People exercise as the sun rises at Jingshan Park in Beijing, China. (Photographer: Tomohiro Ohsumi/Bloomberg)

New Tariffs and Central Bank Sheriffs Drive Economies: Eco Week

(Bloomberg) -- It’s been a big week for the world economy.

President Donald Trump imposed the tariffs on China he’s long threatened, the People’s Bank of China got a new governor and the Federal Reserve delivered its first interest rate increase of the Jerome Powell era.

These events dominate our weekly wrap up of what’s happening in economies around the globe:

Tariff Time

Trump took the biggest economic gamble of his presidency by ordering at least $50 billion of levies on Chinese goods, drawing immediate retaliation from Beijing. Stocks plunged, led by Boeing Co. amid concerns a trade war is brewing and U.S. exporters and consumers may end up being hurt. Trump argued his aim is to level the playing field after years of intellectual property theft by China. The decision marks the end of decades of constructive engagement with Beijing.

Friday is also set to see the U.S. introduce tariffs on steel and aluminum although it intends to initially shield a list of allies. That may not be able to pacify Group of 20 finance chiefs who used talks in Argentina to warn against protectionism.

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Yi Gang Show

President Xi Jinping went with the continuity candidate in selecting Yi  Gang to run the PBOC. The new governor first joined the central bank in 1997 and served as deputy since 2015 to the now departed Zhou Xiaochuan. Yi immediately promised to keep to Zhou’s reform path and will face the challenge of cleaning up the nation’s finances without crashing the world’s second-largest economy. But he ultimately knows that the state will be in charge and in that regard, investors will need to closely monitor Liu He, Xi’s economic adviser who was elevated to Vice Premier status. Three days after Yi’s appointment, the PBOC increased the cost of short-term loans to commercial lenders.

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Powell Position

Powell chaired his first meeting of the Fed’s policy-setting committee as it boosted interest rates for the first time this year. It also forecast a steeper path of hikes in 2019 and 2020, citing an improving economic outlook, yet continued to project a total of three increases this year. Powell indicated in setting policy he will be driven more by the behavior of the economy than by the models and theories which motivated his predecessors. For now, Bloomberg economist Carl Riccadonna reckons the Fed is “proceeding with a similar sense of gradual deliberation” as Janet Yellen’s.

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Central Banks Elsewhere

The Bank of England moved closer to raising interest rates as early as May after keeping its benchmark at 0.5 percent this week.

Kuwait tightened policy for the first time in a year to follow the Fed. Brazil’s central bank cut its benchmark to a record low and signaled it could go deeper and Russia also reduced rates, while New Zealand indicated no plan to raise its key rate any time soon. Chile, Indonesia and the Philippines remained on hold as did Colombia, one the world’s least predictable central banks. 

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Weekend Reads

Chart of the Week

 

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