Fed Is Likely Unswayed by Clamor for Rate Cuts: Minutes Preview
As financial markets and the Trump administration clamor for lower interest rates in the face of a slowing economy, the Federal Reserve is refusing to see any rush. Analysts will be seeking clues to the limits of that patience on Wednesday, when minutes from the Federal Open Market Committee discussions of March 19-20 are due out. The FOMC kept rates steady at the meeting, forecast no additional hikes this year, and said it would halt the process known as quantitative tightening — essentially the shrinking of the Fed’s bond portfolio — in September. Markets drew the conclusion that a rate cut is likely by January, and President Donald Trump and his advisers quickly endorsed the idea. But FOMC forecasts still suggest a hiking bias, with six participants projecting higher interest rates this year while 11 see no change. And two prominent doves, St. Louis Fed President James Bullard and Neel Kashkari of Minneapolis, both said after the meeting that it’s premature to talk about cutting rates. “Fed officials over the last week or two have been emphasizing that they are a long way from a cut,’’ said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC. “That seems like a candidate for something meaningful coming out in the minutes.” Chairman Jerome Powell has said the Fed is no hurry to move, with the economy likely to grow at a solid pace and inflation low. Along with most committee members, he’s been vague on what it would take to end the pause. “My sense is that the threshold for cutting is very high and would involve something going seriously wrong with the outlook –- for example a risk of recession, and not simply inflation that fails to reach target,’’ said Roberto Perli, a partner at Cornerstone Macro LLC in Washington and former Fed economist. “To me, this is the most important aspect of the minutes.’’
U.K. Economy Set for a Stronger Quarter as Output Rises Again
The U.K. economy is on course for a stronger-than-forecast first quarter despite an escalating Brexit crisis that’s divided Parliament and the government. Gross domestic product rose 0.2 percent in February after a 0.5 percent jump in January. That means the economy will expand 0.5 percent in the first quarter if GDP is unchanged in March. That’s more than double the pace of the previous three months and faster than the Bank of England expects. Some of the pickup in growth may be due to Brexit stockpiling, with the statistics office reporting anecdotal evidence of companies bringing forward orders before the original March 29 deadline to leave the European Union. The U.K.’s departure now looks set to be delayed by as long as a year as leaders meet in Brussels Wednesday. The data may provide some small cheer for embattled Prime Minister Theresa May as she awaits a final decision on the length of the delay to Brexit. European Council President Donald Tusk has rejected her request for a brief postponement and a longer period risks a backlash that could further destabilize the U.K., both politically and economically. The pickup in February was broad based, with manufacturing rising 0.9 percent and construction gaining 0.4 percent. The poorest performer was the dominant services industry, where output rose just 0.1 percent. Financial services and insurance firms cut output for a 12th consecutive month, the longest run since records began in 1997. “Today’s GDP data suggests growth rebounded in 1Q but the longevity of the bounce will depend on Brexit negotiations. If the impasse in Parliament is unlocked in coming weeks, we expect growth to remain close to trend this year. Further delays to exit day could easily scupper those plans.” Separate figures showed the trade deficit narrowed marginally in February to 14.1 billion pounds ($18.4 billion). Exports rose but there was little evidence in the data of firms hoarding foreign goods in case of a no-deal Brexit, with imports falling in both value and volume terms.
Korean Breadwinners Hit Even as Overall Jobs Growth Rises
While employment growth accelerated for the second straight month in South Korea, the number of jobs for people age 30-49 extended its years-long decline amid a slowdown in manufacturing that is hurting family breadwinners. The number of jobs increased by 250,000 in March from a year earlier, following a 263,000 gain in February, data from Statistics Korea showed on Wednesday. There was a sharp rise in the number of jobs for people age 60 and over, concentrated in sectors such health, welfare and public administration. The results are unlikely to ease pressure on President Moon Jae-in, who was elected on a pledge to create hundreds of thousands of jobs and to raise the incomes of regular workers. Increasing public sector jobs hasn’t offset weakness in manufacturing and big jumps in the minimum wage have been blamed for crimping expansion in low-pay positions. “The quantity of employment seems to be improving but the quality of the jobs is expected to remain unhealthy for quite some time,” said Park Chong-hoon, an economist at Standard Chartered Bank in Seoul. The decline in new positions for middle-age workers reflects sluggish capital investment, according to Park, who said companies need to drive employment growth rather than public-sector hiring. Meanwhile, the seasonally adjusted unemployment rate rose to 3.8 percent last month, lower than the median forecast of economists of 3.9 percent.
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