atans1

Fed chair: Not much Fed can do right now to help world economy

In Economy, Financial competency on 25/08/2019 at 10:55 am

In addition to the Fed’s focus on balancing inflation against employment, Federal Reserve chair Jerome Powell is dealing with two other sources of stress. Investors have been critical of how he communicates policy and The Donald has been demanding, more aggressive by the day, for more monetary accommodation via interest rate cuts and quantitative easing.

Powell has juz given Trump the finger.

Powell has now called the current era of Fed history the “emerging new normal”, and said it offered three challenges: low inflation, financial risks, and how the Fed can support economic growth when interest rates are already so low. The Fed, he added, “faces heightened risks of lengthy, difficult-to-escape periods in which our policy interest rate is pinned near zero.”

How to support economic growth when interest rates are already so low is an important question for central bankers all over the world. They had gathered in Jackson Hole, Wyoming, to among other things, discuss whether policy rates have any effect on the real economy.

With his historical timeline, Mr Powell offered an answer to both. The current era of slower growth, downward pressure on inflation, and lower interest rates is the consequence of long-term trends. And there is not much the Fed can do right now to help.

It’s a very pessimistic (and hawkish: nothing much can be done) speech.

Here’s how the Economist put it

He spoke of the difficulty the Fed faced in assessing and responding to Mr Trump’s trade war. And he mentioned that if interest rates globally remain near zero, then central banks may need new policies. But on the subject of the moment—what the Fed will do next—he gave little away. “We will act as appropriate to sustain the expansion, with a strong labour market and inflation near its symmetric 2% objective,” he said.

Mr Powell may have felt he could say little more, given the disagreement within the Fed. But both the recent minutes and the speech today devoted more words to the possibility that low rates might contribute to financial instability than has recently been the norm in the Fed’s discussions. That may be a sign of more determined opposition to additional easing than recognised hitherto.

https://www.economist.com/finance-and-economics/2019/08/23/now-donald-trump-calls-the-feds-chairman-an-enemy

And btw, Trump’s not that dumb

At least one observer felt the hawkish overtones of the speech to be crystal clear. “As usual, the Fed did NOTHING!” Mr Trump tweeted after Mr Powell’s remarks. “My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?” The president thus cast a longer shadow than the Tetons over the day’s events.

https://www.economist.com/finance-and-economics/2019/08/23/now-donald-trump-calls-the-feds-chairman-an-enemy

How all this impacts us:

S’pore: the canary in the coalmine/ Is the ground sweet for the PAP?

Latest “bad” economic data is really “gd” news for PAP

“Only cold spell coming, but not Winter,” says Heng

Ground is not sweet economically/ Authorities may have to do something but no gd options

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