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China’s response to widespread protests against strict Covid-19 policies could make the global battle against inflation much more difficult than it already is.

Thousands of protesters have taken to the streets of Beijing, Shanghai and other cities driven by outrage over how the intense lockdown policies could have contributed to the death of at least 10 people in an apartment fire in Xinjiang. The protests — whose scale is extraordinary in mainland China — represent the public’s sharpest rebuke yet to President Xi Jinping’s “zero Covid” strategy of severe quarantines and lockdowns, which have battered the country’s economy and left it increasingly isolated on the global stage.

China’s emphasis on political control over economic growth is “going to now be tested in a way it's never been before,” Josh Lipsky, an Atlantic Council GeoEconomics Center senior director and a former IMF and State Department adviser, told MM.

That test could have sweeping implications for a world economy that has already been strained by rising inflation, an aggressive series of interest rate hikes by central banks and geopolitical uncertainty in Eastern Europe, Iran and the South China Sea.

Last month, the International Monetary Fund warned that it was marking China’s projected growth in 2022 down to 3.2 percent — its second-lowest level since 1977 — to reflect how lockdown policies have stressed an economy that was already hamstrung by a weakening real estate market. More of zero Covid, to say nothing of whatever crackdowns are imposed on protesters, would no doubt unleash even more pain.

U.S. officials believe that Beijing might opt for even “harsher restrictions in the coming days” as case counts explode across China, sources told our Nahal Toosi and Phelim Kine. The country’s worsening public health picture has been exacerbated by its refusal of Western-made mRNA vaccines that reduce the likelihood of hospitalization and death.

For that reason — when it comes to zero Covid policy — China is “kind of stuck with it,” Eurasia Group President and founder Ian Bremmer tells MM. “Given the case numbers and the lack of recent vaccinations — especially among the older population — there’s just no way” Xi’s new government would fully abandon the crushing public health policy.

Hence: more lockdowns, more protests and greater potential for economic calamity.

“If you're a foreign investor who was dipping your toe back into the water [in China], I think you're jumping back out right now,” Lipsky said.

While White House officials on Monday said there’s been little evidence of the protests affecting supply chains, major companies — including Apple — are reportedly bracing for production shortfalls in light of the chaos.

And more uncertainty over Chinese supply chains is the exact type of scenario that could complicate the Federal Reserve’s ability to battle inflation while keeping the economy from sinking into a recession. Supply shocks could push inflation expectations higher in ways “that call for monetary policy to tighten for risk-management reasons,” Fed Vice Chair Lael Brainard said on Monday.

“More speculatively, it is possible that longer-term changes — such as those associated with labor supply, deglobalization, and climate change — could reduce the elasticity of supply and increase inflation volatility into the future," Brainard said.

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Home price data released at 9 a.m. … Consumer confidence index released at 10 a.m. … Sens. Todd Young (R-Ind.) and Cory Booker (D-N.J.) will speak at 2:30 p.m. at a Bipartisan Policy Center event on expanding emergency savings

FTX CONTAGION SPREADS — From Sam: “BlockFi, a major crypto lending platform, filed for Chapter 11 bankruptcy protection in federal court in New Jersey on Monday as the downfall of FTX continued to ripple across digital asset markets ... The sudden bankruptcy of FTX — which until earlier this month was one of the largest and most respected crypto exchanges in the world — sparked a market contagion that has threatened the financial well-being of multiple crypto brokerages, lenders and other startups that attracted billions of dollars in investment over the previous two years.”

BANKMAN-FRIED COULD BE ON THE HOT SEAT IN HOUSE FS — Our Declan Harty: “The House Financial Services Committee will hold a hearing Dec. 13 on the implosion of FTX, the panel said Monday. Entitled ‘Investigating the Collapse of FTX, Part I,’ the previously announced hearing's witness list is not yet public. Chair Maxine Waters (D-Calif.) previously said the committee expects to hear from FTX founder Sam Bankman-Fried, as well as individuals representing FTX's sister company, Alameda Research, and Binance.”

ZELLE REFUNDS — WSJ’s David Benoit and AnnaMaria Andriotis: “Some of America’s biggest banks are devising a plan to compensate customers who fall victim to scams on their Zelle payment network.

