Overseas Headlines – February 28,2018

February 28,2018

United States:

Powell’s Rosy Outlook Invites Fed to Weigh Four 2018 Rate Hikes

Jerome Powell opened the door to the Federal Reserve raising U.S. interest rates four times this year as he acknowledged stronger economic growth may prompt policy makers to rethink their plan for three hikes. “My personal outlook for the economy has strengthened since December,” the Fed chairman said Tuesday in response to a question about what would cause the central bank to step up the pace of policy tightening. He then listed four events that are causing him to revise up his outlook. “We’ve seen continuing strength in the labour market,” Powell told the House Financial Services Committee in his first hearing as Fed chief. “We’ve seen some data that will in my case add some confidence to my view that inflation is moving up to target. We’ve also seen continued strength around the globe, and we’ve seen fiscal policy become more simulative.” Powell is taking over the Fed at a time when the world’s largest economy may be shifting gear to faster growth and declining unemployment, though inflation remains below the central bank’s 2 percent goal. Adding to the momentum are tax cuts and spending increases agreed to by Republican lawmakers and signed by President Donald Trump. Economists said the signal was clear. The economic outlook is improving, and the chairman used the testimony to invite policy makers to reassess their December forecast for three hikes this year.



Slowing Euro-Area Inflation Helps Draghi Push Back Exit Talk

A third month of slowing inflation in the euro-area has given European Central Bank President Mario Draghi ammunition to ward supporters of a faster stimulus exit a little while longer. The rate of price growth slowed to 1.2 percent this month from 1.3 percent, dropping to its weakest since 2016. The core measure was unchanged at 1 percent. The figures follow a series of releases that have checked the economy’s thundering momentum at the start of 2018, which had emboldened policy makers who want a faster unwinding of the central bank’s crisis-era monetary stimulus. Draghi emphasized to European lawmakers this week that an expansionary policy is still warranted even as the economic situation is “improving constantly.” At the same time, he’s more confident that declining unemployment will boost pay and inflation eventually, even if the rate remains below the ECB’s target of just under 2 percent for now.



India to Grow Faster Than Estimated Ahead of National Polls

India sees its economy growing faster-than-estimated, providing some relief to the government of Prime Minister Narendra Modi ahead of national polls next year. Gross domestic product will grow 6.6 percent in the year through March 2018, the Statistics Ministry said in a statement in New Delhi on Wednesday, increasing its Jan. 5 estimate of 6.5 percent. That also beats the 6.5 percent consensus estimate in a Bloomberg survey but is slower than the 7.1 percent expansion in the previous year. GDP expanded 7.2 percent in October-December, compared with 7 percent in the survey and the previous quarter’s 6.5 percent. Gross value added or GVA, which strips out subsides and includes production taxes, matched the survey estimate of 6.7 percent. A slower expansion has built pressure on Modi to jump start economic activity before seeking re-election in 2019. His government boosted spending in rural areas in the Feb. 1 budget to assuage the anger of voters feeling the pain of an abrupt cash ban and a chaotic sales tax. Recent cases of alleged fraud in state-owned banks have further dented confidence and investor appetite.