specific framework for international financial institutions could facilitate development of investment taxonomies, financial benchmarks and technical criteria that would underpin the funding of projects, technologies and business models at scale. Multilateral development finance – though historically focused on ‘linear’ economic models – also has a role to play in de-risking circular economy investments. The ongoing reform of MDBs presents an opportunity to embed circularity principles in international public finance. Most fundamentally, MDBs will need to increase their lending capacity and adjust their mandates to allow the financing of global public goods. A Global Circular Economy Fund, financed through public sources and modelled on the Green Climate Fund, could also be set up to mobilize private capital, concentrating on low- and middle-income countries that might otherwise struggle to attract financing for their circular economy transitions.

Rewire the global trade system

Changes in policy and regulation are needed to support circular economy-enabling trade while preventing problems such as the illegal dumping of waste and trade in goods that inhibit the circular economy. Reconfiguring global supply chains to be circular in nature will require policies and regulations to streamline trade in many kinds of goods and services, including: remanufacturing and recycling equipment; second-hand goods; secondary raw materials; non-hazardous scrap and industrial residues; and design, rental and repair services. ‘Trusted circular trader’ schemes could be established to reduce red tape, pre-certifying circular economy-compliant exporters. ‘Resource recovery lanes’ similar to customs green lanes could expedite documentation for shipments of secondary raw materials. Technical cooperation to make circular trade compatible with the World Customs Organization’s Harmonized System (HS) codes is also needed. Finally, the informal circular economy working group hosted by the WTO’s Trade and Environmental Sustainability Structured Discussions (TESSD) would benefit from more formal status.

Develop shared standards and metrics

Common standards and metrics will be crucial to expanding the circular economy worldwide, and to reducing policy and regulatory fragmentation. In addition to supporting disclosures by businesses and organizations, new metrics will be needed for monitoring and reporting the circular economy’s aggregate impact on other multilateral environmental agreements, such as the Paris Agreement on climate change and the upcoming binding instrument to end plastic pollution by 2040. A circular economy-specific taxonomy of standards will need to cover many different areas, including product design, procurement, cleaner production, supply-chain transparency and traceability, and financial performance. The recent publication of the first tranche of ISO 59000 standards on the circular economy is a step forward, but micro, small and medium-sized enterprises (MSMEs) in particular may need support on compliance costs. The new voluntary Global Circularity Protocol (GCP), launched in 2023, could drive the development of universal metrics for assessing circularity.

After the SDGs – 2030 to 2050

Most of the SDGs will not be achieved by 2030. Only 17 per cent of the SDG targets are on track to be met globally by 2030.7 Some prominent voices propose that, instead of abandoning or replacing the SDGs, the UN should revise the current set of targets and extend the SDG framework to 2050.8 To provide ideas in this area, Chapter 4 presents an indicative, longer-term policy blueprint to be considered in the context of a possible extended or revised SDG framework post-2030.

Specifically, we propose a set of circularity targets in 17 categories for 2050, and corresponding levers and actions for achieving them. Each category of target is mapped to one of the 17 SDGs. For example, for SDG 1 (‘No poverty’), our proposed targets envisage the circular economy providing affordable basic services to the poor, and sustaining local businesses that can help make communities resilient to economic shocks and environmental disasters. For SDG 7 (‘Affordable and clean energy’), we propose actions that would enable societies to achieve full, affordable access to renewable and circular energy systems. Under this target, most critical materials would be supplied through secondary sources or substituted with alternative materials – highlighting the importance of circularity in ensuring that the resource demands of the energy transition are reduced as much as possible.

To enshrine circular economy principles more prominently in the next set of goals post-2030, we recommend several steps:

Introduce a specific high-level objective, within the extended post-2030 SDG framework, that recognizes the transformative potential of the circular economy for global development and for addressing the triple planetary crisis.Explicitly outline ambitious but achievable global targets related to reducing unsustainable resource use, reducing global waste generation, and enhancing circularity rates for key resources and materials.Ensure that circular economy targets are integrated across all SDGs, emphasizing the interconnectedness of sustainable resource management with economic, social and environmental objectives.Align the post-2030 framework and circular economy targets with the ‘Beyond GDP’ initiative that forms part of the UN secretary-general’s ‘Our Common Agenda’ vision.Develop clear, measurable indicators for inclusive circular economy practices with specific relevant targets for 2050.

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Justin

Economic

Investments from the World Bank’s private investment arm hit a record $56 billion in its financial year to end-June, the lender’s managing director told Reuters.

International Finance Corporation (IFC) commitments, which cover both its own short- and long-term financing as well as mobilised funding, had risen by 28 per cent year-on-year, said managing director Makhtar Diop.

This was chiefly driven by internal reforms as part of World Bank President Ajay Banga’s push to speed up lending across the group, which includes the IFC whose investments are targeted at spurring growth and reducing poverty in developing countries.

“(We) have been in a process of kind of seeing what we can do differently,” Diop said, adding apart from streamlining processes the IFC had also decentralised decision making, allowing directors on the ground to take more responsibility over the deployment of funds in their patch.

Looking ahead to the financial year ending in June 2025, Diop expected another increase, aiming for a target of $62 billion, with the lender focusing efforts on infrastructure more widely, especially roads and transportation, and working with sub-sovereign entities, such as municipalities.