“JPMorgan Chase & Co., Wells Fargo & Co. and Bank of America Corp. are among the banks in advanced discussions to create a playbook for refunding customers and each other for illegitimate transfers, according to people familiar with the matter. The idea is to boost security and consumer trust in Zelle, the peer-to-peer payment system jointly owned by a consortium of banks, the people said.”

THE LATEST GEOPOLITICAL UNCERTAINTY — NYT’s Patricia Cohen: “The swelling protests against severe pandemic restrictions in China — the world’s second-largest economy — are injecting a new element of uncertainty and instability into the global economy when nations are already struggling to manage the fallout from a war in Ukraine, an energy crisis and painful inflation.”

Markets don’t like it — FT’s George Steer, Jaren Kerr and Hudson Lockett: “Global stocks fell sharply on Monday after protests in China against the government’s strict Covid-19 policies prompted investor worry over the outlook for the world’s second-largest economy.”

BIDEN TO WEIGH IN ON RAIL STRIKE — Our Tanya Snyder: “President Joe Biden called Monday evening for Congress to act immediately to head off an economically crippling freight rail strike, saying there appeared to be ‘no path to resolve the dispute at the bargaining table.’ Biden asked that Congress act ‘without any modifications or delay’ to impose a tentative settlement that leadership of railroads and 12 unions had hammered out in September.”

KRAKEN SETTLEMENT — Declan Harty again: “Cryptocurrency exchange Kraken has agreed to pay more than $360,000 to settle alleged violations of U.S. sanctions against Iran, the Treasury Department said Monday.

“Treasury's Office of Foreign Assets Control said that from October 2015 to June 2019 the company officially known as Payward processed 826 transactions worth about $1.7 million on behalf of individuals who appeared to be in Iran.”

INFLATION HAS A WAYS TO GO — WSJ’s Nick Timiraos: “[New York Fed President John Williams] said he expects inflation pressures to recede over the next year but cautioned the central bank will continue to have its work cut out because prices may decelerate to levels still above the Fed’s 2% target. …

“‘I hope [a recession] is not the case, but that’s clearly a risk out there given all of the uncertainty in the global economic outlook,’ he told reporters during a videoconference following a Monday speech to the Economic Club of New York.”

CAR PRICE DIVERGENCE — Bloomberg’s Lisa Abramowicz: “To understand why it’s so hard to get a handle on inflation, take a look at car prices in the US today. Used-vehicle prices are dropping at the fastest pace in decades, and the cost of a new car is still skyrocketing.”

JOB MARKET RIDDLE — Bloomberg’s Rich Miller and Enda Curran: “The global economy is stuttering, and some of the world’s biggest names are already laying off thousands of employees. But there’s a glimmer of good news: This time around, workers have a better-than-usual shot at holding onto their jobs if recession arrives.”

IMAGINE IF THEY HAD BEEN CLOSE — CoinDesk’s Jack Schickler: “The U.S. Commodity Futures Trading Commission was nowhere close to making a decision on a controversial FTX plan to streamline financial market structure rules, which were proposed before the crypto exchange went bust, CFTC Chairman Rostin Behnam said Monday.”

Wyatt Stewart has joined the Investment Company Institute as a government affairs officer on financial services policy. The former House Majority Leader Eric Cantor aide will be responsible for ICI’s outreach to the House Financial Services and Senate Banking Committees.

Jasmin Alemán is now congressional affairs specialist at the Office of the Comptroller of the Currency. She most recently was a legislative assistant for Rep. Ritchie Torres (D-N.Y.). — Daniel Lippman

Leon Black, the billionaire co-founder of private equity firm Apollo Global Management Inc, was sued on Monday by a woman who said he raped her two decades ago in the late sex offender Jeffrey Epstein's Manhattan mansion. — Reuters’ Jonathan Stempel

China’s central bank moved to backstop growth by boosting lending to households and businesses, as the economy struggles with its biggest Covid-19 outbreak since the pandemic began. — WSJ’s Jason Douglas and Raffaele Huang

Australia is normally one of the world’s largest exporters of wheat used for making bread and noodles, but heavy rains and flooding in the east mean a large chunk of the harvest may only be suitable for livestock feed. — Bloomberg’s Sybilla Gross