Pedestrians walk past the Bank of England (BOE) in the City of London (Photographer: Chris Ratcliffe/Bloomberg)

Central Banks Sounding More Cautious as Fed Holds: Economy Week

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The Federal Reserve took a pass this week on raising interest rates while appearing ready as ever to pull the trigger amid quickening inflation. Central bankers in other parts of the world though are showing signs of cold feet on tightening monetary policy as they await more convincing price growth and hotter demand.

The outlook for growth and central banks is among the topics in our weekly wrap up of what’s going on in the world economy. 

Central Banks

The Fed headlined the week with its decision Wednesday in Washington to hold pat, for now, on further “gradual” interest-rate increases while flagging that inflation will keep them on pace for more hikes in 2018 – even if a $200 billion asset manager warns against it. Argentina hiked interest rates for a third time in a week to stem a selloff in the peso, but without a realistic inflation target and a firm fiscal path, it’s just one battle in an extended war. The Bank of England, despite getting some jitters about its own hiking, probably will still go ahead with tightening this year, Bloomberg Economics analysis shows, just don’t expect a move next week. The European Central Bank won some validation for its more guarded tone of late, as inflation in the euro-area unexpectedly slowed. Bank Indonesia is mulling a rate hike to defend the weak rupiah while it buys more bonds amid a yield surge, and the Philippine’s central bank chief gave further clues he is preparing to raise interest rates.  A run-up in oil prices is putting pressure on the Reserve Bank of India for an early tightening move. Meanwhile, Australia and New Zealand are preaching more patience, even as Kiwi unemployment declined to a nine-year low.

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Global Economy

Happy second-longest expansion to the U.S. economy, which needs to coast until July 2019 to beat the 120-month streak of the 1990s’ glory days. The unemployment rate just dipped below 4 percent for the first time in 17 years, consumer spending has picked up, inflation has hit the Fed’s goal, and the Treasury secretary sees no problem with record U.S. borrowing. The world’s No. 2 economy also is allaying fears with robust Chinese factory surveys reported this week. The mood is less upbeat in Europe, where growth is cooling amid a four-month streak of declines in demand at factories, the U.K. economy isn’t faring much better, and Brexit-related EU budget debates rage on. Still, economists at Goldman Sachs and JPMorgan Chase see a rebound in global growth coming.

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Trade Skirmishes

Two days of U.S.-China trade discussions ended in Beijing with an agreement to keep on talking, and little else. Meanwhile, U.S. officials are sounding more confident that a Nafta deal could be sealed this month. The U.S. granted reprieves on its threatened steel tariffs through at least June 1 as it aims to revise trade relationships with the European Union, Mexico and Canada, though Brussels is warning of enhanced market uncertainty due to the delay. U.S. factory managers are in a similarly sour mood about the trade landscape as prices pick up amid tighter supply and robust demand. Economists and trade associations have continued their warnings that U.S. trade policy could hurt U.S. agricultural workers and even mimic conditions during the Great Depression.

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Weekend Reading

Chart of the Week

 

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