“They (municipalities) are not often the best equipped to structure deals and to do PPPs,” Diop said, referring to public private partnerships. “If you manage to work with them and develop a good pipeline of PPPs and to help them to deliver school, health services, things that are under their responsibility, to help them have much greener cities ...you can have a huge amount of investment which is needed there.”

Diop also said he wanted to increase equity investments, shifting further away from traditional loans and bonds, possibly even as a cornerstone investor that would help take companies public on their domestic stock markets. However, the IFC would have to consider what this could mean for its coveted AAA rating, with equity investments bearing more risk than debt exposure.

“One objective that I can see in the equity business is to start investing in companies, having equity there, prepare them to be listed so that we can list them and exit maybe when they are listed,” Diop said.

Source: khaleejtimes

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Justin

Economic

Stagnating progress in efforts to achieve the UN’s Sustainable Development Goals is holding back African nations and the wider world, Mauritania’s president told the UN as he appealed for reforms of the international system to “give Africa a voice.”

Speaking on last Monday at the organization’s headquarters in New York City, Mohamed Ould Ghazouani said that despite setbacks, the African Union and its member states have “made tremendous efforts to achieve Agenda 2063,” a blueprint for sustainable development and economic growth on the continent.

The day before his address, UN member states voted to adopt the “Pact of the Future,” an initiative designed to bring multilateralism “back from the brink” and revive progress toward achieving the SDGs.

“The crises faced by our world recently present a challenge to our common future,” said Ghazouani, who chairs the African Union.

“If we continue to (attempt to) achieve the SDGs following the same track, using the same mechanisms, following the same pace, within the foreseeable future we will not be able either to eradicate poverty or to achieve peace and security, or to restore the environmental balance, or create the sustainable development we want.”

Authorities in Mauritania have sought to battle violence, terrorism, vulnerabilities and poverty, and have worked to ensure the economic integration of Africa, he added.

But progress in efforts to achieve the SDGs, regionally and internationally, are “not up to standard,” Ghazouani warned, as he highlighted the regression in development because of “wars, conflict, climate change and the debt burden.”

Imbalances in international governance have also played a part in the stagnation of progress, he added.

“It has been incumbent on the international community to find solutions, effective and efficient solutions, that will establish a common agenda to accelerate the implementation of the SDGs,” he said.

Reform of the international financial architecture and the UN Security Council remain a priority for his country and continent, Ghazouani continued.

This would “allow our continent to have a voice so its priorities will be given due consideration in the international agenda,” he said.

“We also call (for efforts) to address the debt issue, address environmental needs, enhance international cooperation and ensure international peace and security, so together we can take our planet away from the collapse that it is experiencing.”

Source: ARAB

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Warren Takunda

Stocks

December S&P 500 E-Mini futures are down -0.13%, and December Nasdaq 100 E-Mini futures are up +0.06% this morning as investors awaited the latest reading on U.S. job openings, comments from Federal Reserve officials, and an earnings report from the world’s largest shoemaker Nike.

In yesterday’s trading session, Wall Street’s major indexes ended in the green. Apple rose over +2% and was the top percentage gainer on the Dow after JPMorgan Chase noted that lead times for the latest iPhone indicate that initially slower demand for Pro models was “starting to correct.” Also, CVS Health gained more than +2% after the Wall Street Journal reported that hedge fund Glenview Capital Management is scheduled to meet with CVS Health’s top executives to suggest operational improvements. In addition, FedEx advanced over +2%, and United Parcel Service rose more than +1% after Stifel stated that the companies are the “most obvious beneficiaries” of extended disruption due to an impending port workers’ strike. On the bearish side, Boeing fell over -2% and was the top percentage loser on the Dow after the machinists union announced that negotiations to resolve the strike with the company had collapsed, with no further talks scheduled. Also, chip stocks came under pressure as Treasury yields climbed, with Micron Technology slumping more than -3% and On Semiconductor falling over -2%.

Economic data released on Monday showed that the Chicago PMI unexpectedly edged up to 46.6 in September, stronger than expectations of 46.1.

Fed Chair Jerome Powell said Monday that the central bank will reduce interest rates “over time” while reiterating that the overall economy continues to be on solid footing. Powell also reaffirmed his belief that inflation will keep moving toward the central bank’s 2% target, adding that current economic conditions “set the table” for a continued easing of price pressures. At the same time, he noted that the U.S. did not yet have the data necessary to make a decision regarding the November meeting. Also, Atlanta Fed President Raphael Bostic stated he would be open to another half-percentage-point interest rate cut at the November meeting if forthcoming data indicate job growth is slowing more rapidly than anticipated. “A surprise to the weak side .... would pull me much further into really needing another dramatic move,” Bostic said in an interview with Reuters.

Meanwhile, U.S. rate futures have priced in a 64.7% chance of a 25 basis point rate cut and a 35.3% chance of a 50 basis point rate cut at the conclusion of the Fed’s November meeting.

On the earnings front, notable companies like Nike, Paychex, and McCormick & Co. are set to report their quarterly figures today.

On the economic data front, all eyes are focused on the U.S. JOLTs Job Openings data, which is set to be released in a couple of hours. Economists, on average, forecast that the August JOLTs Job Openings will stand at 7.640M, compared to July’s figure of 7.673M.

