| I'm Chris Anstey, a senior economics editor in Boston, and today we're looking at the new Fed policy outlook. Send us feedback and tips to ecodaily@bloomberg.net or get in touch on X via @economics. And if you aren't yet signed up to receive this newsletter, you can do so here. - China's 2024 government spending will have the "necessary intensity."
- Euro-area inflation slowed less than expected, clouding the timeline for ECB interest-rate cuts.
- Coming up: The Bank of England is set to stay on hold when its decision is announced at 12 p.m. in London. Investors will be eying its next move.
A former Federal Reserve chief was once credited with referring to low rates as like a punch bowl at a party. Current Chair Jerome Powell on Wednesday signaled he's not even ready to send out the invites. Countering traders' bets that the Fed will start lowering rates next month, Powell in his press briefing said "I don't think it is likely that the committee will reach a level of confidence by the time of the March meeting." The Fed did make clear, though, that it's now in a different place than it had been. In its policy statement, the rate-setting panel removed an explicit reference to potential rate hikes. And policymakers indicated that "greater confidence that inflation is moving sustainably toward 2%" would be required to lower rates. The result on Wall Street: the worst selloff in equities on a Fed day since March last year, when the regional banking crisis was in full swing. (Perhaps not coincidentally, Wednesday also saw troubling news about a regional lender.) As for how long it will take before the Fed gets comfortable inflation is whipped, Powell said, "I will not put a number on it." He also alluded to disagreement in the committee: "There is a wide disparity, a healthy disparity of views" on the path for rates. Economists at Goldman Sachs, who pushed back their forecast for the first cut to May from March, also referenced that range of opinions. "We think that the best explanation for today's meeting is that FOMC participants with a range of different views have compromised on likely starting a bit later," economist David Mericle wrote in a note. While Powell late last year was highlighting the six-month annualized rate of the Fed's preferred inflation gauge, on Wednesday he switched to note the year-on-year rate. That might not be coincidental: That first measure is now 1.9% — in other words, below the Fed's 2% target — while the second one is 2.9%, or still "elevated," in the committee's assessment. The thing is, the Fed has the luxury of patience at the moment thanks to the economy doing well without any help from rate cuts. The unemployment rate remains historically low at below 4% and there are still more than 9 million jobs available. "If the economy wasn't as strong as it was, the Fed would be much more inclined to cut rates," said former New York Fed President William Dudley, a Bloomberg Opinion contributor. "If they start a little bit later, it's probably not going to have much consequence on the economic outlook." - A private gauge of China's factory activity expanded for a third month in January, contrasting with weakness in official data that has spurred additional calls for government support.
- The IMF's executive board approved a $4.7 billion disbursement to the government of Argentine President Javier Milei. Meanwhile, an IMF mission to Egypt has extended its visit until the end of the week.
- A proposed rewriting of the Philippines' nearly 40-year-old Constitution has thrown the country's two most powerful political dynasties into an open conflict.
- Sweden's Riksbank held rates steady and said it may lower borrowing costs as soon as in the first half of the year. Three of Latin America's key economies did so on Wednesday and said they plan to keep easing.
- India's government will increase infrastructure spending by 11% in the coming fiscal year, boost housing and other services while still curbing its budget deficit, the finance minister said.
- Italian Premier Giorgia Meloni is counting on the same people who propelled her to power to keep her country solvent: its citizens.
The widening of the US fiscal deficit to historically large levels despite robust economic conditions threatens to undercut productivity — a key ingredient to long-term economic growth — by "crowding out" private-sector investment, according to Gavekal Research. Issuance of federal debt has surged to fund the deficit, while corporate sales of bonds and shares were muted last year, meaning "the share of capital flowing to the US government has grown," Tan Kai Xian, a specialist in quantitative finance at Gavekal, wrote in a note Wednesday. Looking at capital spending, US private sector investment only rose 1% last quarter from a year before after stripping out the manufacturing sector — which has been supported by a number of Biden administration packages, including the Inflation Reduction Act. "Crowding out will weigh on the US private sector and crimp productivity growth," Tan concluded. Put it in the calendar for next year: Read more reactions on X | 
No comments:
Post a Comment