U.S.:
Fed’s Evans Says Weak Inflation May Not Be Temporary Phenomenon
Federal Reserve Bank of Chicago President Charles Evans said that weak inflation in the U.S. may not be entirely due to temporary factors. Citing inflation expectations surveys, he said they make him “nervous” about some of the explanations for low price growth that focus on temporary factors. He’s previously expressed concern that those expectations are becoming entrenched among the public and this could make it harder for the Fed to get inflation back to target. But, speaking at event in Zurich on Wednesday, Evans also said the U.S. economy is strong and noted the improvement in both global and European growth. Given that backdrop, he said there’s “there’s room for a very honest discussion later this year as to whether or not it’s the right time to raise rates.” “We’ve just announced in September that we’re going to adjust our balance sheet. That’s going to require a very modest amount of additional restrictiveness over some period of time,” Evans said. “I think that takes us to the next juncture, which is — you know — a gradual, patient approach to removing accommodation.” Investors are betting Fed officials will press ahead with a third interest-rate hike in 2017 when they gather in December, following government data showing the U.S. unemployment rate fell last month to 4.2 percent, a 16-year low. The willingness to continue tightening policy would signal ongoing faith that a tighter labor market will eventually boost inflation back to their 2 percent goal despite an unexpected slowdown this year.
Europe:
Carney Rate Hike Signals Something Rotten in U.K. Economy
Bank of England Governor Mark Carney is ready to raise interest rates from a position of economic weakness rather than strength. The fastest inflation in four years has left the U.K. central bank preparing to hike next month for the first time in more than a decade, yet it’s not an accelerating economy fanning those price pressures. Instead, policy makers are being pushed to temper less benign inflationary forces generated by weak productivity and Brexit. The U.K. has fallen to the bottom of the Group of Seven growth rankings, but also of concern is the fact that it’s far less productive than international peers. For Carney, who’s warned that leaving the European Union could worsen the situation, that means a lower rate of growth is already enough to put a strain on resources, generating unwelcome domestic pressures. The International Monetary Fund was the latest to sound the alert on Tuesday when it said the U.K. has been the “notable exception” this year among advanced economies. It left its forecast for 2017 expansion at 1.7 percent while raising estimates for the world, U.S. and euro area. It’s a far cry from Janet Yellen’s buildup to the first Federal Reserve hike in 2015. While she signaled confidence in the economy, Carney has spoken of Brexit-related uncertainties delaying investment, reducing vital labor supply and creating a lower “speed limit.”
Asia:
China’s yuan eases as corporate dollar demand offsets stronger fix
China’s yuan eased slightly against the U.S. dollar at midday on Wednesday, as corporate demand for the greenback outweighed a much stronger official fix. With only one week to go until a key national leadership meeting, the authorities are keen to stabilise the Chinese currency, traders said. Stability in the forex market would be a top priority as any disruption of the exchange rate and the economy is unwelcome ahead of and during China’s major political event – the National Congress of the Communist Party, starting on Oct.18. Prior to market opening on Wednesday, the People’s Bank of China (PBOC) lifted its official yuan midpoint to 6.5841 per dollar, its highest level in three weeks. The strong fix reflected spot yuan trade the day before and dollar movement in global markets overnight.