Also, investors will focus on the U.S. ISM Manufacturing PMI, which stood at 47.2 in August. Economists foresee the September figure to be 47.6.

The U.S. S&P Global Manufacturing PMI will come in today. Economists expect September’s figure to be 47.0, compared to 47.9 in August.

U.S. Construction Spending data will be reported today as well. Economists foresee this figure to stand at +0.2% m/m in August, compared to the previous number of -0.3% m/m.

In addition, market participants will be looking toward speeches from Atlanta Fed President Raphael Bostic, Fed Governor Lisa Cook, Boston Fed President Susan Collins, and Richmond Fed President Thomas Barkin.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 3.750%, down -1.57%.

The Euro Stoxx 50 futures are up +0.04% this morning as investors digested remarks from a European Central Bank official as well as key economic data from the region. Technology stocks advanced on Tuesday, while luxury and energy stocks lost ground. A survey released on Tuesday indicated that manufacturing activity across the Eurozone fell at its quickest rate this year in September as demand sharply decreased, even though factories reduced their prices. Separately, preliminary data from Eurostat showed that the Eurozone’s annual inflation rate dropped below the ECB's target in September for the first time in over three years. Meanwhile, ECB policymaker Olli Rehn stated on Tuesday that the inflation rate in the euro area is expected to stabilize at the central bank’s 2% target throughout 2025. “The direction of monetary policy is clear: interest rate cuts have begun and our monetary policy stance is becoming less restrictive,” Rehn said. Also, ECB President Christine Lagarde said on Monday that the central bank is growing more optimistic about bringing inflation under control and will consider this in its October interest rate decision. “Inflation might temporarily increase in the fourth quarter of this year as previous sharp falls in energy prices drop out of the annual rates, but the latest developments strengthen our confidence that inflation will return to target in a timely manner,” Lagarde said. Investor attention is now directed toward a speech from ECB Executive Board member Isabel Schnabel later today. In corporate news, Covestro Ag climbed over +5% after Abu Dhabi National Oil Company agreed to acquire the German chemicals producer for 14.7 billion euros ($16.4 billion).

Spain’s Manufacturing PMI, Italy’s Manufacturing PMI, France’s Manufacturing PMI, Germany’s Manufacturing PMI, Eurozone’s Manufacturing PMI, Eurozone’s CPI (preliminary), and Eurozone’s Core CPI (preliminary) data were released today.

The Spanish September Manufacturing PMI stood at 53.0, stronger than expectations of 50.2.

The Italian September Manufacturing PMI came in at 48.3, weaker than expectations of 49.0.

The French September Manufacturing PMI arrived at 44.6, stronger than expectations of 44.0.

The German September Manufacturing PMI stood at 40.6, stronger than expectations of 40.3.

Eurozone September Manufacturing PMI came in at 45.0, stronger than expectations of 44.8.

Eurozone September CPI has been reported at +1.8% y/y, in line with expectations.

Eurozone September Core CPI arrived at +2.7% y/y, in line with expectations.

Japan’s Nikkei 225 Stock Index (NIK) closed up +1.93%, while Chinese markets were closed for a holiday.

China’s Shanghai Composite Index was closed for the week-long National Day holidays. Mainland China’s financial markets will reopen on Tuesday, October 8th.

Japan’s Nikkei 225 Stock Index closed higher today, recovering some losses from the previous session’s heavy selloff, supported by a weaker yen. Japanese shares also tracked gains on Wall Street overnight. Defense stocks led the gains on Tuesday. Also, shares of trading houses continued to rise after Berkshire Hathaway hired banks for a potential yen bond offering. A private sector survey released on Tuesday showed that Japan’s factory activity contracted for the third straight month in September, with output and new orders shrinking amid a sluggish economy and tepid overseas demand. Separately, a Bank of Japan quarterly tankan corporate survey indicated that sentiment among large Japanese manufacturers remained unchanged during the three months to September, reflecting ongoing global economic uncertainties that have made them cautious about their business outlook. In addition, data from Statistics of Japan showed that Japan’s unemployment rate eased in August. Meanwhile, a summary of the BOJ’s September meeting released on Tuesday indicated that policymakers debated the necessity of being cautious about near-term interest rate hikes, with some expressing concern over unstable financial markets and the economic outlook in the U.S. Even an advocate for future rate hikes urged patience before acting, the summary revealed, signaling a dovish shift among the nine-member board that reduces the likelihood of a hike in October. In other news, Shigeru Ishiba was effectively confirmed as Japan’s new prime minister on Tuesday. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down -12.33% to 24.75.

The Japanese September au Jibun Bank Japan Manufacturing PMI came in at 49.7, stronger than expectations of 49.6.

The Japanese Tankan Large Manufacturers Index has been reported at 13 in the third quarter, stronger than expectations of 12.

The Japanese Tankan Large Non-Manufacturers Index stood at 34 in the third quarter, stronger than expectations of 32.

The Japanese August Unemployment Rate was at 2.5%, stronger than expectations of 2.6%.

Pre-Market U.S. Stock Movers

IGM Biosciences tumbled over -15% in pre-market trading after announcing a strategic shift, which includes immediate steps such as a reduction in workforce to minimize future spending on the research and clinical development of aplitabart and other oncology candidates.

