November 14, 2019
Powell Satisfied With Current Fed Interest Rates But Flags Risks
“Federal Reserve Chairman Jerome Powell stuck to his view that interest rates are probably on hold after three straight reductions, while signaling that the U.S. central bank could resume cutting if the growth outlook falters. “We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook,” Powell told the congressional Joint Economic Committee Wednesday in Washington. “However, noteworthy risks to this outlook remain.” Powell, whose comments largely echoed his message on Oct. 30 after the Fed’s third rate cut this year, said slowing global growth and trade developments pose “ongoing risks.” He added that persistently low inflation could lead to an “unwelcome” slide in the public’s longer-run expectations of inflation. Powell said the Federal Open Market Committee cut the policy rate, which is now in a range of 1.5% to 1.75%, to support growth and move inflation back to the 2% target. He said the committee was prepared to respond to a “material reassessment” of its outlook, and the tone of his remarks suggest that downside risks for now outweigh the possibility of economic overheating. Explaining why wages haven’t moved up with the unemployment rate at 3.6%, Powell said it could be a sign that there is still slack in the labor market. “It also may be that the neutral rate of interest is lower than we have been thinking and that therefore our policy is less accommodative than we have been thinking. We are letting the data speak to us.” The comments suggest that the rate cuts this year weren’t entirely about insuring against a global slowdown, but also recalibrating interest costs to an economy where inflation has remained stubbornly low.”
ECB’s Villeroy Says It’s Reasonable to Assume Rates Near Bottom
“European Central Bank policy maker Francois Villeroy de Galhau suggested that euro-zone interest rates are unlikely to fall much further, though there’s also little chance they’ll rise soon unless governments such as Germany spend more. “The markets anticipate, reasonably in my view, that short-term rates are close to bottoming out,” the French central bank governor said at an event in Frankfurt. But “these low short-term rates must and will remain in place — it would undeniably be a mistake to raise ECB rates now.” Villeroy said a number of euro area countries including Germany meet conditions where public spending would have a bigger impact — including low levels of public debt and monetary policy being close to the lower bound. His remarks add to a chorus of calls for government spending. The message isn’t yet resonating in Germany though. Earlier Thursday, the nation unexpectedly reported a small third-quarter economic expansion, narrowly dodging its first recession in six years. At a Bloomberg News event, Finance Minister Olaf Scholz repeated his line that the economy is not in crisis, and that there’s no need for stimulus now.”
Hong Kong Crippled Again as Anxiety Builds Over China’s Next Move
“Hong Kong was left crippled for a fourth straight day, as protests paralyzed parts of the city and residents questioned how much longer they could endure the disruptions. The unrest on Thursday prompted companies to tell employees to work from home while some train lines were suspended, major events were canceled and public schools were closed through Sunday. Speculation spread about measures the government might take to stop the violence after Chief Executive Carrie Lam held a late-night meeting on Wednesday with top officials. The disruption of a complete work week marked an escalation in pro-democracy protests that started in June against a bill that would allow extraditions to China for the first time. The violence this week led to clashes in the main Central financial district and prompted several top universities to cancel or amend classes for the remainder of the semester. Markets were rattled Thursday after China’s state-run Global Times tweeted that Hong Kong was expected to impose a curfew for the weekend to curtail the violence. While the paper deleted its tweet not long after it was posted, the Hang Seng Index fell to its lowest close in a month. Pro-democracy lawmaker Claudia Mo called the report of a curfew “fake news,” while Lam’s office didn’t immediately respond to an emailed request for comment. Chief Superintendent Tse Chun-chung said the Hong Kong police weren’t in a position to comment on curfews as the authority to direct a curfew order rests with the chief executive.”
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