Fed Eyes Inflation as Trump Pushes Cut: Decision-Day Guide
Federal Reserve policy makers may decide Wednesday that falling inflation reinforces a message of caution on interest-rate moves, rather than bowing to President Donald Trump’s demands for drastic action to boost the U.S. economy. The Federal Open Market Committee is all but certain to hold interest rates steady at the close of a two-day meeting in Washington and repeat in its policy statement at 2 p.m. that the central bank will be patient in making future moves. The meeting includes no updated forecasts, though Chairman Jerome Powell will give his assessment at a press briefing 30 minutes later. He can expect questions on political pressure after the president tweeted on Tuesday — hours after the Fed meeting began — that the economy would soar “if we did some lowering of rates, like one point, and some quantitative easing.” The president’s entreaties came as another political drama swirled around the central bank on Capitol Hill, where Trump’s planned nomination of ally Stephen Moore to the Fed’s board looked increasingly uncertain. Several Republican senators expressed concern about Moore following reports on controversial public remarks and other matters. Powell and his colleagues have repeatedly said they ignore political pressure and focus on their congressionally-mandated goals of price stability and maximum employment. Policy makers are confronting a puzzling outlook that could push some FOMC participants to look to easing in the future and others to tighten. Inflation has weakened this year, falling further from the committee’s 2 percent target, while growth accelerated in the first quarter after early signs that it would slow. The upshot will likely be a prolonged pause, with a few talking of when to cut. “The concern for many committee members remains the downside risks to inflation,’’ said Lindsey Piegza, chief economist at Stifel Nicolaus & Co. in Chicago. “Further downward pressure on prices could force the Fed to move from a neutral policy stance to a defensive policy stance sooner than later.’’
U.K. House Price Growth Stays Subdued as Brexit Woes Persist
U.K. house-price growth stayed subdued in April in a sign the delay to Brexit failed to reinvigorate the market, according to Nationwide Building Society. Values rose 0.9 percent last month from a year earlier, still well below levels seen in 2018, the firm said Wednesday. On the month, prices rose 0.4 percent to an average of 214,920 pounds ($280,000). A separate report from the Bank of England underscored the property market malaise, showing mortgage lending unexpectedly fell in March. The data is the first from Nationwide since the government secured an extension to its Brexit deadline until October, and provides few signs that the housing market may significantly benefit from the delay. While uncertainty about the future relationship with the European Union has hurt growth in recent months, a shortage of homes, record employment and low interest rates are preventing a sharp downturn. Households are growing more cautious about taking on debt for other uses. Unsecured credit grew at its weakest pace in more than five years due to a drop in lending for car purchases and more subdued borrowing on credit cards, the BOE said. “Measures of consumer confidence weakened around the turn of the year and surveyors report that new buyer inquiries have remained subdued,” said Robert Gardner, Nationwide’s chief economist. “April marks the fifth month in a row in which annual house price growth has been below 1 percent.” The lack of clarity over Brexit weighed on manufacturers last month too, as firms dialed back Brexit-related stockpiling and new export business fell. IHS Markit’s Purchasing Managers Index for the sector dropped from a 13-month high as production growth also slowed and job losses in the industry mounted.
Spain’s Sanchez Tells Brussels He’ll Raise Billions in Taxes
Spain’s government intends to increase taxes by more than 20 billion euros ($22.5 billion) during the next several years if Socialist Pedro Sanchez secures the support he needs in Parliament to serve a second term as prime minister. Sanchez sent his four-year economic plan to European Union officials late Tuesday night, forecasting a 2.2 percent increase in GDP this year and 1.9 percent next year. He also pledges to increase taxes by 5.7 billion euros in 2020, as he had previously laid out his 2019 budget. That proposal was rejected by Parliament earlier this year, triggering a snap election. Sanchez’s Socialists won the greatest number of parliamentary seats in Spain’s national ballot on Sunday and he looks set to cobble together enough support to govern again. The tax increase would be used to fund a boost to social spending and to narrow Spain’s budget deficit from the 2 percent Sanchez’s economists forecasts for 2019 to 1.1 percent in 2020. Sanchez had to meet the EU deadline to submit his country’s economic plan to Brussels even though he is now acting prime minister. A Spanish government isn’t likely to be formed until after another round of elections in May to elect EU, regional and municipal representatives. The economic proposal upholds pledges Sanchez made on the campaign trail to boost corporate and income taxes as well as launch a “digital tax” applied to online services. The revenue hikes would increase Spain’s tax-to-GDP ratio, which is low compared to other EU countries. Socialist lawmakers have been eyeing that ratio for years, seeing an increase as a potential source of additional revenue. The plan submitted to Brussels forecasts an increase to 37.3 percent of taxes-to-GDP in 2022 from 35.1 percent in 2019. The average in the euro area is 40.2 percent.
China Unveils Plans to Further Open Up Banking and Insurance Sectors
China took another step in opening its $44 trillion financial sector to the world, announcing plans to remove limits on ownership in local banks and scrap size requirements for foreign firms that operate onshore. Among the changes, overseas insurance groups will be allowed to set up units in the world’s second-biggest economy, the China Banking and Insurance Regulator said on Wednesday as high-level trade talks between China and the U.S. got underway in Beijing. The rules are an incremental step along the path to opening China’s financial system, months after foreign firms were permitted majority stakes in local securities joint ventures. While Wednesday’s changes could lead to full-blown local bank takeovers — a potential shortcut into the market — the likes of JPMorgan Chase & Co. and Goldman Sachs Group Inc. may have to wait years before finance in China looks like Wall Street or the City of London. “We are seeing a trend of China gradually and steadily opening up its financial industry to the outside world,” said Ge Shoujing, a Beijing-based senior analyst at the Reality Institute of Advanced Finance. HSBC Holdings Plc holds shares in Bank of Communications Co., and while the London-based firm hasn’t recently commented on increasing that ownership, Bocom’s board secretary said last year it would be open to such a move. Wall Street titans from Morgan Stanley to UBS Group AG operate securities joint ventures in China, and have seized on the financial opening to seek greater stakes in the units. The changes build on steps China’s leaders have taken in the past 18 months to level the playing field between overseas and local firms, as they’ve come under increasing pressure from U.S. President Donald Trump’s administration. Fresh funds would also provide timely support for a banking industry under pressure from a slowing economy and rising bad loans. “China is delivering on promises made to further open the financial markets to foreign companies, both big and small,” said Liao Chenkai, a Shanghai-based analyst at Capital Securities Corp. “This may also be a possible response to the trade war with the U.S., pushing China to further open its markets.”
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