CVS Health rose more than +2% in pre-market trading after the Wall Street Journal reported that the board is undertaking a strategic review of options for the company, including a potential breakup, in response to shareholder activist pressure.

HP Inc. fell over -2% in pre-market trading after Citi downgraded the stock to Neutral from Buy.

Ford gained more than +2% in pre-market trading after Goldman Sachs upgraded the stock to Buy from Neutral with a price target of $13.

Source: Barchart

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PIIE

Central Bank

Economic

Jerome Powell's four-year term as chair of the Federal Reserve Board will expire in May 2026. Donald Trump has already announced that if he is reelected, he will not appoint Powell to a third four-year term as chair. At that point, Powell could – if he wants – remain on the Board as an ordinary member until his separate 14-year term as a Fed governor runs out in January 2028.

There is an apparent precedent for such a situation. In 1948, Marriner Eccles was not reappointed as Fed chair by President Harry S. Truman. Casual students of Fed history may think of Eccles as a champion for the independence of the Federal Reserve from the President, the executive branch, and politics in general, and the architect of the modern Federal Open Market Committee (FOMC). They may also assume he was not reappointed due to policy disagreements with President Truman and stayed on the Board despite his demotion out of spite and that he demonstrated his personal commitment to policy independence in the Fed-Treasury Accord of 1951 by leaking to the New York Times transcripts demonstrating the disingenuousness of the Truman Administration's claims about its discussions with the FOMC. All of that is inaccurate except for the last point. Eccles did leak the transcript, for reasons that remain obscure.

The purpose of this blog post is to set the record straight. We will show that Eccles proposed to subordinate the Fed to the President. He told Congress in 1935 that he would resign if a new President took office during his tenure as head of the Federal Reserve Board. Thirteen years later, when Harry Truman took office, Eccles acted on this belief by offering to resign, but Truman declined the offer. When Eccles's third term as Chair expired, Truman told him that he would appoint a new Chair. Eccles offered to resign from his position as member of the Board, but Truman asked Eccles to remain on the Board as Vice Chair. Eccles declined to serve as Vice Chair but remained on the Board, evidently at least partly out of concern for his financial security, given restrictions on post-Fed employment.

ECCLES'S CONCEPTION OF HOW THE FED SHOULD BE STRUCTURED

The true history of Eccles's role is brought to life in the transcripts of the hearings held by the House and Senate concerning the Banking Act of 1935. Eccles led the team that drafted Title II of that bill -- the portion of the bill that redesigned the leadership structure of the Fed. He presented the draft to Congress, argued for its provisions, claimed authorship, and by both word and deed, proved that he believed what he said. Contemporary observers took him at his word and attributed Title II of the bill to him. Congressmen and commentators referred to Title II as "the Eccles Bill."

Eccles proposed to reconfigure monetary policymaking by the Federal Reserve System in two fundamental ways. First, he believed that control of monetary policy should be centralized in Washington, D.C. The Fed's leaders would be given tools enabling them to adjust the nationwide supply of money and credit and thus to influence nationwide interest and inflation rates. They would also be given the authority to act as they thought best. Previously, decision-making on these issues had rested with the heads of the regional Fed banks, whose powers were limited and constrained by rules, like the gold standard, that limited their discretion over aggregate money and credit. Second, to subordinate monetary policymaking to the President, the leadership of the Federal Reserve – specifically the members of the Federal Reserve Board – would serve at the pleasure of the President, who could replace them at any time and for any reason. The heads of the twelve Federal Reserve banks would serve one-year terms. They would be appointed by their bank's board of directors, but their initial appointment and all reappointments would have to be approved by the Federal Reserve Board. The President could, therefore, swiftly replace the Fed's leadership (in the case of the Board) or indirectly influence its selection (in the case of the heads of the Reserve Banks).

These provisions were necessary, Eccles argued, to ensure that monetary could be formulated and implemented by the Executive Branch. Eccles asserted that an administration is charged, when it goes into power, with the economic and social problems of the Nation. Politics are nothing more or less than dealing with economic and social problems. It seems to me that it would be extremely difficult for any administration to be able to succeed and intelligently deal with them entirely apart from the money system. There must be a liaison between the administration and the money system—a responsive relationship (House 1935 p. 191).

To ensure the monetary system responded to the administration's will, the President had to be able to remove the leaders of the Federal Reserve in short order if he disagreed with their decisions. President Roosevelt had controlled monetary policy since 1933 when the passage of a series of laws gave the President this authority on an emergency basis. Now was the time to make those changes permanent (House 1935 pp. 72, 181-183).

There were two versions of the Eccles bill. The original version was introduced to Congress as House of Representatives bill 5357 (H.R. 5357) and Senate bill 1715 (S. 1715). The original bill was written by a team consisting of Eccles -- then serving as the Governor of the Federal Reserve Board -- and four Fed staffers: Emanuel Goldenweiser, the director of the Division of Research and Statistics at the Board; Lauchlin Currie, the assistant director of the same division; Mr. Wyatt, the general counsel of the Board; and Mr. Morrill, the secretary of the Board (House 1935 pp. 351-2). Currie's influence was especially noted. The philosophy underlying the reforms reflected ideas he had recently published in his 1934 book, The Supply and Control of Money in the United States (Senate 1935 p. 438-9).

