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The U.S. Federal Reserve held interest rates steady on Wednesday but signaled possible rate cuts of as much as half a percentage point over the remainder of this year, as it responded to increased economic uncertainty and a drop in expected inflation.
The U.S. central bank said it “will act as appropriate to sustain” the economic expansion as it approaches the 10-year mark and dropped a promise to be “patient” in adjusting rates. Nearly half its policymakers now show a willingness to lower borrowing costs over the next six months.
While new economic projections showed policymakers’ views of growth and unemployment largely unchanged, they saw headline inflation at just 1.5 percent for the year, down from the 1.8 percent projected in March.
They also expect to miss their 2 percent inflation target next year as well. (Reuters – Continue Reading)
Households benefitted in May from a re-widening of the inflation -- wages gap, as annual CPI fell from 6-month highs seen last month. This despite signs that pipeline inflation could yet nudge consumer prices back up in months to come.
Headline CPI fell back to 2.0pct y/y in May, from 2.1pct in April, matching market consensus. Housing and household services (2.3pct) and transport prices (2.7pct) were the two main positive contributors to inflation growth. Clothing and footwear (-1.6pct) was the only broad group sector that produced a negative contribution in May. On the month, CPI increased by 0.3pct.
Core CPI (excluding food, energy, alcohol & tobacco) also recorded a slowdown, dropping to 1.7pct y/y in May from 1.8pct y/y previously. This print took it further from the Bank of England’s (BoE) 2.0pct inflation target. (LiveSquawk – Continue Reading)
The Bank of England is trying to convince the market it is still on a hiking path while the rest of the G-7 central banks ramp up their rate-cut rhetoric.
The BoE’s Monetary Policy Committee (MPC) is expected to leave its bank rate on hold at 0.75pct on Thursday and maintain its stock of UK government and corporate bond purchases at GBP435bln and GBP10bln respectively.
Despite certainty among analysts that rates will remain on hold at the June meeting, less predictable is the composition of the voting. Consensus is for 9-0 unanimous decision to keep rates on hold, but this belies the belief among observers that a couple of the more hawkish members are ready to signal their desire to see a higher bank rate. External Member Michael Saunders, Chief Economist Andy Haldane, and Deputy Governor Ben Broadbent are seen as the most likely to vote for a hike at the June meeting. (LiveSquawk – Continue Reading)
China is “rolling out the red carpet for the rest of the world” by lowering tariffs with other countries — even as its trade war with the US continues to drag on, according to Peterson Institute for International Economics.
In a little-known fact, Beijing has over the past year lowered duties on goods from countries that compete with America, the think tank said in a recent report. China’s move to lower tariffs on countries other than the U.S. has received little public attention, with much media coverage focusing on what Beijing and Washington say and do to each other.
But in fact, by lowering duties with other trading partners, Beijing has put American firms at a “considerable” disadvantage at a time when US President Donald Trump has repeatedly used tariffs as a way to negotiate with other countries, PIIE said. (CNBC – Continue Reading)
Facing pressure from Wall Street and President Donald Trump, Federal Reserve Chairman Jerome Powell and his colleagues may be running out of patience.
The Federal Open Market Committee is likely to hold interest rates steady on Wednesday while opening the door to a cut -- by dropping its commitment to being “patient’’ in its policy statement, according to Bloomberg survey of economists. The decision will be announced at 2 p.m. and Powell will hold a press conference 30 minutes later.
“It will be a tap dance on the high wire,’’ said Steven Skancke, chief economic adviser for Keel Point Capital in Vienna, Virginia. Powell will stress that the economy is still fundamentally strong and moving in the right direction, but that the Fed will remain vigilant for changes that might arise, Skancke said. (BBG – Continue Reading)
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