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.”


Global carmakers show off SUVs, electrics as China promises reforms

Updated 6 min 25 sec ago
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Global carmakers show off SUVs, electrics as China promises reforms

BEIJING: Global carmakers touted their latest electric and SUV models in Beijing on Wednesday, as China promises a more level playing field in the world’s largest auto market where domestic vehicles are making major inroads.
Industry behemoths like Volkswagen, Daimler, Toyota, Nissan, Ford and others are displaying more than 1,000 models and dozens of concept cars at the Beijing auto show.
Thousands of Chinese auto enthusiasts are expected to wander the halls of the mega exhibition center this week, with electric cars and gas-guzzling sport-utility vehicles grabbing the spotlight.
Nissan presented its first Made in China electric car produced for Chinese consumers, the four-door Sylphy Zero Emission, with a drive range of 338 kilometers.
“The new Sylphy Zero Emission is the next step in our electrification strategy for China,” said Jose Munoz, Nissan’s chief performance officer, adding that the company will unveil 20 electrified models over the next five years.
Auto executives may have their minds on the boiling trade war between Beijing and Washington, with every twist and turn fanning fears that it could bring their plans for China to a screeching halt.
But last week Beijing announced it will liberalize foreign ownership limits in the sector, a move seen as a possible olive branch to President Donald Trump, who has railed against China’s policies in the sector.
China currently restricts foreign auto firms to a maximum 50 percent ownership of joint ventures with local companies.
The changes will end shareholding limits for new energy vehicle firms as soon as this year, followed by commercial vehicles in 2020 and passenger cars in 2022.
Foreign automakers who account for more than half of vehicle sales in China have cautiously welcomed the changes, with VW saying it has “strong” local partners in their joint ventures.
“This will have no impact on our JVs. But the overreaching principle is important. Hopefully, liberalization will as well help for fair competition, and having a level playing field,” Jochem Heizmann, CEO of Volkswagen Group China, told reporters.
The show comes as China’s market hits a transition period — the explosive growth in car sales seen over the last decade slowed last year and data from early this year point to a continued slump for many vehicle types.
Chinese consumers are following their American peers toward SUVs while policymakers in Beijing push an all-electric future.
Ride-sharing is also on the up. On Tuesday Didi — China’s answer to Uber — announced it had joined forces with some 30 partners, including Renault and Volkswagen, to develop vehicles and products specifically tailored for ride-sharing.
Accounting for some 28.9 million car sales last year, the Chinese market could soon match those of the European Union and United States combined.
General Motors sold over four million cars here last year, more than in the US. Volkswagen sold more than three million, roughly six times its home market.
But domestic firms are outselling foreign firms in the SUV segment.
In the electric car market the figures are even more lopsided, as Beijing has heaped money on projects to dominate what it sees as the future.
At the auto show, the domestic upstarts have a separate exhibition hall mostly to themselves — 124 of the 174 electric car models on display are homegrown.
Government subsidies help consumers purchase the green cars, while policymakers are planning a quota system to force producers to build electric vehicles, with plans to one day phase out gas vehicles altogether.
Volkswagen announced Tuesday investments of €15 billion in electric and autonomous vehicles in China by 2022.
“China is our second home,” recently installed chief executive Herbert Diess said at a Beijing press conference, with its market set to be “the biggest” worldwide for electric cars.