While this small group received feedback from a few members of the Roosevelt Administration, Eccles did not solicit feedback from members of the Federal Reserve Board, Federal Open Market Committee, or Federal Advisory Council; Senators or Congressmen or their staffs; regulatory or policymaking professionals in the federal or state governments; academics; businessmen; or bankers (House 1935 p. 351-3, Senate 1935 pp. 550, 564). Except for Eccles himself, members of the Fed Board did not see the bill until it was "presented [to Congress] and printed" (Senate 1935 pp. 554).

Eccles's original bill proposed placing monetary policymaking under administration control by restructuring the FOMC. The FOMC would consist of the head of the Federal Reserve Board (then called the governor) who would serve as chair of the committee, two other members of the Fed Board (theoretically possibly including the Secretary of Treasury and Comptroller of Currency, both of whom at that time sat ex officio on the Fed Board), and the heads (then called governors) of two Federal Reserve banks (Senate 1935 pp.196, 313, 395, 535). This committee would have the authority to devise and execute open-market operations for the entire Fed System. Eccles's bill gave the Board the power to determine reserve requirements (i.e. the fraction of a member banks' deposits that must be redeposited as reserves at a Federal Reserve bank) and the discount rate. These proposals would concentrate decision making on monetary issues which -- until that time -- had been split between the Board and the heads of the Federal Reserve Banks, except for reserve requirements, which were determined by Congress and set in statute.

THE HOUSE AND SENATE HAVE THEIR SAY

The House of Representatives held hearings on the initial Eccles bill from February 21 to April 8. When Eccles testified, he introduced a series of amendments that he wrote himself, which altered many facets of the proposal that he had submitted a few weeks before. The amendments further concentrated monetary policymaking. The Fed Board received authority over all three levers of monetary policy -- open-market operations, discount lending, and reserve requirements. The FOMC would be replaced by an advisory committee consisting of representatives of 5 of the 12 Federal Reserve banks, which could recommend policies to the Board, but which would not vote or have other authority over monetary policymaking (Senate 1935 p. 699, House 1935 p. 181-3).

A majority of the House seemed supportive of Eccles' inclination to further consolidate control in the hands of people directly beholden to the president, and the House of Representatives passed Eccles' plan, mostly in the form he recommended. The issue then passed to the Senate.

The Senate held hearings from April 19 to June 3 on Eccles' original bill and the amended version that passed the House. Rather than referring to the legislation that had been passed over from the House as "the administration bill," Carter Glass was at pains to note "it is Governor Eccles' bill" (Senate 1935 p. 357).

A Senate Subcommittee chaired by Glass – one of the principal sponsors of the original Federal Reserve Act and a contributor to most monetary, banking, and financial legislation that passed Congress between 1913 and 1935 – called a lineup of luminaries to scrutinize Eccles' plan. Witnesses took differing views about the benefits of centralizing decision-making at the FOMC. While most came down in favor of centralization, almost all criticized the politicization of policy making in a body beholden to the President of the United States. Critics included many members of the Federal Reserve Board and Federal Advisory Council, directors of many Federal Reserve Banks, the head of the American Bankers Association, and even the Secretary of Treasury, Henry Morgenthau, who was at that time also Chair of the Federal Reserve Board and a personal confidant of President Franklin Roosevelt.

Morgenthau argued that he would like to have monetary authority "concentrated in an independent Government agency (Senate 1935 p. 505)." The agency should operate independent of "all outside influence – just as independent as you can make it …. [like] the Supreme Court … independent of the President. … No member of the board could be removed except by impeachment" (Senate 1935 p. 506). Morgenthau recommended forming this agency by nationalizing the Federal Reserve banks.

Frank Vanderlip, former Assistant Secretary of Treasury, former President of National City Bank of New York (today's Citibank), and a contributor to the original Federal Reserve Act in 1913, similarly supported centralization of monetary authority, although he doubted the constitutionality of Eccles's proposal and stated that it "should be fundamentally rewritten" (Senate 1935 p. 916). Vanderlip argued that Congress should ensure the Fed's leadership "should not be removable by the President, and should not be subject to political pressure, and certainly not subject to business pressure" (Senate 1935 p. 917). The Secretary of Treasury and Comptroller of the Currency should be removed from the monetary authority's board of directors, which should consist of men of integrity and experience.

Adolph Miller, a member of the Federal Reserve Board since its founding in 1914, also supported the shift toward centralization of monetary authority (Senate 1935 pp. 750-1). The Fed's original structure divided authority and responsibility among the Federal Reserve Banks, making it difficult to discern who was the "responsible agent," and leaving policymaking susceptible to being influenced by special interests (Senate 1935 p. 687). Miller criticized subordination of monetary policy to the President. Miller feared "political control" as well as "banker control" (Senate 1935 p. 687). He believed the Federal Reserve Board needed to be "independent" with members who regard service "as a great public responsibility which runs to the public rather than to an official of the administration of the day" (Senate 1935 p. 729-30). Miller suggested many of the institutional features adopted in 1935 that underly the Fed's independence today. These include removing the Secretary of Treasury and Comptroller of the Currency from the Federal Reserve Board, changing that organization's name to The Board of Governors of the Federal Reserve System (Senate 1935 p. 754), setting membership of the Board at seven (Senate 1935 p. 758), and writing into law the provision that members of the Board of Governors could be dismissed only "for cause."

