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Real Time Economics: With the Fed On Hold, Is It Time to Worry About the Economy?
Real Time Economics
Good morning. Jeff Sparshott here to
take you through key developments in the global economy. Send us your
questions, comments and suggestions by replying to this email.
You're Not Going Anywhere
The new message from the Federal Reserve: We're not likely to raise interest rates this year
and may be nearly finished with rate increases altogether. “It may be
some time before the outlook for jobs and inflation calls clearly for a
change in policy,” Fed Chairman Jerome Powell said after the central
bank’s two-day meeting. As recently as December, the Fed had planned to
keep raising rates to keep the economy from overheating. Now, a majority
of officials see just one more increase in the next three years, Nick
Running Low on Ammo
The Federal Reserve now believes its monetary policy is back to normal. That should worry you, Greg Ip writes.
The Fed can be satisfied with what it has achieved. The economy is expected to grow solidly, unemployment is low and inflation this year should hit central bank's 2% target.
But this new “normal” stance of monetary policy is extremely stimulative.
The federal-funds rate is just 0.25% when adjusted for long-term
expected inflation. By comparison, the real rate was 2.75% at the end of
the Fed’s last tightening cycle in 2006, and 4% at the end of the prior
cycle in 2000.
Such expansive monetary policy
suggests powerful underlying forces such as slow-growing populations
and diminished investment opportunities are weighing on growth and
inflation. And should the economy
stumble again, the Fed won’t have much ammunition with which to respond.
What to Watch Today
The Bank of England releases a policy statement at 8:00 a.m. ET.
U.S. jobless claims are expected to fall to 225,000 from 229,000 the prior week. (8:30 a.m. ET)
The Philadelphia Fed's manufacturing survey for March is expected to rise to 5.0 from -4.1 a month earlier. (8:30 a.m. ET)
The Conference Board's leading economic index for February is expected to rise 0.1%. (10 a.m. ET)
Trump joins CEOs from America's biggest companies at the Business Roundtable's quarterly meeting. (11 a.m. ET)
Japan's consumer-price index for February is out at 7:30 p.m. ET.
You Must Believe In Spring
Did the Fed overreact? Fed policy makers decided to leave rates on hold Wednesday, which was no surprise. The degree of their dovishness was.
Sure, the economy has looked weak after being buffeted by the
government shutdown, unusually inclement weather and the souring of
sentiment that came with the stock market’s selloff last year. But the
weakness seems temporary. Economists polled by Macroeconomic Advisers
expect gross domestic product will grow at just a 1.1% annual rate in
the first quarter, but that it will bounce up to 2.7% in the second,
Justin Lahart writes.
Stop, Go ... Yield
The 10-year Treasury yield tumbled to its lowest level in more than a year
after the Fed signaled it was unlikely to raise interest rates this
year. Treasury yields typically rise when investors are confident about
the economic outlook and retreat when growth prospects look more murky,
Akane Otani reports. The 10-year is used as a reference for everything
from auto loans to mortgages.
BMW said global economic and trade pressures
as well as high investment costs would contribute to a significant
decrease in profit this year. The German automaker had seemed to be
navigating headwinds from the U.S.-China trade dispute, foreign-exchange
rates and raw material prices. But Nicolas Peter, BMW’s finance chief,
said these issues have hit the company hard. Another wild card is the
Brexit outcome for the U.K., where BMW has operations, William Boston
“We are already seeing a slowdown in the global economy,” Mr. Peter said. “If conditions deteriorate further, effects on our
guidance cannot be ruled out.”
Trump: China Tariffs Staying Put
President Trump said the U.S. expected to keep tariffs on Chinese goods in place for a “substantial period of time,”
even after a deal. “We have to make sure that if we do the deal with
China that China lives by the deal,“ the president told reporters. The
details of a tariff rollback are the subject of ongoing negotiations, as
are questions about enforcement, technology transfer, cross-border data
flows and other issues. High-level talks resume next week and the two
sides hope to wrap up a deal by the end of April, Bob Davis and Rebecca
The iPhone, Amazon and Uber Effect
New data suggest the latest technology boom is starting to give the economy a small jolt. Multifactor productivity grew 1% last year,
the strongest gain since 2010. The figure is a rough measure of
innovation—how much more companies are able to produce by coming up with
better ways to use existing resources, rather than by adding more
workers or machines, Josh Mitchell reports.
more closely watched measure of how much U.S. workers produce per
hour—is the biggest factor in the economy’s ability to raise Americans’
living standards. When companies can produce
more with less, profits grow and workers, over the long run, benefit
from lower prices, higher wages and more job opportunities.
Ministry of Silly Walks
The U.K. asked the European Union to delay its departure from the bloc until June 30.
But EU leaders are likely to grant such a short extension only if
British Prime Minister Theresa May can win backing next week from the
U.K. Parliament for her Brexit deal, Max Colchester and Laurence Norman
report. Mrs. May’s request keeps alive the possibility that Britain
could still spill out of the EU without a withdrawal deal at the end of
U.K. consumers don't seem bothered by Brexit. British retail sales rose 0.4% on the month in February after increasing 0.9% in January, relatively strong gains that should
help fuel growth in the first quarter, Jason Douglas reports.
Quote of the Day
It’s a great time for us to be patient and watch and wait and see how things evolve.