October 15, 2019
Fed’s Bullard Wants Rate Cuts Considered Amid Downside Risks
“Federal Reserve policy maker James Bullard said his colleagues should think about cutting interest rates again to guard against threats to the economy such as the U.S.-China trade dispute. While declining to predict the outcome of this month’s meeting, the Federal Reserve Bank of St. Louis president told Bloomberg Television’s Tom Keene and Francine Lacqua that inflation and inflation expectations have declined and need to be recentered around the 2% target. “We have to consider additional insurance in the meetings ahead,” he said. “We’re generally speaking in good shape. I have emphasized that we face some downside risks from the trade war and I’ve tried to encourage the committee to take action.” Bullard, who has been among the most dovish participants on the Federal Open Market Committee, said he considers the current policy stance to be neutral for the economy and that it could become “slightly accommodative soon.” He acknowledged that his estimate of the neutral level is probably lower than for other people. Fed officials who have cut interest rates at their past two meetings are debating when to stop, according to minutes of the past meeting released last week. Investors expect the FOMC to lower rates by another quarter percentage point at its upcoming Oct. 29-30 meeting, though Chairman Jerome Powell hasn’t given a firm signal that it will act. Bullard was in London for Bloomberg’s monetary and financial policy conference on Tuesday, where he said in prepared remarks that the rising risks to growth may make it more difficult to hit the inflation target. He has argued for several years that persistently lower growth has created a new low-inflation regime where low rates are appropriate. The U.S. economy is slowing this year, as is the global economy.
Boris Johnson’s Brexit Deal on Knife Edge
“U.K. Prime Minister Boris Johnson’s Brexit deal was hanging in the balance Tuesday, after the European Union Presidency said more time was needed before a summit of its leaders this week. Antti Rinne, premier of Finland — which currently has the rotating presidency of the EU — said negotiations may need to continue after the EU Council summit that starts Thursday. “I think there is no time in a practical way and in a legal base to reach an agreement before the Council meeting, I think we need to have more time,” Rinne told reporters in Helsinki. With 16 days before the U.K. is due to leave the EU, Johnson repeatedly pledged to “get Brexit done,” as he spoke in Parliament on Monday following a Queen’s Speech that laid the ground for a general election. He’s refused to ask for a delay to Brexit, even though the Benn Act says he must do so if he hasn’t finalized a deal with both the EU and U.K. Parliament by Oct. 19. The EU plans to decide Wednesday whether there will be a deal for leaders to sign during the Oct. 17-18 summit and has ruled out negotiating during the actual meeting of leaders. Michel Barnier, the EU’s chief Brexit negotiator, said that a deal is still possible this week — but talks remain tough, saying it’s high time to “turn good intentions in to a legal text.” The pound climbed toward a three-month high on his comments. Johnson postponed a meeting of his political cabinet to Wednesday, when it may become clearer whether a Brexit deal will be done this week, and the government will then be able to decide whether to call MPs in for a sitting Saturday.”
China Ties Agriculture Binge to Trump Reducing U.S. Tariffs
“Beijing wants a rollback in tariffs in its trade war with the U.S. before China can feasibly agree to buy as much as $50 billion of American agriculture products that President Donald Trump claims are part of an initial deal, people familiar with the matter said. Chinese officials are willing to start purchasing more U.S. agricultural products as part of the “phase one” trade deal, but it is not likely to reach the $40 billion to $50 billion touted by Trump under current circumstances, the people said. The people asked not to be identified discussing the private negotiations. The condition highlights how far apart Washington and Beijing remain, even after reaching the handshake accord touted by the U.S. last week. Washington had said China, which imported about $20 billion of U.S. farm goods in 2017, agreed to make large agricultural purchases in exchange for relief on upcoming tariffs. Beijing’s position makes a deal more complex than initially described. U.S. equity futures pared gains on the news and the yen extended an advance, as investor optimism waned about prospects for a trade deal between the world’s two largest economies. Under the terms of the partial trade arrangement, Chinese spending on U.S. farm goods will scale to an annual figure of $40 billion to $50 billion over two years, Treasury Secretary Steven Mnuchin said earlier. Beijing has in the past granted waivers so that its companies can buy U.S. farm goods without paying Chinese tariffs. It could do that again to get purchases started, the people said. However, waivers are seen as being impractical for volumes as large as $50 billion a year, one of the people said.”
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