During the hearing, the Senate called 60 witnesses. Almost all criticized Eccles' proposal to place the President in control of monetary policy and advocated political independence for the central bank. Witnesses suggested ways to prevent politicians from influencing monetary policy. Senators picked up ideas they liked and asked later witnesses what they thought of them. An example was Miller's idea for changing the Federal Reserve Board's name to the Board of Governors of the Federal Reserve System. "Governor" was the traditional term for the chief executive officer of a national or central bank. The Bank of England had a governor. So did the other central banks in Europe. From 1914 to 1935, The Federal Reserve System had 13 governors: the head of each of the 12 Fed banks and the head of the Fed Board in Washington. Miller thought that to highlight the shift in authority to the Board from the Reserve Banks, all members of the Board should have the title "governor" and the name of the board itself should include the word "governors." McAdoo then suggested relabeling the heads of the regional banks -- who had been called governors – as something else. Later discussions led to the idea of giving them the title of president, which was the traditional title for the head of a commercial bank.

A PARTICULAR FOCUS: PRESIDENT'S POWER TO DISMISS FED BOARD MEMBERS

Senators and witnesses discussed in detail how to prevent the President from dismissing members of the Board for mere policy disputes. Winthrop Aldrich, chair of Chase National Bank and son of Nelson Aldrich who had spearheaded the initial drive a quarter-century earlier to create what became the Fed, suggested limiting dismissal to cases where a Board member had "become permanently incapacitated or has been inefficient, or guilty of neglect of duty, or of malfeasance in office, or of any felony or conduct involving moral turpitude, and for no other cause and no other manner except by impeachment (Senate 1935 pp. 396-7)." Vanderlip argued that members of the Fed board "should not be removable by the President" (Senate 1935 p. 917). Morgenthau argued that no member of the Fed board should be removed except by Congress via impeachment, just like members of the Supreme Court (Senate 1935 p. 506). William McAdoo, a Senator from California who had been Secretary of Treasury when the Fed was founded 22 years before, concurred on this point, although his analogy was to Congressional removal of federal judges (Senate 1935 p. 755). Miller favored the phrase "no member of the Board shall be removable from office during the term for which he was appointed … except for malfeasance" (Senate 1935 p. 754).

The extended discussion during the Senate hearing occurred, in part, due to uncertainty about the law. In 1926, the Supreme Court held in Myers v. United States, (272 U. S. 52) that the President had the sole power to dismiss executive branch officials and that restrictions on the President's power to dismiss were unconstitutional. On May 1, 1935, while the Senate debated the Eccles Bill, the Supreme Court heard arguments in Humphrey's Executor v. United States, which concerned the question of whether the President could remove leaders of independent federal agencies for reasons other than those allowed by Congress. The circumstance that differed between the two cases was that Humphrey was a member of the Federal Trade Commission (FTC) – an independent agency, not unlike the Fed – whereas Myers concerned the President's powers over employees within the executive branch itself. Senators and witnesses discussed these cases, whether they thought Myers or Humphrey's Executor applied, and whether the Supreme Court would find for Humphrey's executor. Most thought (a) Humphrey's Executor applied to the Fed; (b) the Supreme Court would find for Humphrey's executor, meaning that Congress could limit the President's ability to dismiss personnel from agencies like the FTC or the Fed; and (c) the Senate should wait for the court to hand down its decision in the Humprey's Executor case before finalizing the language in the legislation. The Supreme Court announced its decision in the case on May 27, near the end of the Senate hearings, and witnesses soon noted its relevance for the independence of the Federal Reserve (Senate 1935 p. 998).

These discussions raised a related, surprising issue. From the founding of the Fed in 1913 until 1933, members of the Fed Board who were appointed and confirmed by the Senate served for fixed terms "unless sooner removed for cause by the President." The Banking Act of 1933, however, removed the phrase "for cause" from the law (Senate 1935 p. 396). Aldrich raised this issue during his testimony. Eccles had told Aldrich he was unaware the provision had been removed, and Aldrich said he believed other members of the Board were likewise unaware. Glass said he "I must have been asleep when that was eliminated from the act. I have no recollection of it." Aldrich replied that the unnoticed change illustrated the dangers of "hasty legislation." Glass retorted, "I do not know that it was due to hasty action. It might have been due to covert action" (Senate 1935 p. 398). The transcripts demonstrate Glass was unaware of the change, because earlier in the hearings he told two witnesses that according to current law the President could remove a member of the Fed Board only "for cause" (Senate 1935 pp. 92, 206).

ECCLES DIGS IN

Eccles defended his proposal in testimony before the Senate. He noted that "there has been a great deal of discussion about the fact that this makes the Board a more political board" (Senate 1935 p. 282). He insisted, however, that this was not the case. The Board was and would always be political. Even if the President lacked legal authority to remove Board members, no man would stay on the Board if the President of the United States wished to appoint someone else in his place. … It seems to me to be immaterial whether a Governor has or has not a technical right to stay on the Board, if the President prefers to have someone else as Governor, because no person who is qualified for that position would choose to remain in these circumstances (Senate 1935 p. 282). This hardly marks Eccles as the patron saint of Fed independence.

