Fed Blink Resets 2019 as Doves Sweep Global Central Banks

(Bloomberg) -- The Federal Reserve blinked, bowing to fears of a global economic slowdown and jittery investors by taking interest rate hikes off the table for now.

In a week billed as a pivotal health checkup for global growth, Fed Chairman Jerome Powell didn’t disappoint as he indicated even greater willingness to be patient before tightening monetary policy again. Stocks soared and Treasury yields fell.

Elsewhere, there was more bad news for the European economy, Venezuela’s crisis deepened and China and U.S. officials again talked trade. 

Here’s our weekly wrap of what’s going on in the world economy.

The Fed Show

Fed officials all but threw in the towel on 2019 rate hikes with a unanimous vote to hold policy, emphasizing caution both on that tightening path and on efforts to reduce the still-bloated balance sheet. Powell reiterated that the data will dictate a hike or cut. And he highlighted a key dichotomy, blaming global economic and financial developments for the swing in tone while playing up U.S. economic resilience. The test for Powell and the markets will come as soon as March if Fed officials continue to anticipate higher rates this year. Other central banks are also now under pressure to turn dovish although European Central Bank President Mario warded off any calls for further stimulus.

Fed Blink Resets 2019 as Doves Sweep Global Central Banks

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Wobbly World

Trade and output data roundly took a beating, and more gauges are ready to flash red on our dashboard. In the euro area, new data showed it looks sluggish with Italy sliding into recession. Germany barely grew and slashed its growth forecast. The Brexit drag remains with the way forward murky.

China’s still the big party pooper. The factory gauge there wasn’t as awful as projected, but the rest of the front page is bad news: We’re seeing the end of front-loading, provinces are cutting economic growth goals, and industrial profits shrank. It’s all pulling down exports across the trade-reliant region, and purchasing managers’ gauges are all falling. Key companies are feeling China’s pain, too: Caterpillar and Nvidia are among those reporting sad earnings. Elsewhere in Asia, Japan and South Korea had limp factory output and India’s seeing waning demand. Meanwhile, the situation in Venezuela has split the world’s allegiances

Fed Blink Resets 2019 as Doves Sweep Global Central Banks

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The Spat

President Donald Trump can beat his chest about winning over the Fed, but tallying victory in trade talks is proving far more difficult, even if he and President Xi Jinping are exchanging niceties and the Treasury boss plays the ever-optimist. The drama heated up with legal charges slapped on Huawei, and a protester scuffle in D.C. made for a fitting backdrop. There are three ways this round of talks could go. More broadly, happy news on the U.S.-China front could depend on Trump’s desperation to score some incremental political wins, as the government’s on the brink of another unpopular and costly shutdown. And there’s some fresh worry over U.S. debt and its path.

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Weekend Reading

Chart of the Week

Fed Blink Resets 2019 as Doves Sweep Global Central Banks

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