November 7, 2019
Fed’s Evans Says Rate Cuts Leave U.S. Economy in Good Place
“Federal Reserve Bank of Chicago President Charles Evans said the central bank’s three interest-rate cuts this year have left the U.S. economy in a good place. “We’ve made a nice adjustment that takes account of risk management concerns,” Evans told reporters Wednesday after a talk at the Council on Foreign Relations in New York. “The setting of policy is good for the real risks that the economy is facing,” Evans said. “It’s good for getting inflation to 2%.” Fed officials last week cut interest rates by a quarter-percentage point for a third time this year, the first reductions since the financial crisis. They cited the combination of trade-policy uncertainty, slowing global growth and below-target inflation as a rationale for the cuts, which partially unwound more than 2 percentage points of increases between December 2015 and December 2018. In a press conference explaining the latest decision, Fed Chair Jerome Powell said it would take “a material reassessment” of the outlook for policy makers to adjust rates again. A stronger-than-forecast report on jobs published Nov. 1 reinforced investors’ perceptions that easing is over for now, according to the prices of futures contracts linked to the central bank’s benchmark overnight rate, which currently stands just above 1.5%. “The economy is in a good place now,” Evans said. “The consumer has been very strong. I think the most recent data reflect that.” New York Fed President John Williams shared the view that the central bank’s actions were helping support the economy. “Monetary policy is moderately accommodative,” he said Wednesday at a separate event in New York. “I see this as a reflection of some of these factors global factors especially that are causing or fostering slower growth, and also the fact that inflation is still a few tenths below” the Fed’s 2% target, he said. The Fed has been below that goal for most of the last seven years, a shortfall that Williams said has been making it harder to lift price pressures higher. “People expect inflation to stay very low and I think that’s a factor that’s holding inflation down,” he said.”
Two BOE Members Unexpectedly Vote for Rate Cut as Outlook Sours
“The Bank of England is growing increasingly concerned about Brexit uncertainty and the global slowdown, pushing two policy makers to unexpectedly vote for an interest rate cut. Michael Saunders and Jonathan Haskel wanted to lower the benchmark by a quarter point — the first votes for looser policy since 2016 — citing threats to the outlook and signs of a turn in the labor market. While the majority, including Governor Mark Carney, voted to keep the rate at 0.75%, they signaled that a further deterioration could see more policy makers support easing. “If global growth fails to stabilize, or if Brexit uncertainty remains entrenched, monetary policy may need to reinforce the expected recovery,” officials said in the summary of the meeting, published Thursday. The pound declined after the announcement, and was 0.2% lower at $1.2827 as of 12:05 p.m. London time. The comments show the BOE is shifting closer to other central banks, such as the Federal Reserve and the European Central Bank, which have already cut interest rates this year. Still, signs of easing in the China-U.S. trade tensions on Thursday could be good news for the global economy and mean less chance of a worse scenario emerging. While Saunders had been mentioned as a possible dissenter this month, Haskel’s vote for a cut is a surprise. The BOE also said that if the risks don’t materialize, their previous guidance that limited and gradual hikes may be needed still stands. In their re-branded Monetary Policy Report, officials cut their forecasts for growth and inflation. The projections highlight the impact of the global slowdown, with external factors accounting for most of the downgrade.”
China Says U.S. Agrees to Tariff Rollback If Deal Reached
“China and the U.S. have agreed to roll back tariffs on each other’s goods in phases as they work toward a deal between the two sides, a Ministry of Commerce spokesman said. “In the past two weeks, top negotiators had serious, constructive discussions and agreed to remove the additional tariffs in phases as progress is made on the agreement,” spokesman Gao Feng said Thursday. “If China, U.S. reach a phase-one deal, both sides should roll back existing additional tariffs in the same proportion simultaneously based on the content of the agreement, which is an important condition for reaching the agreement,” Gao said. If confirmed by the U.S., such an understanding could help provide a road-map to a deal de-escalating the trade war that’s cast a shadow over the world economy. China’s key demand since the start of negotiations has been the removal of punitive tariffs imposed by President Donald Trump, which by now apply to the majority of its exports to the U.S. Stocks rallied, with Hong Kong’s Hang Seng Index climbing 0.6%. European shares and U.S. stock futures jumped. The yuan strengthened. “The question right now is what the two sides have actually agreed on — the market’s focus has shifted to how the U.S. may react to China’s tariff remarks tonight or in coming days,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp. “Investors are still cautious.” The two sides continue to negotiate over where and when a “Phase One” deal would be signed. Gao said he had no further information on the location or timing. U.S. locations for a Trump-Xi meeting that had been proposed by the White House, including Iowa and Alaska, have been ruled out, according to a person familiar with the matter. Locations in Asia and Europe are now being considered instead, the person said, asking not to be identified because the discussions aren’t public.”
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