Date: November 20, 2019
Fed Minutes Seen Reinforcing Message of Rates on Prolonged Hold
“Federal Reserve Chairman Jerome Powell and his colleagues have been especially chatty since cutting interest rates last month, yet a record of that meeting may still shed light on the strength of conviction among officials that monetary policy is probably poised for a long pause. Powell addressed Congress twice last week. He maintained his view that rates are in a good place following this year’s third cut on Oct. 30, provided the outlook doesn’t suffer a “material reassessment.” Minutes of that Federal Open Market Committee meeting will be released at 2 p.m. Wednesday. This year’s final gathering is set for Dec. 10-11. “We don’t believe the minutes will meaningfully alter expectations for the near-term policy outlook,” economists Kevin Cummins and Michelle Girard of NatWest Markets wrote in a note this week. “However, market participants will be looking for any insights as to what exactly a ‘material reassessment’ to the FOMC’s outlook would entail.” New York Fed President John Williams on Tuesday stressed that such a judgment wouldn’t be on a hair trigger. “On this question of materiality, you have to make sure we’re not overreacting to individual data points and really thinking about where it is the economy is over the next year or two,” he told reporters in Washington. The aging U.S. expansion has decelerated somewhat amid headwinds from weakness abroad and softening business investment stemming from trade policy uncertainty. American consumers, however, have proved resilient thanks to unemployment near a 50-year low and steady payroll gains.”
France, Italy Get EU Warning About Risk of Breaking Fiscal Rules
“Italy and France are at risk of breaching European Union spending rules, the bloc’s executive arm said, warning that only countries with a healthy budget position should be pushing expansionary policies. In a set of assessments, the European Commission said the 2020 spending plans of eight countries are “at risk of non-compliance.” In addition to France and Italy, Belgium, Spain, Portugal, Slovenia, Slovakia and Finland were cited. Budget plans for these countries “might result in a significant deviation from the adjustment paths towards the respective medium-term budgetary objective” the commission said. The report also called on countries with fiscal space to invest amid growing economic risks. It noted both Germany and the Netherlands were doing this to a degree, though it said they should be doing even more. But it was clear that those with high debt should be doing the opposite, taking advantage of low interest rates to cut debt. Italy, France and Spain were included in that warning. Despite Italy’s perilous situation, its structural deficit is now forecast to rise and the country will miss debt reduction targets this year and next. The problem the commission identified, is that “some of those euro-area member states with no fiscal space plan either no meaningful fiscal adjustment or a fiscal expansion in 2020.” The warning on France’s budget comes after Emmanuel Macron ramped up spending and lowered taxes in response to the Yellow Vest protests that rocked the country. For Italy, meanwhile, this year’s verdict at least marks an improvement from the tense standoff last year, which almost triggered a disciplinary procedure against Rome. In its assessment, the commission said that the 2020 budget plans submitted by 11 other members were found to be compliant or broadly compliant with the rules. Under EU rules, no country can have a deficit larger than 3% of gross domestic product or debt above 60% of output, and governments are required to set targets to show they’re moving in the right direction. While Italy’s deficit is within the 3% limit, the commission has demanded smaller gaps to lower its debt load, which is more than double the limit. France, Belgium and Spain are among the many countries that have received warnings or reprimands from the EU in recent years, though never a formal rejection of their draft budget or any financial sanctions.”
Malaysians Do Singapore’s Dirty Work While Foreigners Do Theirs
“Malaysians are crossing the straits to do Singapore’s dirty work for better pay, while relying on foreign labor to do similar work for them. More than half a million Malaysians across all sectors opt to work in the city-state as the pay is about five times the amount offered by neighboring countries, Human Resources Minister M Kulasegaran said in a parliamentary reply Tuesday. That’s what makes them willing to take on even “3D work” — dirty, dangerous, difficult — that Malaysian companies are finding difficult to hire locals to do. The trend has left the country’s plantations and manufacturers sourcing workers from abroad, creating what Finance Minister Lim Guan Eng called an “addiction to low-skilled foreign labor.” The construction industry alone has only been able to hire one-third of the 1.2 million workers it needs, according to the Master Builders Association Malaysia. Malaysia seeks to tackle the problem by giving monthly wage incentives of as much as 500 ringgit ($120) to workers who get hired locally and up to 250 ringgit for their employers. That’s aimed at reducing the number of foreign workers by 130,000 over five years. The builders association isn’t optimistic the move will fully resolve the labor issues. “The measure won’t be too effective in reducing the number of foreign workers, as many foreign workers are employed in jobs which Malaysians are not keen to compete or participate in,” Master Builders Association Malaysia said.”
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