Federal Reserve Policymakers See Rate Hikes Ahead, Note Worries

Federal Reserve policymakers on Friday signaled further interest rate  increases ahead, but raised relatively muted concerns over a potential global  slowdown that has markets betting heavily that the Fed’s rate hike cycle will soon peter out.

The widening chasm between market expectations and the rate path the Fed laid out just two months ago underscores the biggest question in front of U.S. central bankers: How much weight to give a growing number of potential red flags, even as U.S. economic growth continues to push down unemployment and create new jobs?

“We are at a point now where we really need to be especially data dependent,” Richard Clarida, the newly appointed vice chair of the Federal Reserve, said in a CNBC interview. “I think certainly where the economy is today, and the Fed’s projection of where it’s going, that being at neutral would make sense,” he added, defining “neutral” as interest rates somewhere between 2.5 percent and 3.5 percent.

But that range that implies anywhere from two more to six more rate hikes, and Clarida declined to say how many more increases he would prefer.

He did say he is optimistic that U.S. productivity is rising, a view that suggests he would not see faster economic or wage growth as necessarily feeding into higher inflation or, necessarily, requiring higher interest rates. But he also

sounded a mild warning.

“There is some evidence of global slowing,” Clarida said. “That’s something that is going to be relevant as I think about the outlook for the U.S. economy, because it impacts big parts of the economy through trade and through capital markets and the like.”

Federal Reserve Bank of Dallas President Robert Kaplan, in a separate interview with Fox Business, also said he is seeing a growth slowdown in Europe and China.

“It’s my own judgment that global growth is going to be a little bit of a headwind, and it may spill over to the United States,” Kaplan said. .

The Fed raised interest rates three times this year and is expected to raise its target again next month, to a range of 2.25 percent to 2.5 percent. As of September, Fed policymakers expected to need to increase rates three more times next year, a view they will update next month.

Over the last week, betting in contracts tied to the Fed’s policy suggests that even two rate hikes might be a stretch. The yield on fed fund futures maturing in January 2020, seen by some as an end-point for the Fed’s current rate-hike cycle, dropped sharply to just 2.76 percent over six trading days.

At the same time, long-term inflation expectations have been dropping quickly as well. The so-called breakeven inflation rate on Treasury Inflation Protected Securities, or TIPS, has fallen sharply in the last month. The breakeven rate on five-year TIPS hit the lowest since late 2017 earlier this week.

Those market moves together suggest traders are taking the prospect of a slowdown seriously, limiting how far the Fed will end up raising rates.

But not all policymakers seemed that worried. Sitting with his back to a map of the world in a ballroom in Chicago’s Waldorf Astoria Hotel, Chicago Federal Reserve Bank President Charles Evans downplayed risks to his outlook, noting that the leveraged loans that some of his colleagues have raised concerns about are being taken out by “big boys and girls” who

understand the risks.

He told reporters he still believes rates should rise to about 3.25 percent so as to mildly restrain growth and bring unemployment, now at 3.7 percent, back up to a more sustainable level.

Asked about risks from the global slowdown, he said he hears more talk about it but that it is not really in the numbers yet.

But the next six months, he said, bear close watching.

“There’s not a great headline” about risks to the economy right now, Evans told reporters. “International is a little slower; Brexit — nobody’s asked me about that, thank you; [the slowing] housing market: I think all of those are in the mix for uncertainties that everybody’s facing,” he said.

“But at the moment, it’s not enough to upset or adjust the trajectory that I have in mind.”

Still, Evans added, the risks should not be counted out: “They could take on more life more easily because they are sort of more top of mind, if not in the forecast.”

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South Africa Cannabis Ruling Leads to Pot-Themed Products

Now that South Africa’s highest court has relaxed the nation’s laws on marijuana, local entrepreneurs are trying to cash in on the popular herb. Among the latest entries to the market: several highly popular cannabis-laced alcohol products, which deliver the unique taste, though without the signature high. Marijuana activists say this could just be the beginning and that the famous plant could do much more for the national economy. VOA’s Anita Powell reports from Johannesburg.

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Amazon’s ‘National Landing’ Leads to Confusion and Jokes

Place names in Arlington County have never been a simple matter. A major fight broke out when National Airport was named for Ronald Reagan in 1998. A fight continues over whether to name a park next to the airport for Nancy Reagan. And in the 1920s, the Postal Service refused to establish a post office in Arlington because the street names were so confusing and haphazard.

So it is fitting that as Arlington officials celebrated Amazon’s decision to locate a new headquarters in the area, there was a bit of confusion over the place name.

Amazon announced Tuesday that it was coming to National Landing, a place people had not heard of because it doesn’t exist. Economic development officials who were wooing the online retailing giant came up with the name as a way to describe the multiple neighborhoods that were being offered as a site.

Those neighborhoods — Crystal City and Pentagon City in Arlington County, and Potomac Yard in the city of Alexandria — span multiple jurisdictions, so the name allowed Alexandria and Arlington to work cooperatively without marketing one locality over another.

