September 19, 2019
Powell Stresses Solid U.S. Outlook After Fed Cuts Rates Again
“Federal Reserve policy makers lowered their main interest rate for a second time this year and Chairman Jerome Powell said that “moderate” policy moves should be sufficient to sustain the U.S. expansion. “We took this step to help keep the U.S. economy strong in the face of some notable developments and to provide insurance against ongoing risks,” Powell told reporters Wednesday after the Fed cut its benchmark rate by a quarter percentage point to a range of 1.75% to 2%. “Weakness in global growth and trade policy have weighed on the economy.” Treasury yields rose, the dollar rallied and U.S. stocks reversed earlier losses after Powell made clear that policy makers did not expect to need deep rate cuts. The chairman has been under relentless public pressure to reduce rates from President Donald Trump, who returned to Twitter within minutes of the FOMC’s announcement to say policy makers had failed again by not cutting more and had “No ‘guts,’ no sense, no vision!” ”
Banks Don’t Want Draghi’s Free Money as ECB Loans Fall Flat
“The European Central Bank’s latest offer of free cash to lenders attracted little interest on Thursday, in a sign of just how much liquidity is already sloshing around the financial system. An offer for three-year loans — at a rate that starts at zero and could fall as low as the deposit rate, currently minus 0.5% — was taken up by 28 banks for a total of just 3.4 billion euros ($3.8 billion), well below predictions of 20-100 billion euros. The loans are part of a stimulus package by the ECB president to boost economic growth and inflation. But European lenders have little trouble accessing funds following years of loose monetary policy and some are even keen to turn away deposits to avoid charges from the ECB’s negative interest rates, which Draghi pushed even further below zero this month. His package prompted unprecedented opposition inside the ECB, with the euro region’s biggest economies criticizing a plan to resume bond purchases. Negative rates have also been contentious, with top finance executives warning of damage to the financial system in the long run. Banks have said they want to see higher rates to increase the profitability of their lending businesses, but that’s a distant prospect given Europe’s ailing economy.”
China’s Mighty Trade Engine Is Stalling as Negotiators Seek Deal
“Leading indicators of China’s trade performance are pointing to a bad situation becoming worse, adding pressure on negotiators meeting with U.S. counterparts this week to inch toward a deal that would stave off the arrival of yet more tariffs. China’s exports contracted last month and shipments to the U.S. plunged. The tariffs President Donald Trump added this month are set to bite and his administration is preparing to pile on yet more duties in October, and more again in December if there is no breakthrough in the negotiations. Liao Min, deputy director of the Office of the Central Commission for Financial and Economic Affairs and vice finance minister, is leading the delegation that aims to prepare for a meeting of top negotiators in October. So-called front-loading of shipments ahead of tariffs may help to mitigate the impact on China in the short-term but economists surveyed by Bloomberg News still see export growth slowing to 0.3% this quarter from a year earlier, flat-lining in the last three months of the year and bottoming out at minus 0.8% in the first quarter of 2020. “We expect the outlook for global demand, and thus China’s exports, to remain subdued in the coming months,” said Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong. “I don’t think any possible front-loading, or Christmas, is going to change that picture substantially.” ”
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