The Fed Has an Inflation Expectations Problem
When Federal Reserve policy makers were debating the adoption of an inflation target five years ago, the hawks pushed for a 1.5 percent goal as the best way to meet the central bank’s price stability mandate. Then-Chair Ben Bernanke and his lieutenant Janet Yellen resisted the arguments of the inflation-phobes, winning agreement for a 2 percent objective already in vogue at other central banks. Yellen won that battle but may be losing the war. Since the Fed established its goal in January 2012, inflation has averaged just 1.3 percent, held back by the slow pace of the U.S. economic expansion and weaknesses abroad. The risk is that’s leading consumers and companies to anticipate a continued shortfall going forward, hindering efforts by now-Fed Chair Yellen and her colleagues to attain their price goal. “Lower inflation expectations make it all the more difficult for the central bank to achieve its inflation objective,” Charles Evans, president of the Chicago Fed, said in remarks posted on the bank’s website on July 14.
Industrial recovery drives China’s second-quarter GDP as consumption slows
A pick-up in the industrial sector helped China post better-than-expected second quarter economic growth as finance and real estate expansions slowed to multi-year lows, data showed on Tuesday. That is likely welcome news for Chinese officials that have been trying to tamp down an overheated property market and speculation in financial markets in favour of investment in the real economy and upgrades of China’s massive industrial sector. But a continued slowdown in consumption growth this year could present an ongoing challenge to China’s efforts to shift to a consumer-led economy. The industrial sector, which accounts for about a third of the economy, grew 6.6 percent in the second quarter from a year earlier, data from the statistics bureau showed on Tuesday. That was up slightly from 6.5 percent in the first quarter and the fastest pace since the fourth quarter of 2014. The real estate sector, meanwhile, only expanded 6.2 percent in the second quarter from a year earlier, the slowest since the end of 2015, and down significantly from 7.8 percent growth in the first quarter, as government curbs dragged on the sector.
Euro zone banks see rising loan demand in third quarter: survey
Banks across the euro zone are set to expand lending in the third quarter, easing access to mortgages, corporate loans and consumer credit, the European Central Bank said in a quarterly survey on Tuesday. Demand for loans continued to rise in the second quarter and access to credit became easier in most categories, driven in part by increased competition among banks and access to even cheaper wholesale and retail funding, the ECB said. “While most factors contributed to a net easing of credit standards on loans to enterprises in the second quarter of 2017, competitive pressure remained the main contributing factor,” the ECB said. “For loans to households for house purchase and for consumer credit and other lending to households, competitive pressure and risk perceptions had an easing impact on credit standards,” it added. Among the euro zone’s biggest countries, access to corporate credit eased the most in Italy and Germany while in the case of mortgages, notably easier conditions were recorded in the Netherlands and Italy, the ECB added.