Fed May Retain Bias to Hike Interest Rates: Decision-Day Guide
Federal Reserve Chairman Jerome Powell says the central bank has no bias in whether its next move is up or down, but his colleagues may deliver a more hawkish message. The Federal Open Market Committee is likely to forecast one interest-rate increase for this year, down from two in December’s projection, plus one more hike in 2020 — though it’s a close call, according to economists surveyed by Bloomberg. Even so, the committee will probably repeat that it will stay “patient” with future rate “adjustments” in its policy statement released at 2 p.m. on Wednesday in Washington, as well as announcing when it will end the gradual shrinking of its $4 trillion balance sheet. The rate projections in an updated dot plot, along with other economic forecasts, will be released with the committee’s statement. Powell, who in January began holding a press conference after every FOMC meeting, will start speaking to reporters 30 minutes later. The FOMC’s rate forecasts will be a clear focus of questions for Powell, who has distanced his views from the quarterly projections. In a March 8 speech he compared the dots to French artist Georges-Pierre Seurat’s pointillism: “If you are too focused on a few dots, you may miss the larger picture.” “For this year, there will be a very pronounced downward moment in the dots,’’ said Ellen Zentner, chief U.S. economist at Morgan Stanley in New York. “They are looking at the world differently and the path of policy differently. There should be a notable move lower in the median, and participants should be fairly evenly split between one hike this year and zero. It is a highly uncertain outcome.’’ For 2020, 2021 and beyond, the dots are likely to show some divergence among policy makers over the outlook. The December forecast showed rates peaking at 3.125 percent in 2020 and 2021, with a majority of officials clustered around that level. But the new dot plot may be more scattered — with some officials projecting several more hikes while others see no further moves, or even a cut.
Spain’s Growth Strong Despite Europe Woes, Central Bank Says
The Spanish central bank boosted its growth forecast slightly to 0.6 percent in the first quarter, the latest sign the country’s expansion is defying a broader European slowdown. The Bank of Spain maintained its annual growth forecasts of 2.2 percent in 2019 and 1.9 percent in 2020, unchanged from the institution’s previous forecasts in December. That is well above Brussels’ projections for the euro area as a whole. Spain hasn’t been immune to the headwinds battering the rest of the euro zone and the robust growth rate forecast for 2019 is still a slowdown from the 2.5 percent rate of expansion in 2018. “The risks for the Spanish economy are clearly to the downside,” Bank of Spain research head Oscar Arce told journalists at a briefing in Madrid on Wednesday. In the euro zone more broadly, the Bank of Spain noted a discussion among economic institutions about whether the weakness in trade and the broader external environment will be more persistent than expected. Arce said the Bank of Spain had been expecting first-quarter growth of 0.5 percent but raised its guidance upward to 0.6 percent in the report. He said the notion that the euro-area deceleration in large part “is a result of temporary factors that in the second half of the year are going to improve” could ultimately prove too optimistic, Arce said. “There’s a risk that we could err again in the sense that the euro zone could perform worse than we are estimating,” Arce added. In a quarterly economic update published on Wednesday, the Bank of Spain slashed the contribution of Spanish exports to overall GDP growth by 0.9 percentage point during the three years through 2021. The euro zone is Spain’s main trading partner and trade troubles that have hit growth elsewhere in the bloc are expected to continue to decrease demand for Spanish exports. There are already some signs that the negative trade outlook is starting to hit investments across the euro zone, the Bank of Spain noted.
For Global Growth Outlook, O’Neill Says Look to China’s Consumer
Anyone looking for reasons why the global economy is slowing and what can be done about it needs to understand the outlook for China’s consumers, says Jim O’Neill. The former Goldman Sachs Group Inc. chief economist and coiner of the BRICs acronym is worried about the drag from Chinese consumption after retail sales tumbled to the slowest pace in 16 years last year, car sales fell in 2018 for the first time since the early 1990s, and companies from Apple Inc. to Jaguar Land Rover Automotive Plc said slowing China sales are hurting business. “I cannot emphasize enough how the importance of the Chinese consumer matters,” says O’Neill, also a former commercial secretary to the U.K. Treasury. “Other challenges, such as excessive debt growth, pollution, trade disputes” are all important but matter much less than the strength of the consumer, he said in a recent email interview. For more than two decades, O’Neill says he’s been more optimistic than many economists about prospects for global growth, in large part because he saw the Chinese consumer becoming more important. But now, sentiment has plunged to the lowest level in a decade and O’Neill says that’s a big risk for the world economy. Measures to support slowing growth unveiled this month in Premier Li Keqiang’s annual work report offered few sweeteners for consumers, and there was no target for retail sales growth after last year’s goal of about 10 percent expansion was missed by a percentage point. In January, the International Monetary Fund cut its forecast for global expansion this year to 3.5 percent from 3.7 percent; O’Neill says it’ll take a comeback from Chinese consumption to push it back toward 4 percent.
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