Fed’s Williams Sees U.S. Inflation Hit From Escalating Trade War
U.S. trade tariffs are already starting to push up inflation and will have a greater impact as they rise, though the U.S. economy is in a “good place” right now, according to Federal Reserve Bank of New York President John Williams. Williams said in a Bloomberg Television interview that some of his concerns have diminished after the economy “rebounded pretty strongly after a soft patch late last year.” He’s watching sentiment indicators for any signs of nervousness that could undermine the current expansion. “The economy is well positioned to deal with whatever events happen in the future,” he said. That includes escalating U.S.-China trade tensions, which have hit global stocks in the past week. Fed officials have kept interest rates on hold since December amid low inflation and global growth concerns, which could return to the fore following the latest developments. Investors now see a good chance of a rate cut later this year, and Williams said he has no policy bias either way right now. “The policy is in the right place,” he said. “I don’t see any reason to have a bias up or downward in the current circumstances. We’re going to evaluate, assess, to see the best decision to get us to our goals .” Williams also said tariffs act like a negative supply shock and have already had an effect on U.S. inflation. “It has various effects on the economy,” he said. “It probably will boost inflation by a few tenths over the next year. It affects demand a bit and growth in the short run. But also its negative effects on the value chains and how our economic system works.”
German Investor Confidence Worsens as Global Trade Woes Mount
Investor confidence in Germany’s growth outlook unexpectedly weakened in May for the first time since October, underlining the fragility of Europe’s largest economy as it struggles to overcome a slowdown and global trade tensions worsen. A gauge measuring prospects for the next six months dropped to minus 2.1 in May. Economists had expected a slight increase to 5 from 3.1 in April. A resurgent trade dispute between the U.S. and China risks spilling over to German companies, and knocking the economy back after nascent signs that it has started to stabilize. Stocks have tumbled — the DAX Index slid almost 3 percent last week. “Financial market experts continue to expect restrained economic growth in Germany for the next six months,” ZEW President Professor Achim Wambach said. The escalation in the trade dispute “increases the uncertainty regarding German exports — a key factor for growth.” Germany reports its first-quarter GDP figures on Wednesday, with analysts in a Bloomberg survey predicting an expansion of 0.4 percent after a stagnant end to 2018, echoing the rebound in the euro zone as a whole. Still, Bundesbank President Jens Weidmann has warned that the better figures might reflect temporary factors such as mild weather and he sees no “comprehensive” improvement so far.
Asian Economies Set to Dominate 7% Growth Club During 2020s
The 2020s are set to be the Asian decade, with the continent dominating an exclusive list of economies expected to sustain growth rates of around 7%. India, Bangladesh, Vietnam, Myanmar and the Philippines should all meet that benchmark, according to a research note Sunday from Madhur Jha, Standard Chartered’s India-based head of thematic research, and Global Chief Economist David Mann. Ethiopia and Côte d’Ivoire are also likely to reach the 7% growth pace, which typically means a doubling of gross domestic product every 10 years. That’ll be a boon to per-capita incomes, with Vietnam’s soaring to $10,400 in 2030 from about $2,500 last year, they estimate. The South Asian members of the group should be GDP standouts as they’ll together account for about one-fifth of the world’s population by 2030, Standard Chartered reckons. The demographic dividend will be a boon for India, while Bangladesh’s investments in health and education should juice productivity. The Asian dominance of the list is a change from 2010, when the bank first started tracking the economies it expected to grow by around 7%. Back then, there were 10 members evenly split between Asia and Africa: China, India, Indonesia, Bangladesh, Vietnam, Nigeria, Ethiopia, Tanzania, Uganda, and Mozambique. China is a notable absence from the latest ranking after being a member of the club for almost four decades — reflecting both a slowdown in economic growth and a progression toward higher per-capita incomes that makes faster growth rates more difficult to sustain. Standard Chartered estimates the world’s No. 2 economy will keep up a 5.5% economic growth pace in the 2020s.