Fed policymakers broadly see eye to eye on 2020 outlook

Cleveland Federal Reserve Bank President Loretta Mester poses during an interview on the sidelines of the American Economic Association’s annual meeting in San Diego, California. (Reuters)
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Updated 05 January 2020

Fed policymakers broadly see eye to eye on 2020 outlook

  • in San Diego Cleveland Federal Reserve Bank President Loretta Mester said: “I think most of us think that we are well-calibrated now”

SAN DIEGO: Federal Reserve policymakers who last year were frequently at odds over where to set US borrowing costs opened 2020 telegraphing confidence in the state of the economy and signaling broad agreement that monetary policy is right where it should be.
In their first remarks in the new year, heads of several regional Fed banks noted a strong job market, robust consumer spending and a rising optimism for a resolution to the trade tensions that had nicked growth in the second half of 2019.
Interest rates were cut three times last year to bring the Fed’s target to a range of 1.5 percent to 1.75 percent and to ensure global headwinds didn’t short-circuit the longest US economic expansion in history. In an interview on the sidelines of an economics conference.
in San Diego Cleveland Federal Reserve Bank President Loretta Mester said: “I think most of us think that we are well-calibrated now.”
Based on forecasts of her fellow policymakers on the Fed’s rate-setting committee, she said: “The committee thinks a flat path (for interest rates) ... is appropriate.”
Mester had been among a handful of Fed policymakers who argued last year that the US economy did not need lower rates to continue to grow.
And while she and others noted the outlook could change if an outside shock such as this week’s dramatic escalation of tensions between the United States and Iran knocks the US economy off its current trajectory, most appear happy to leave rates where they are.
“The economy is still healthy,” Richmond Fed President Thomas Barkin said earlier on Friday in Baltimore. Like Mester, Barkin had been skeptical of last year’s rate cuts. “I’m encouraged by recent jobs reports and the pace of holiday spending,” with last year’s round of three Fed rate cuts helping prop up demand for homes, cars and other big-ticket consumer items, Barkin added.

FASTFACT

The US Federal Reserve cut interest rates three times last year.

It was an assessment also shared by Chicago Federal Reserve Bank President Charles Evans  who, unlike Barkin and Mester, supported last year’s interest-rate cuts. In a CNBC interview, Evans predicted US economic growth this year would chug along at a rate of 2 percent to 2.25 percent, roughly the pace of expansion in the second half of last year.

2019 rate cuts
The clutch of comments on Friday shows how comfortable most Fed policymakers are that the 2019 rate cuts will prove a sufficient buffer against the risks that spurred them into providing the stimulus, including slowing global growth and escalating trade tensions.
Indeed, after a fractious year for the Fed, which saw split votes on each of the rate cuts, officials agreed unanimously in their final policy meeting of 2019 to leave rates unchanged. Moreover, they agreed rates were likely to stay on hold for “a time” as long as the economy remains on track, minutes of the Dec. 10-11 meeting released on Friday showed.
“Participants judged that it would be appropriate to maintain the target range for the federal funds rate,” according to the minutes.
Even with their newfound consensus over the outlook for rates and the economy, there were some signs of tensions that could divide Fed policymakers as the year progresses.
Inflation has been running below the Fed’s 2 percent target, and that is worrying some policymakers including San Francisco Fed President Mary Daly.
“We are seeing some early evidence that long run inflation expectations are slipping,” Daly said at the annual American Economics Association meeting in San Diego. “We don’t have a really good understanding of why it’s been so difficult to get inflation back up.
Speaking at the same panel, Dallas Fed bank chief Robert Kaplan downplayed the danger of low inflation, noting that it is only a few tenths of a percentage point below the Fed’s target. At the same time he noted his worry that low rates could feed excesses in the financial system.
Mester, in her interview, took a similar stance. “I don’t see anything right now that suggests to me inflation is going to run away on the top side,” she said. “I don’t see it running too low either.”


Egypt hails new ‘furniture city’ but many craftsmen unconvinced

Updated 37 min 58 sec ago

Egypt hails new ‘furniture city’ but many craftsmen unconvinced

  • Take-up has been slow for industrial parks built to boost the country’s economy

DAMIETTA: Egypt has built a multi-billion-pound “furniture city” near the mouth of the Nile, a pilot for a series of industry mega-hubs it wants to throw up across the nation, but it could face a struggle to populate it.

The sprawling industrial park, inaugurated in December, is 10 km (6 miles) outside the port city of Damietta, long the center of Egypt’s once-flourishing but now languishing furniture trade.

