United States:
Fed Expected to Hit Rate Cycle’s Peak After One More Hike: Survey
The Federal Reserve will bring the current cycle of interest-rate increases to an end after one more hike later this year, according to a new Bloomberg survey of economists. The median of responses in the March 13-15 poll predicted one hike in September, compared with two 2019 increases forecast in the December survey. They also said that would likely mark the peak of this hiking cycle, with the upper end of the target range for the benchmark rate touching 2.75 percent. Just three months ago they saw that peak at 3.25 percent. None of the 32 respondents anticipated a rate move when the Federal Open Market Committee gathers in Washington March 19-20. Fed officials have repeatedly signaled they are content to leave rates unchanged this month and perhaps well into 2019. “The Fed appears to be on hold for the foreseeable future,” said Scott Brown, chief economist at Raymond James Financial Inc. “Economic growth is expected to moderate this year, but risks are weighted to the downside.” Investors continue to be even more skeptical over the likelihood of rate increases this year. Pricing in interest-rate futures contracts implies the possibility, though not the probability, of a cut in 2019. Economists also predict policy makers will lower their own projections for the path of rates over the coming three years, removing one previously projected hike. They expect only modest changes to economic forecasts from the FOMC compared to those submitted in December, including a downgrade to the 2019 growth outlook to 2.2 percent from the 2.3 percent pace that policy makers had previously projected.
Europe:
BOE Set to Hold Rates as Officials Face Longer Brexit Paralysis
Any hope Bank of England officials may have had of escaping from Brexit limbo this month has been dashed. The Monetary Policy Committee’s next interest-rate decision will be announced on Thursday, just a week before the U.K.’s planned March 29 exit date from the European Union. While any kind of delay — which would still need to be approved by the European Union — would help avoid the worst-case scenario of a no-deal exit, it’s unlikely to lift the “fog of Brexit” that Governor Mark Carney spoke of last month. Against that backdrop, all 20 economists surveyed by Bloomberg say the nine-member MPC will vote unanimously to keep interest rates unchanged at 0.75 percent on March 21. That chimes with the views of markets, who don’t see another move until beyond May 2020. The MPC’s central view remains that a gradual series of interest-rate hikes will be needed in coming years. However, a number of officials, including the hawkish Michael Saunders, have indicated they’re prepared to wait and see how Brexit turns out before making another move. That may now take longer than previously anticipated. Parliament voted this week to seek a delay to the U.K.’s exit date, buying Prime Minister Theresa May time to try to get her deal through on the third try. If she manages to win that vote — which could come before the BOE decision — then it’s likely that a short delay will be requested. Lose it, and there could be a far more a lengthy postponement.
Asia:
Russia Still Paying Price for Crimea Five Years After Annexation
Half a decade has passed since Vladimir Putin annexed Ukraine’s Crimean peninsula. For Russia, the costs continue to mount. The accession treaty signed to bring the Black Sea territory into Moscow’s fold is still unrecognized by most countries and the U.S. and European Union led a broad effort to punish Russia with sanctions. Undeterred, Russia has kept integrating Crimea into its economy, investing billions in new power plants and building a giant bridge to the peninsula last year. Most of the costs Russia has incurred have come from the U.S. and EU penalties, which have piled up every year since the annexation, with new ones added for alleged election meddling and other actions. But the country and its residents — already suffering from low prices for oil, Russia’s main export — are also feeling the pain a drop in foreign investment and stagnating incomes. A recent survey suggests the public appeal of the annexation is starting to wear off. Analysts at Bloomberg Economics estimate that sanctions have knocked as much as 6 percent off Russia’s economy over the past five years. A study published by analyst Scott Johnson late last year found that the economy of the world’s biggest energy exporter is more than 10 percent — or $150 billion — smaller compared with what might have been expected at the end of 2013. Four percentage points of that come from the drop in oil prices, but sanctions and other factors are to blame for the rest.
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