A Fed Rate Cut Looks More Likely. The Question Is When and by How Much
Federal Reserve Chairman Jerome Powell and his colleagues face three decisions when it comes to reducing interest rates: whether to do it, when to do it, and by how much. Fed watchers say an unexpectedly weak reading on the U.S. jobs market in May makes it increasingly likely that the central bank will lower rates this year — in spite of President Donald Trump’s decision late Friday to call off his threatened tariffs on Mexico. What’s less certain is when the Fed will act and how big any cut will be — a more traditional 25 basis point move or a bolder, 50 basis point reduction designed to get a bigger bang for the buck. “We obviously feel more confident that they’re going to be easing,’’ JPMorgan Chase & Co. chief U.S. economist Michael Feroli said after news on Friday that payrolls growth slowed abruptly in May. He expects the central bank to lower rates by a quarter percentage point in September and December, even with the U.S. immigration deal with Mexico that forestalled the threat of U.S. import tariffs on Mexican goods.
U.K. Economy Shrinks as Factory Output Falls Most Since 2002
U.K. manufacturing output fell the most in almost 17 years in April as the boost from Brexit stockpiling evaporated and car producers went ahead with planned shutdowns. The 3.9% decline, the most since June 2002, saw the economy as a whole shrink for a second straight month, Office for National Statistics figures published Monday show. Vehicle production plunged by a quarter. Gross domestic product fell 0.4%, the biggest monthly drop since March 2016, leaving the economy at risk of a sharp slowdown this quarter. Growth in the latest three months was a weaker-than-forecast 0.3%, down from 0.5% in the first quarter. The pound dropped after the figures were published, and was 0.4% lower at $1.2688 as of 9:36 a.m. London time. Factories boomed in the early months of 2019 as companies stockpiled goods to avoid supply disruptions ahead of the original March 29 deadline to leave the European Union. But with Brexit now delayed until October, orders are being scaled back and demand met from products piled up in warehouses.
Japan’s Buoyant Growth Figures Mask Weaknesses in Economy
Japan’s faster-than-expected growth in the first quarter offers Prime Minister Shinzo Abe’s government a figure that backs its view of an economy holding up well for a tax increase while papering over underlying weaknesses. Business investment continued to increase in the first three months of the year despite crackling trade tensions, helping nudge up growth from initial estimates. But outside the growing capital spending the expansion was based almost entirely on the technical factor of falling imports outpacing export declines. Revised figures showed gross domestic product expanded at an annualized pace of 2.2% in the first three months, a fraction higher than an initial estimate, and an acceleration from a 1.8% gain in the fourth quarter of last year. The expansion supports Abe’s argument that the economy is showing resilience in the face of external headwinds, including slowing global growth, and can withstand the impact of a sales tax increase scheduled for October. Speculation that weakness in the economy might prompt him to postpone the tax hike for a third time cooled further in recent days, with Finance Minister Taro Aso telling Group of 20 finance leaders at the weekend that the tax hike would go ahead.