In earlier testimony before the House, Eccles discussed the question of whether the employment possibilities of the head of the Fed Board should be restricted (House 1935 pp. 190-2). This issue turned out to be related to the question of presidential control.

Eccles noted that, under then-current law, the Board's head had a specified term as the governor of the Board and a separate term as a member of the Board. Their term as a member typically ended years after their term as governor. This complicated a governor's return to private life, because a provision in the Federal Reserve Act prohibited former members of the Fed Board from working for financial institutions for two years unless they had completed a full term. The intent of this provision was to prevent a revolving door, where individuals rapidly moved from the Fed Board to the banking industry, which might reward them financially for policy decisions they had made while in office. Eccles proposed that if an individual resigned from their term as a Board member immediately after they ceased to be governor of the Board, the two-year ban be waived, so that they could immediately work in the financial services industry. Otherwise, Eccles said, governors without large private incomes could be compelled for financial reasons to remain on the Board, limiting the President's ability to place the levers of monetary policy in the hands of his own people. Congress ultimately rejected these proposals from Eccles, and the two-year ban remains in place to this day for all members of the Board of Governors.

OTHER KEY STRUCTURAL CHANGES

The Banking Act of 1935 added many provisions that shield leaders of the Federal Reserve from political pressure. Members of the Board of Governors serve 14-year terms, staggered so that one term expires on January 31 of every even-numbered year. A member may continue to serve after the expiration of their term until their successor has been confirmed by the Senate. The President nominates a Chair of the Board from among the members of the Board, and that person receives a 4-year term that starts on the date of their confirmation. Members of the Board of Governors can be removed only "for cause." The heads of the Federal Reserve Banks, now labelled presidents, serve 5-year terms. The boards of directors of each Fed bank appoints them, subject to approval of the Board of Governors. The FOMC makes the principal decisions concerning monetary policy. The committee elects its own chair and vice-chair. Its twelve voting members consist of the Board chair, the six other members of the Board of Governors, the President of the New York Fed, and Presidents of four other Fed banks on a rotating basis. The other Fed bank presidents serve as non-voting participants (but technically are not "members" in years when they do not vote). The structure is set that way so that a single President of the United States cannot appoint a majority of the FOMC if the members of the Board of Governors serve their full terms.

THE END OF THE STORY

So, the commonplace view of Eccles as a tribune of Fed independence is wrong. But what of his decision to continue serving as an ordinary member of the Board of Governors from 1948 to 1951? Was this a case of Eccles "burrowing in" out of spite for Truman having failed to renominate him as chair?

Hardly so.

Eccles served as the last Governor of the Federal Reserve Board and first Chair of the Board of Governors, even though he disagreed with its structure. He served as chair for the rest of the Roosevelt Administration, remained a faithful executor of the President's monetary program, and believed that was the proper role for a person in his position. Roosevelt reappointed Eccles as Chair in 1940 and 1944.

When Roosevelt died in 1945, the Vice President, Harry Truman, became President. True to his word, Eccles offered to resign and told Truman that it was his "feeling that the Chairman, who is designated by the President, should serve at the pleasure of the President." Truman rejected Eccles's offer, told him that "there was no one I [Truman] desired to appoint in your place," and asked Eccles to complete his term as Chair (Truman 1948).

In 1948, when his third term as chair expired, Eccles wrote to Truman that "I have not altered my conviction that the Chairman of this Board should serve at the pleasure of the President, and I sought to have such a provision included in the Banking Act of 1935." (Eccles 1948). This time, Truman agreed. He told Eccles that he now desired to appoint to the Board of Governors a new member who would be designated as Chair. This decision, Truman wrote, reflects no lack of complete confidence in you, or dissatisfaction in any respect with your public service, or disagreement on monetary or debt-management policies, or with official actions taken by the Board under your chairmanship. All who are familiar with your record recognize your devotion to the public welfare and the constructiveness that has characterized your leadership in the Federal Reserve System (Truman 1948).

Truman urged Eccles to "remain as a member of the Board and accept the Vice Chairmanship so that the benefit of your long experience and judgment will continue to be available and so that you may carry forward legislative proposals now pending in Congress (Truman 1948)." Eccles remained on the Board, initially accepting but later declining the position of Vice Chair.

Despite all that, there may be a be some truth to the myth of Eccles as the founder of the modern, independent Fed. Ironically, Eccles' proposals that the Fed should serve as a monetary apparatus controlled by the President may help, in the end, to preserve the independence of the institution. The Congressional debate over Eccles' proposals leaves a voluminous record of Congress's intent when it crafted the modern Fed. The record clearly reveals that Congress wanted the President's hands far from the levers of monetary policy. This record may become a vital piece of evidence should disputes arise about the intent of Congress and the meaning of the Federal Reserve Act.

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Warren Takunda

Economic

The preliminary estimate for the year-on-year German inflation rate for September was released on Monday afternoon, coming in at 1.6%, according to the Federal Statistical Office. This was less than August’s 1.9%, as well as analyst expectations of 1.7%, while also being the lowest figure since February 2021.

The fall in inflation was mainly because of energy costs falling to -7.6% in September, down from -5.1% in August. The cost of goods also dropped 0.3% this month, after staying stable last month.

However, food prices increased at a faster rate, at 1.6% in September, up from 1.5% in the previous month. Services inflation, on the other hand, fell to 3.8% this month, down from 3.9% in August.

