US Fed to hike interest rates for first time in 2018

Federal Reserve Chairman Jerome Powell takes his seat before making the semiannual monetary policy report to the Senate Banking Committee on Capitol Hill in Washington. (AP)
Updated 21 March 2018
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US Fed to hike interest rates for first time in 2018

WASHINGTON: The Federal Reserve is widely expected to announce Wednesday the first of at least three interest rate hikes this year as the central bank works to head off inflation.
Though US central bankers admitted to being befuddled by the absence of inflation last year despite the economic recovery and strong job market, they now see signs of rising price pressures.
Despite a shutdown of federal government offices in Washington due to a snowstorm blanketing the nation’s capital, the Fed said on Twitter it would continue its meeting “as planned.” Policymakers reconvened at 9:00 am for the second day of the meeting.
So far, the Fed has been moving gradually to tighten monetary policy to prevent the world’s largest economy from overheating.
But a host of factors — including the massive tax cuts enacted by Congress, a weaker dollar and robust job creation — have markets on the lookout for signs the Fed could become more aggressive, and boost rates four times this year instead of three.
Following the Fed’s decision, newly-installed Chairman Jerome Powell will hold his first quarterly press conference and his words will be closely scrutinized for hints about the central bank’s thinking and the likely pace of interest rate increases.
Ian Shepherdson of Pantheon Macroeconomics said markets already accepted the coming Fed rate hike, so the comments and the updated quarterly forecasts will be of more interest.
“After a widely-anticipated central bank policy move, what really matters is what policymakers say about their actions and intentions,” he said in a client note.
But Powell is likely to avoid sending ripples through markets by criticizing the $1.5 trillion tax cuts, even though they are expected to balloon the government deficit and stimulate an economy already at full employment, Shepherdson said.
“No matter how hard the press push him, he’s not going to say that the fiscal easing is a mistake,” he said.
First-quarter economic forecasts have dimmed in recent weeks on a batch of mixed economic data, including a widening trade gap, weak sales of housing, autos and durable goods, as well as soft retail and construction spending.
But with very strong jobs markets, record business and consumer sentiment, low unemployment and signs of rising inflation, even dovish Fed officials have indicated their support for tighter monetary policy.
Meanwhile, industry groups and markets have been badly rattled this month by President Donald Trump’s sudden decision to impose punishing duties on steel and aluminum imports.
Tariffs could raise prices for key inputs and consumer products, and spark tit-for-tat retaliatory measures by trading partners, factors that move the inflation needle higher.
But all of this is too far down the road for the Fed to comment on this week, said Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics.
“If I were them, I would say very little about it now,” Gagnon told AFP.
“I think they’ll probably ask their staffs about it but won’t want to talk about it publicly.”


Davos organizer WEF warns of growing risk of cyberattacks in Gulf

Updated 29 min 24 sec ago
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Davos organizer WEF warns of growing risk of cyberattacks in Gulf

  • Saudi Arabia, the UAE and Qatar particularly vulnerable
  • John Drzik spoke to Arab News about the state of cybersecurity in the Gulf

LONDON: The World Economic Forum (WEF) has warned of the growing possibility of cyberattacks in the Gulf — with Saudi Arabia, the UAE and Qatar particularly vulnerable.

Cyberattacks were ranked as the second most important risk — after an “energy shock” — in the three Gulf states, according to the WEF’s flagship Global Risks Report 2019.

The report was released ahead of the WEF’s annual forum in Davos, Switzerland, which starts on Tuesday.

In an interview with Arab News, John Drzik, president of global risk and digital at professional services firm Marsh & McLennan said: “The risk of cyberattacks on critical infrastructure such as power centers and water plants is moving up the agenda in the Middle East, and in the Gulf in particular.”

Drzik was speaking on the sidelines of a London summit where WEF unveiled the report, which was compiled in partnership with Marsh and Zurich Insurance.

“Cyberattacks are a growing concern as the regional economy becomes more sophisticated,” he said.

“Critical infrastructure means centers where disablement could affect an entire society — for instance an attack on an electric grid.”

Countries needed to “upgrade to reflect the change in the cyber risk environment,” he added.

The WEF report incorporated the results of a survey taken from about 1,000 experts and decision makers.

The top three risks for the Middle East and Africa as a whole were found to be an energy price shock, unemployment or underemployment, and terrorist attacks.

Worries about an oil price shock were said to be particularly pronounced in countries where government spending was rising, said WEF. This group includes Saudi Arabia, which the IMF estimated in May 2018 had seen its fiscal breakeven price for oil — that is, the price required to balance the national budget — rise to $88 a barrel, 26 percent above the IMF’s October 2017 estimate, and also higher than the country’s medium-term oil-price target of $70–$80.

But that disclosure needed to be balanced with the fact that risk of “fiscal crises” dropped sharply in the WEF survey rankings, from first position last year to fifth in 2018.

The report said: “Oil prices increased substantially between our 2017 and 2018 surveys, from around $50 to $75. This represents a significant fillip for the fiscal position of the region’s oil producers, with the IMF estimating that each $10 increase in oil prices should feed through to an improvement on the fiscal balance of 3 percentage points of GDP.”

At national level, this risk of “unemployment and underemployment” ranked highly in Bahrain, Egypt, Morocco, Oman and Tunisia.
“Unemployment is a pressing issue in the region, particularly for the rapidly expanding young population: Youth unemployment averages around 25 percent and is close to 50 percent in Oman,” said the report.

Other countries attaching high prominence to domestic and regional fractures in the survey were Tunisia, with “profound
social instability” ranked first, and Algeria, where respondents ranked “failure of regional and global governance” first.

Looking at the global picture, WEF warned that weakened international co-operation was damaging the collective will to confront key issues such as climate change and environmental degradation.