Tough policies on fighting inflation "necessary"

<p>Kia ora,</p><p>Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the international edition from Interest.co.nz.</p><p>Today we lead with news of a strong defence of central bank independence to make the hard but "necessary" calls to restore price stability.</p><p>But first in the US, <a href="https://www.mba.org/news-and-research/newsroom/news/2023/01/11/mortgage-applications-increase-in-latest-mba-weekly-survey" target="_blank"><strong>mortgage applications</strong></a> were little-changed last week from the prior one, but remain more than -40% lower than the same week a year ago. Much of that is because mortgage rates remain high, although the benchmark 30-year rate did settle back to 6.48% last week (plus points).</p><p>Yesterday we noted some <a href="https://www.federalreserve.gov/newsevents/speech/powell20230110a.htm" target="_blank"><strong>comments</strong></a> by Fed boss Powell delivered to a Swedish conference. There is another that is worth repeating here, justifying central bank independence: "<i>Price stability is the bedrock of a healthy economy and provides the public with immeasurable benefits over time. But restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy. The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors. I believe that the benefits of independent monetary policy in the U.S. context are well understood and broadly accepted</i>."</p><p>And staying in the US, the record high demand for imports over the past two years is <a href="https://www.wsj.com/articles/u-s-container-imports-tumbled-close-to-prepandemic-levels-in-december-11673373778" target="_blank"><strong>now fading</strong></a>, with import shipping volumes reverting to the more usual levels they had in 2019 and prior. But that in