Fed’s Quarles Says Interest Rate Increases May Yet Be Needed
Federal Reserve Vice Chairman for Supervision Randal Quarles said he’s still upbeat about the U.S. economy and expects additional interest-rate increases may be necessary “at some point.” Quarles said he supported the Fed’s recent decision to put additional moves on hold following four hikes in 2018, especially after recent data showed growth had slowed. “That said, I remain optimistic about the outlook for the U.S. economy, and I think that we have the potential to maintain growth at a healthy pace in the years ahead,” Quarles said in the text of a speech he’s scheduled to give Friday in New York. Fed officials appear to be in agreement over a short-term pledge to keep rates steady as they asses incoming economic data, though they have expressed a range of opinions on the likelihood of getting back on a tightening track. Quarles joins Boston Fed chief Eric Rosengren as among the more hopeful of policy makers that the economy will maintain its strength. Dallas chief Robert Kaplan, in remarks earlier on Friday, said he had not forecast a rate increase at all this year in projections he submitted for the central bank’s meeting last week, and urged a flexible, patient policy approach. “How we communicate and explain what those dots mean and why it’s happening puts a real onus on the Fed at inflection points,” Kaplan said at a separate event in New York. The Fed backed off from earlier projections for increases in 2019 on concerns over faltering growth outside the U.S. and muted inflation.
ECB Needs Clear Monetary Policy Case for Tiering, Knot Says
The European Central Bank would need a clear monetary-policy reason to consider acting to mitigate the effects of negative interest rates on banks, Governing Council member Klaas Knot was quoted as saying Sunday. “There must at least be some evidence that negative rates are disrupting the impact of monetary policy through their effect on bank profitability,” Knot, who is the governor of the Dutch central bank, said in an interview with Handelsblatt newspaper. “I must also be convinced that tiering is the best way to solve that,” Knot added. “I have my doubts on both points. In any case, the effect on banks could be very diverse depending on their size and business model.” Knot’s remarks echo comments from ECB Chief Economist Peter Praet last week. Staff at the central bank are examining the issue of tiering — where some of banks’ excess reserves are exempt from the lowest rate — but action isn’t a done deal, Praet said in a Bloomberg interview. Knot told Handelsblatt the ECB’s fresh round of monetary stimulus, via loans known as targeted longer-term refinancing operations, will be less favorable and he expects lenders to tap a smaller volume. Details of the loans — which offer cheap funding — will likely be published in June or July before the first operation in September, he added. “In countries where we are concerned about interdependence between banks and the state, lenders have already used up the maximum scope of the program and invested part in government bonds,” Knot said. “In the new program they can, at most, maintain their holdings in government bonds, there is no room for additional purchases.”
China Announces Trade Concessions as Liu He Heads to U.S.
The Chinese government said it will extend a suspension of retaliatory tariffs on U.S. autos and include the opioid fentanyl in a list of controlled substances, two steps that could generate a positive atmosphere for trade negotiations due to resume this week. Beijing temporarily scrapped the 25 percent tariff imposed on vehicles as a tit-for-tat measure on Jan. 1, after the White House delayed a rise in tariffs on $200 billion of products that had been due that day. The Ministry of Finance announced an extension of the suspension on Sunday, without giving a specific end date. Vice Premier Liu He, China’s trade envoy, left for the U.S. on Monday, according to the Ministry of Foreign Affairs. Chinese officials also pledged to tighten regulation on fentanyl from next month, a promise President Xi Jinping already made to President Donald Trump at a December meeting in Argentina. The inclusion of the drug as a controlled substance in a category of non-medicinal narcotic drugs and psychotropic substances will start May 1, according to the China National Narcotics Control Commission. The moves signal China is trying to keep momentum in trade talks going as they enter what could be the final stretch before Trump and Xi are presented with a text to finalize or sign. Beijing is determined to prevent an escalation of the frictions that have hurt its economy and roiled markets, even as enforcement measures remain a sticking point in negotiations. “What matters is not whether these are big concessions or not, but that they are a quick response to the U.S. concerns,” said Gai Xinzhe, a senior analyst at Sino Ocean Capital in Beijing.
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