The German core inflation rate, which does not take energy and food prices into account due to their inherent volatility, hit its lowest figure since January 2022, at 2.7% in September. This was a slight fall from August’s 2.8%.

On the other hand, the preliminary estimate for the month-on-month German inflation rate in September came in at 0%, up from -0.1% in September. However, this was still below market expectations of 0.1%.

Kyle Chapman, FX analyst at Ballinger Group, told Euronews Business: “The sub-2% inflation prints are building up across the bloc now, and tomorrow's eurozone-wide report is set to be an undeniable sign that the European Central Bank (ECB) needs to pick up the pace in cutting rates.

Policymakers are going to have to face up to a miserable growth outlook and continued disinflation when they meet in October, and it is hard to see where the ECB’s hawks are going to find the ammunition to argue for another pause. Admittedly, much of the progress on the headline is the result of energy base effects, but prices also shrunk marginally on a month-on-month basis.”

As the German inflation chart below shows, the year-on-year inflation rate has seen some ups and downs already this year, but has been on a downward path since August.

German Inflation Plunges to Over Three-Year Low as Energy Prices Wane_1

Could the German economy be stuck in stagnation?

Although German inflation may be coming down, the country is hardly out of the woods yet, with Dutch bank ING recently warning that the German economy could be stuck in a rut. This is following the Ifo index falling for the fifth consecutive month in September.

ING said on its website: “The German economy is back where it was a year ago: the growth laggard of the eurozone with few signs of an imminent improvement. After the contraction of the economy in the second quarter, all available sentiment indicators for the first two months of the third quarter provide very few reasons for optimism.

“The cyclical hope that grabbed the German economy in the first months of the year has disappeared, mainly due to a weaker global economy but also because of fears of a cooling US economy, ongoing geopolitical tensions and domestic policy uncertainty.

“Additionally, the increasing number of insolvencies and individual company announcements of upcoming job restructurings are still hanging like the Sword of Damocles over what has been one of the few strongholds of the economy in recent years: the labour market.”

However, the Deutsche Bundesbank is taking a more optimistic view, expecting German gross domestic product (GDP) growth to increase from 0.3% this year to 1.1% in 2025 and 1.4% the following year.

Source: Euronews

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OANDA

Commodity

Gold prices slid this morning as a slightly stronger dollar and end of quarter flows weigh on the precious metal. Despite the drop off, Gold remains on course for its best quarter since Q1 of 2016, which recorded gains of 16% +.

Gold continues to find support as safe haven appeal and incoming rate cuts keep bulls interested. However, the drop to start the week could be down to a number of overlapping factors such as profit taking, repositioning and the recent rally in Chinese equities and emerging markets.

The stimulus announced by the PBoC is the gift that keeps on giving where China is concerned. The rally in Chinese equities could be impacting Gold as well, given the higher yield on offer. Gold remains in extremely overbought territory and thus further upside may also prove a challenge.

As things stand, markets could continue to range ahead of the jobs data on Friday. Any increase in rate cut expectations could lead to USD weakness. Current expectations have a 50 basis point cut in November at around 40%, down from 53% a day ago and could be partially responsible for the drop in the price of the precious metal.

Economic Data Ahead

Gold prices face many challenges at the moment, both positive and negative. Safe haven appeal for now appears to be waning yet a weaker US Dollar as we are seeing today does have the potential to keep gold prices on the front foot.

There is a host of US data this week including services data, however the biggest volatility and potential for a change will come on Friday when the US jobs report is released. Signs of improving jobs numbers and a drop in the unemployment rate could push the precious metal lower.

Later in the day we do have a speech from Fed Chair Jerome Powell which could stoke volatility if the Fed President touches on rate cut expectations moving forward.

Technical Analysis Gold (XAU/USD)

From a technical analysis standpoint, Gold is tough to read at the minute particularly where areas of resistance is concerned. As we continue to print fresh all time highs it makes it difficult due to the lack of historical price data to analyze.

To put things into perspective, the RSI on the daily, weekly and monthly timeframe are all in overbought territory. However, as we know an instrument can languish weeks and sometimes months in overbought territory on the larger timeframes so this seems to be irrelevant at present.

The psychological 2650 mark is the most immediate area of resistance i would keep an eye on A break beyond that could open up a retest of last weeks and the all-time high print around 2685.50 before the 2700 comes into focus.

Looking at support and the 2625 area has been key over the last couple of days and could still serve as a base for gold prices. This may be a level worth monitoring moving forward.

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The Upcoming Election, Fed Independence, and Congressional Intent: A Reappraisal of Marriner Eccles' Role in the Reformulation of the Fed in 1935

ECCLES'S CONCEPTION OF HOW THE FED SHOULD BE STRUCTURED

THE HOUSE AND SENATE HAVE THEIR SAY

A PARTICULAR FOCUS: PRESIDENT'S POWER TO DISMISS FED BOARD MEMBERS

ECCLES DIGS IN

OTHER KEY STRUCTURAL CHANGES

THE END OF THE STORY

German Inflation Plunges to Over Three-Year Low as Energy Prices Wane

Could the German economy be stuck in stagnation?

Source: Euronews

Gold Prices Slide as Q3 Draws to a Close

Economic Data Ahead

Technical Analysis Gold (XAU/USD)

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