The aim of the 3.6 billion pound ($230 million) project, and the other planned specialized parks, is to boost economic growth and create jobs badly needed in a country where about a third of the 100 million people live in poverty.

The idea is “to gather all the furniture makers and workshop owners to increase production and exports,” said Bassem Nabil, chief executive of the Damietta Furniture City.

However only 400 of the 1,400 newly built workshops have been sold so far.

“There is not a worker among us who will go to that city over there,” said Othman Khalifa, the owner of a carpentry workshop in an old neighborhood of Damietta. “They should have first come and consulted the people.”

At least half a dozen craftsmen who spoke to Reuters said they would not move to the new city, citing the proximity of their current workshops to their homes and, at 300,000 pounds to be paid over 10 years to buy a workshop, the relatively high costs of being based in the new city.

“What’s in it for us?” asked one, who declined to be named.

However Osama Saleh, chairman of the state investment firm Ayady, which helped lead the project, pointed out that it was still early days. He said the new city hoped to sell the remaining 1,000 workshops over the next two years and predicted the city would create 100,000 jobs within four years.

Saleh, also chairman of the furniture city, said the park had space for 157 big factories too.

Aesthetically, the new park is a far cry from Damietta’s traditional furniture quarter, where workshops lie in a dense warren of narrow lanes, often directly under the apartments of their owners and amid the din of table saws and machine lathes. Sawdust and scraps of wood lie scattered about.

The furniture city stretches for 1.39 million square meters, filled with beige and orange concrete workshops trimmed with aluminum siding, resembling car garages built side-by-side.

At the inauguration ceremony in December, President Abdel-Fattah El-Sisi had himself expressed surprise that demand for workshops was not stronger.

The furniture industry has been in decline for some 20 or 30 years, hit by changing tastes and cheaper imports from Turkey and China, as well as depressed consumer spending.

“Hey, people of Damietta. Don’t you have dreams?” El-Sisi asked. “What you are seeing here is a dream I have had for many long years.”

“I had thought the 1,300 or 1,400 (workshops) here, that we would need yet another 2,000. People are telling me the market is a bit slow and we are facing problems.”

El-Sisi said he was trying to tackle the problems.

An Egyptian craftsman makes wooden frames from date palm leaves. Despite government initiatives, the furniture industry has been in decline. (Shutterstock)

The park remains sparsely populated, however, and during a visit Reuters saw only a handful of workshops up and running.

Saleh said most of the old city’s 30,000 workshops would remain in place and the new city would help them with advice and training.

Egypt needs to absorb more than 3.5 million new entrants to the labor market over the next five years due to its burgeoning population, according to the International Monetary Fund.

To do this it will need to accelerate growth to 7.5 percent, above the 5.6 percent it recorded in the second half of 2019, some economists say.

By building the industrial park, the government hopes to aid growth by reigniting success in the furniture industry.

Furniture makers in Damietta, in the western delta near the Mediterranean coast, had been a favorite among Egyptians for many decades, famed for highly ornate and gilded pieces reminiscent of French furniture of the 18th and 19th centuries.

The new furniture city, three years in the making, opened at a particularly inauspicious time: Toward the end of a three-year IMF program whose austerity measures drained consumer spending power and dampened demand for furniture.

Much is riding on its fate, however.

If successful, it will serve as a prototype for a series of parks focused on different industries in more than two dozen provinces, said Saleh. “We will study the comparative advantage in each governorate and see how we can invest in them.”

Saleh said the furniture city, near two major ports, would provide training, technical and marketing support to craftsmen and furniture producers. It would also ensure that companies relocating there pay taxes and social insurance for workers.

Recent Egyptian history instils little confidence though. It is littered with unproductive attempts to establish industrial parks, often far out in the desert and based on top-down decision making, with little consultation with the entrepreneurs and workers expected to relocate there, economists say.

Among the parks now struggling is Technology Valley (Wadi Technologia), designed in 1994 to house 400,000 people in the desert east of Ismailia but still largely empty.

Another is Robbiki Leather City, founded in 2015 in the desert 55km east of the central Cairo neighborhood that once housed the country’s tanning industry, which has had a slow start, according to media reports.

But David Sims, a Cairo-based urban economist, said the new furniture city’s proximity to Damietta gave it a better chance of success than some industrial parks that had gone before.

“It’s distant, but not too distant,” he said. “Distance is an obstacle, but not too much in comparison to the leather city 55km away.”