June 14, 2018
United States:
Powell Lauds Economy as Fed Nudges Up Interest-Rate Hike Path
Federal Reserve officials raised interest rates for the second time this year and upgraded their forecast to four total increases in 2018, as unemployment falls and inflation overshoots their target faster than previously projected. The so-called “dot plot” released Wednesday showed eight Fed policy makers expected four or more quarter-point rate increases for the full year, compared with seven officials during the previous forecast round in March. The number viewing three or fewer hikes as appropriate fell to seven from eight. The median estimate implied three increases in 2019 to put the rate above the level where officials see policy neither stimulating nor restraining the economy. Federal Reserve officials raised interest rates for the second time this year and upgraded their forecast to four total increases in 2018, as unemployment falls and inflation overshoots their target faster than previously projected. The so-called “dot plot” released Wednesday showed eight Fed policy makers expected four or more quarter-point rate increases for the full year, compared with seven officials during the previous forecast round in March. The number viewing three or fewer hikes as appropriate fell to seven from eight. The median estimate implied three increases in 2019 to put the rate above the level where officials see policy neither stimulating nor restraining the economy. Chairman Jerome Powell told reporters following the decision — which lifted the Fed’s benchmark rate by a quarter percentage point to a range of 1.75 percent to 2 percent — that the main takeaway was that “the economy is doing very well.” Powell also announced he plans to start holding a press conference after every meeting in January, cautioning that “having twice as many press conference does not signal anything.” The Fed chief currently speaks to reporters after every other meeting of policy makers. The Federal Open Market Committee indicated that even though it’s stepping up the pace of interest-rate hikes, economic growth should continue apace. “The committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the committee’s symmetric 2 percent objective over the medium term,” according to its statement following a meeting in Washington.
Europe:
ECB to End Bond Buying in December in Watershed for Stimulus
The European Central Bank will halt its bond-buying program by the end of this year — a landmark decision that sets the euro area up for an exit from years of massive monetary support. The euro and bond yields dropped after the ECB said it’ll phase out the stimulus tool with 15 billion euros ($17.7 billion) of purchases in each of the final three months of the year. It also pledged to keep interest rates unchanged at current record lows at least through the summer of 2019. President Mario Draghi will explain the decision in a news briefing at 3:30 p.m. in Riga, Latvia, where the Governing Council met. The euro was down 0.2 percent at $1.1767 at 1:53 p.m. Frankfurt time. With the decision to retire its key crisis-fighting tool, the ECB is betting that the euro-area economy is robust enough to ride out an apparent slowdown amid risks including trade tariffs and nervousness that Italy’s populist government will spark another financial crisis. The announcement comes only hours after the Federal Reserve raised U.S. interest rates for the second time this year, highlighting how a decade of easy money globally is gradually coming to an end. The People’s Bank of China opted not to follow the Fed in raising borrowing costs, and the Bank of Japan is expected to maintain its stimulus when it meets on Friday. Draghi will provide updated economic projections at his news briefing, which may help him address any questions over whether policy makers have acted too hastily given a spate of disappointing data in recent weeks. While almost a third of economists in a Bloomberg survey predicted he’d set an end-date for purchases after the Riga meeting, 46 percent said he’d wait until the next policy session in July.
Italy Picks Another Fight With EU, Targeting Canadian Trade Deal
Italy is refusing to ratify a European Union free-trade accord with Canada, the bloc’s most ambitious commercial deal to date, as the populist government aims to upend decades of consensus in Brussels. After less than two weeks in office, the hard line interior minister, Matteo Salvini, has already sparked a diplomatic incident with France over immigration. Now his party colleague, Agriculture Minister Gian Marco Centinaio, is stirring up opposition to the signature achievement of EU trade policy. “We will not ratify the free-trade treaty with Canada,” Centinaio said in an interview with La Stampa newspaper published Thursday. “Doubts about this deal are common among many of my European colleagues.” The Italians are rubbing salt in the wounds of a European elite that’s been thrown off balance by U.S. President Donald Trump’s attacks at the G-7 meeting in Canada and is trying to contain the rise of populists across the bloc. While Italy’s stance won’t affect the terms of trade with Canada in the short term — the pact came into effect last year and member states have years to complete the ratification process — it adds fuel to the backlash against globalization that has roiled politics around the world in recent years. In Brussels, European Commission spokesman Margaritis Schinas told reporters on Thursday: “The commission is working closely with all the member states to ensure that our trade policies are mutually beneficial.” Schinas, addressing what he called a “hypothetical question,” said the leaders of the full EU would have to decide on a course of action if a member state does not ratify the deal. Salvini, leader of the anti-immigrant League, once boasted that Italians must not be “slaves” of the EU in Brussels. “The interest of Italians comes first,” he said in a February interview.
Asia:
Asia Central Banks Juggling Risks Find Solace in Stable Food
Asian central bankers grappling with wobbly markets, higher energy costs and simmering trade tensions are getting relief from an old foe: food prices. In a region vulnerable to volatile price swings, food inflation has been largely contained, thanks in part to favorable weather and increased investment in production, storage and distribution. For developing nations like India and China — where food makes up a higher share of spending and consumer price indexes — that’s helped keep a lid on inflation and left them better placed to grapple with the strains caused by U.S. monetary tightening. Asian central bankers grappling with wobbly markets, higher energy costs and simmering trade tensions are getting relief from an old foe: food prices. In a region vulnerable to volatile price swings, food inflation has been largely contained, thanks in part to favorable weather and increased investment in production, storage and distribution. For developing nations like India and China — where food makes up a higher share of spending and consumer price indexes — that’s helped keep a lid on inflation and left them better placed to grapple with the strains caused by U.S. monetary tightening. “Food price inflation across Asia is subdued, but I don’t think central banks can afford to nod off,” said Sumiter Singh Broca, a Bangkok-based official at the Food and Agriculture Organization of the United Nations. Malaysia, the Philippines, Indonesia, and India have already raised interest rates this year in a bid to support weakening currencies amid a sell-off in emerging markets and to get ahead of inflation pressures linked to rising fuel costs. Economists at Citigroup Inc. led by Johanna Chua note that although volatility in Asia’s food prices has receded, the oil rally and a cyclical bottoming of food inflation should generate higher risks — especially for fuel-sensitive economies like Thailand and Indonesia.