‘Lower for longer’: Fed’s warning on interest rates

The US economy will take three years to rebound, according to the Fed. (Reuters)
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Updated 24 September 2020

‘Lower for longer’: Fed’s warning on interest rates

  • The Fed cut rates to near zero in March and took other steps to combat a recession

WASHINGTON: Federal Reserve Vice Chair Richard Clarida said on Wednesday that policymakers “are not even going to begin thinking” about raising interest rates until inflation hits 2 percent, comments aimed at cementing the public’s understanding of the US central bank’s new approach to monetary policy.

“Rates will be at the current level, which is basically zero, until actual observed PCE inflation has reached 2 percent,” Clarida told Bloomberg Television, referring to the Fed’s preferred measure of prices. PCE inflation tends to be somewhat lower than the better-known consumer price index.

“We could actually keep rates at this level beyond that. But we are not even going to begin thinking about lifting off, we expect, until we actually get observed inflation equal to 2 percent. Also we want our labor market indicators to be consistent with maximum employment.”

The Fed cut rates to near zero in March and took other steps to combat a recession that took hold as businesses shut down and consumers stayed home to fight the spread of the coronavirus.

Clarida said that with further government aid from Congress and the steps the Fed has already taken, the US economy could return from the current “deep hole” of joblessness and weak demand in perhaps three years.

To aid that process, the Fed in late August revised its approach to monetary policy to commit to lower rates for longer periods of time, allowing the risk of higher inflation to try to encourage a stronger economic recovery and more job gains for workers. A follow-up policy statement last week gave more specific guidance about future decisions, but questions remain about what the new approach will mean in practice.

Clarida said there should not be any confusion: Rates will not increase until labor markets recover and prices hit the Fed’s target.

“So lower for longer, and we have given some observable metrics,” for judging when a rate hike debate might begin, he said.

Decisions about any possible overshoot of inflation are “academic” at this point, he added, and can be made once the economy rebounds. 


Britain, EU tell each other to move on trade

Updated 20 October 2020

Britain, EU tell each other to move on trade

  • Both sides call on each other to protect billions of dollars of trade between the neighbors

BRUSSELS: Britain and the EU said on Monday the door was still open for a deal on their post-Brexit relationship, calling on each other to compromise to find a way to protect billions of dollars of trade between the neighbors.

With just over two months before Britain ends a status quo transition arrangement with the EU, talks on a trade deal are deadlocked, with neither wanting to move first to offer concessions.

A no-deal finale to Britain’s five-year Brexit drama would disrupt the operations of manufacturers, retailers, farmers and nearly every other sector — just as the economic hit from the coronavirus pandemic worsens.

European Commission Vice President Maros Sefcovic repeated on Monday that the EU still wanted a trade deal but not “at any cost” after British Prime Minister Boris Johnson said on Friday there was no point in continuing talks.

“It has to be a fair agreement for both sides — we are not going to sign an agreement at any cost,” Sefcovic told reporters after meeting Michael Gove, Britain’s point man on the existing divorce agreement, in London.

“The EU is ready to work until the last minute for a good agreement for both parties,” Sefcovic said.

Britain, increasingly frustrated by the EU’s refusal to start text-based talks, called on the bloc to make the first move, with its housing minister saying that Brussels only had to make “some relatively small but important changes.”

Housing Secretary Robert Jenrick called on the EU to “go that extra mile, to come closer to us on the points that remain for discussion.”

A spokesman for Johnson again ruled out prolonging any negotiation beyond the end of this year, when the transition period runs out, saying the EU “must be ready to discuss the detailed legal text of a treaty in all areas with a genuine wish to respect UK sovereignty and independence.”

EU chief negotiator Michel Barnier had been due in London for talks with British counterpart David Frost this week. Instead, they will now speak by telephone on Monday to discuss the structure of future talks, Barnier’s spokesman said.

Negotiations broke down on Thursday, when the EU demanded Britain give ground. Issues still to be resolved include fair competition rules, including state aid and fisheries. EU diplomats and officials cast Johnson’s move as a frantic bid to secure concessions before a last-minute deal was done, and European leaders have asked Barnier to continue talks.

British officials have repeatedly said any deal has to honor Britain’s new status as a sovereign country and not try to tie it to EU rules and regulations.

German Chancellor Angela Merkel said compromises on both sides would be needed. French President Emmanuel Macron said Britain needed a deal more than the 27-nation EU.

Britain is launching a campaign this week urging businesses to step up preparations for a no-deal departure. In a statement accompanying the launch, Gove says: “Make no mistake, there are changes coming in just 75 days and time is running out for businesses to act.”

More than 70 British business groups representing over 7 million workers on Sunday urged politicians to get back to the negotiating table next week and strike a deal.