Fed’s Powell Says He Sees ‘No Evidence’ of Overheating in the U.S. Economy
Federal Reserve Chairman Jerome Powell said he sees no signs the U.S. economy is overheating even as the outlook for growth strengthens and the labor market tightens. During congressional testimony Thursday, he reiterated the central bank will continue to raise rates gradually to keep unemployment and inflation in balance. “By continuing to gradually raise interest rates over time, we’re trying to balance those two things and achieve inflation moving up to target but also make sure the economy doesn’t overheat,” Powell told the Senate Banking Committee in his second appearance before lawmakers this week. He added: “There’s no evidence the economy is currently overheating.” Powell also said he doesn’t see a tightening labour market causing wages to hit “a point of acceleration.” “I would expect that some continued strengthening in the labour market can take place without causing inflation,” he said. “We don’t see any strong evidence yet of a decisive move up in wages.” Powell, 65, gave his first congressional testimony as chairman this week. On Tuesday he told members of the House Financial Services Committee his outlook for the economy had strengthened since December, causing investors to increase slightly the odds they see for a fourth interest-rate increase this year. In their most recent set of projections, Fed officials in December penciled in three hikes in 2018. They meet again later this month.
Euro-Area Economy Looked a Little Less Buoyant in February
The euro-area economy may have lost a little more momentum than initially estimated in February, adding to signs that the pace of growth may be moving past its peak. IHS Markit’s composite Purchasing Managers’ Index slipped to 57.1 from 58.8 in January. That’s the weakest in four months and below the flash estimate of 57.5. Separately, Sentix said on Monday that Donald Trump’s threat of tariffs on imported steel and aluminium undercut optimism among investors, with euro-area sentiment dropping to the lowest in almost a year. The PMI report showed that Germany, the region’s largest economy, grew the least in three months, while France also cooled. Spain bucked the trend among the major economies, with the best PMI reading in eight months. In Italy, which held national elections at the weekend, the composite PMI also declined, albeit from a 10 1/2-year high. That ballot saw anti-establishment groups surge as voters punished the mainstream parties for years of economic decline, rising taxes and a wave of immigration. Italian stocks fell, with the FTSE MIB down 1 percent at 10:57 a.m. Rome time. The euro was little changed and traded at $1.2321. The latest euro-area economic figures follow confidence surveys in recent days that show expansion in the 19-nation region may be coming off the boil after the best year in a decade in 2017. The drop in the Sentix index was far greater than economists had anticipated and took the gauge to its weakest since April. “Trump’s comments on punitive tariffs give investors a great deal of thought — an economic turnaround is in the air,” said Manfred Huebner, managing director at Sentix. The readings also come just days before the European Central Bank’s policy meeting on Thursday. While some officials have already argued in favour of advancing down the exit route, President Mario Draghi has pushed back.
China Turns Fiscal Screws While Maintaining 6.5% Red Line on GDP
China stepped up its push to curb financial risk, cutting its budget deficit target for the first time since 2012 and setting a growth goal of around 6.5 percent that omitted last year’s aim for a faster pace if possible. The deficit target — released Monday as Premier Li Keqiang delivered his annual report to the National People’s Congress in Beijing — was lowered to 2.6 percent of gross domestic product from 3 percent in the past two years. The 6.5 percent goal is consistent with President Xi Jinping’s promise to deliver a “moderately prosperous” society by 2020. Policy makers dropped a target for M2 money supply growth, saying it’s expected to expand at similar pace to last year. Authorities reiterated prior language saying prudent monetary policy will remain neutral this year and that they’ll ensure liquidity at a reasonable and stable level. Xi has ratcheted up his drive to curb debt risk, pollution and poverty at a time when the world’s second-largest economy is on a long-term growth slowdown. His efforts to rein in spending contrast with an historic expansion of U.S. borrowing under Donald Trump during a period of economic expansion. The 2018 targets “suggest slower growth and a fiscal drag,” said Callum Henderson, a managing director for Asia-Pacific at Eurasia Group in Singapore. “This makes sense for China in the context of the new focus on financial de-risking, poverty alleviation and environmental clean-up, but is less good news at the margin for those economies that have high export exposure to China.”