US Fed leans toward a cut, but don’t expect one this week

Jerome Powell, chairman of the Federal Reserve. Financial markets are watching closely for a change of tone from the central bank. (AFP)
Updated 17 June 2019

US Fed leans toward a cut, but don’t expect one this week

  • The New York Fed puts the odds of a recession in the coming year at about one in three — the highest since May 2008

WASHINGTON: As President Donald Trump’s trade wars drag on, and the global economy weakens, the US Federal Reserve is inching closer to its first interest rate cut in more than a decade.

But investors hoping to see the benchmark lending rate begin to drop this week are almost certain to be disappointed.

After preaching patience and leaving rates untouched since December, financial markets will be watching closely for a change of tone from the central bank and its chairman, Jerome Powell, and a sign the Fed is ready to step in to boost the economy.

Policymakers will hold two days of deliberations starting Tuesday, and for now are expected to keep the key interest rate in a range of 2.25-2.5 percent.

The Fed raised rates nine times in the last three years as the economy recovered and put millions of Americans back to work, and officials repeatedly said they expected the growth to continue.

But Trump’s aggressive tariff policies have shaken confidence, and some central bankers have begun to acknowledge a chill in the air.

The consensus is that the Fed is poised to switch directions and begin cutting rates. The only question is when.

James Bullard, president of the Fed’s St. Louis regional branch, was the first to make the move, saying early this month that a rate cut could be needed “soon.”

Just days later, Powell himself opened the door to a possible move, saying the Fed would do whatever necessary “to sustain the expansion” — a noticeable shift in posture.

Then Fed Vice Chair Richard Clarida added to the mix the possibility of “insurance cuts” — preemptively lowering rates just in case the economic outlook starts to deteriorate.

Wall Street welcomed this dovish talk, which drove a recovery in stocks after the rout in May. Futures markets as of Friday were forecasting as many as three cuts for this year, in July, September and December.

“In the old days, we’d have used the language the Fed has an easing bias,” John Ryding, chief economist at RDQ Economics, told AFP.

“They are predisposed to cut.”

Since the Fed’s last announcement at the end of May, the world’s largest economy has continued to send mixed signals.

But beyond the strictly economic factors are the political ones as Trump continues to flout tradition, repeatedly hammering Powell and the Fed on Twitter and in public comments for undermining his bid to supercharge the US economy.

In an interview with ABC, Trump acknowledged that his vocal criticism puts Powell in a box but said he would persist because he disagrees “entirely” with the Fed’s policy. “I’m gonna do it anyway because I’ve waited long enough,” Trump said in the interview due to be aired Sunday.

Powell steadfastly repeated that central bankers pay no attention to political pressure. But criticism of the independent Fed can backfire, pushing officials to resist Trump’s preferred course in order to prove they cannot be browbeaten — even if a rate cut is justified.

In the absence of inflation pressures, the Fed has room to cut interest rates. But the timing remains in question, especially as most policymakers have said they expect the economy to pick up later this year.

Surveys of consumer confidence and business activity are running hot, unemployment is still near 50-year lows, and consumer spending continues apace.

But elsewhere the news has not been so good. Economic growth in the second quarter could be half the pace of the first, the manufacturing sector has continued to weaken and business investment has declined.

And Trump warned he could jack up tariffs on another $300 billion in Chinese goods, something that would no doubt send shockwaves through the global economy.

At the same time, recession indicators are flashing. The New York Fed puts the odds of a recession in the coming year at about one in three — the highest since May 2008. Oxford Economics said there is a 53 percent chance in the next six months, but warns that markets may be “excessively pessimistic.”

However, many of these readings are noisy and could reverse course in the coming months.

This leaves the Fed walking a tricky line, showing a willingness to cut rates if needed without committing to it.

“I think that Fed officials have done the right thing,” Kathy Bostjancic, chief US financial economist at Oxford Economics, told AFP, noting there are no “hard data” yet that clearly call for a cut.

“They essentially said they were listening to the markets and opened the door to a rate cut without promising one.”


First Abu Dhabi Bank and Egypt Post launch services drive

Updated 23 min 1 sec ago

First Abu Dhabi Bank and Egypt Post launch services drive

  • The First Abu Dhabi Bank is the largest bank in the United Arab Emirates

CAIRO: First Abu Dhabi Bank in Egypt has signed a memorandum of understanding with Egypt Post to boost financial inclusion in society and improve customer services.

The strategy is in line with the country’s plan to improve and develop communication channels with citizens and improve access to basic services.

The agreement was signed by Mohamed Abbas Fayed, CEO of First Abu Dhabi Bank, and Sherif Farouk, Chairman of the National Postal Authority, Egypt Post.

A statement issued by First Abu Dhabi Bank said the memorandum of understanding will improve access to post offices, through which foreign remittances, salaries and pensions can be received and disbursed by Egyptians at home and abroad.

The partnership will also help the bank provide notification and collection services to customers, payments through its mobile smart wallet, services for collecting and paying customer dues, exchange and collection services for small and medium enterprises, credit services and contractual postal services.

The statement added that the agreement will build a culture of financial inclusion and awareness, while also reducing the cost of banking operations.

Farouk said that the memorandum will allow the authority to handle remittances of overseas Egyptians through its 4,000 Egypt Post branches across the country.

Fayed said the partnership is part of the bank’s strategy to boost access to customer services, whether individuals or companies.

He added that money transfers from outside Egypt are one of the most important sources of foreign currency for the country. Easing money transfers for Egyptians working abroad with First Abu Dhabi Bank via the National Postal Authority will increase the amount of remittance exchange outlets and transfers.

The First Abu Dhabi Bank is the largest bank in the United Arab Emirates and one of the biggest financial institutions in the world. Its network of branches are in 19 countries around the world, including Egypt.