Unfortunately, because the yearlong process of wooing Amazon had been so secretive, the moniker that had become so commonplace in the economic-development discussions had zero recognition among the general public. So Amazon’s use of the name in its big announcement left people scratching their heads.

Some people confused it with National Harbor, a new development in Maryland that has attracted one of the biggest casinos on the East Coast. Comedian Remy Munasifi, who made his name poking fun at Arlington in a YouTube rap that has been viewed more than 2 million times, suggested that Arlington National Cemetery would soon be renamed “Kindle Shores.”

Rep. Don Beyer, whose congressional district encompasses the neighborhoods, got in on the act when he suggested that the location of a new $1 billion graduate campus be dubbed “Hokie Landing.” The campus was a key incentive offered to Amazon by Virginia, which promised to double the number of students who graduate each year with bachelor’s and master’s degrees in computer science and related fields.

No official steps were ever taken to rename the region, and local officials have made clear they have no intention of trying to rename Crystal City or any other neighborhood.

In a tweet posted by Arlington Economic Development on Thursday, Arlington County Manager Mark Schwartz explained that National Landing was simply “a way to avoid saying, ‘Parts of Arlington, parts of Alexandria.’ ”

Christina Winn, director of business investment for Arlington Economic Development, said officials never imagined “there would be so much conversation” about the concept. Winn said there’s no intention to supplant or override the name of Crystal City, which draws its name from a big chandelier in one of the first apartment buildings to go up in the area in the 1960s.

Still, she said, if Arlington and Alexandria team up on another economic-development pitch in the future, she said that the moniker might be revived.

“It worked once,” she said.

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Climate Change, Steel, Migration Bedevil G20 Communique

Climate change, steel and migration have emerged as sticking points in the final communique that world leaders will issue at the end of the Group of 20 summit in Argentina later this month, an Argentine government official said on Thursday.

Those issues were the “most complicated” areas of discussion, said Argentina’s Pedro Villagra Delgado, the lead organizer, or “sherpa,” for the summit of leaders from key industrialized and developing economies. 

But he told a press briefing he was optimistic these issues would be resolved in time.

The G20 communique is a non-binding agreement on key international policy issues and will be presented at the conclusion of the two-day summit, which begins on Nov. 30.

Climate goals concern United States

Villagra Delgado said the United States was resistant to including language that outlined guidelines for climate goals in the document.

After withdrawing from the Paris Climate Agreement last year, the United States broke with other G20 member countries who have pledged to end coal usage and take steps to reach the goals outlined in the accord.

Villagra Delgado also said China disagreed with the rest of the G20 countries on steel, but did not provide further details over the specifics of their disagreement.

The United States has skirmished with a number of its trading partners — including China — over steel, imposing a 25 percent duty on imports of steel and a tariff of 10 percent on aluminum.

Other countries objected to including language about immigration in the communique, Villagra Delgado said, but would not elaborate on which countries expressed concern.

WTO reform may be on table

Reform of the World Trade Organization (WTO) may also be a topic of discussion at this month’s meeting, Villagra Delgado said, but added that specific issues to be discussed in the G20 sessions were still being worked out.

U.S. President Donald Trump has threatened to pull out of the WTO, while China has claimed the 20-year-old organization’s dispute resolution mechanisms are outdated in the current global economy.

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Ukraine PM Upbeat on IMF Loan Prospects

Ukrainian Prime Minister Volodymyr Groysman expects to get new loans from the International Monetary Fund as early as December, once parliament passes a budget of stability that refrains from making pre-election populist moves, he said Thursday.

Securing IMF assistance will also unlock loans from the World Bank and the European Union. Groysman also said Ukraine was in negotiations with Washington for a new loan guarantee for sovereign debt.

Groysman negotiated a new deal with the IMF last month aimed at keeping finances on an even keel during a choppy election period next year. The new loans are contingent on his steering an IMF-compliant budget through parliament.

“This budget is a budget of stability and continuation of reforms,” Groysman said in an interview with Reuters. “This is fully consistent with our IMF program.”

“Yes. We are counting on a tranche in December,” he added, when asked about when IMF loans were expected, though he did not elaborate on the possible size of the loan.

Ukraine’s government approved a draft budget in September but it will typically undergo a slew of amendments before parliament finally approves it. 

Tax proposal dropped

Groysman said a proposal to change how companies are taxed — on withdrawn capital, rather than profits — had been dropped from the budget because of the IMF’s concerns.

He also said he would not bow to opposition parties’ demands to reverse a recent increase in household gas tariffs, a step that his government reluctantly took to qualify for more IMF assistance.

“Populism led to the weakness of Ukraine,” he said. “This should not be allowed.” 

The IMF and Kyiv’s foreign allies came to Ukraine’s rescue after it plunged into turmoil following Russia’s annexation of Crimea in 2014 and support for separatist rebels occupying the eastern industrial Donbass region. 

The United States has also sold coal to plug a domestic shortage caused by rebels taking control of mines in the east. U.S. Energy Secretary Rick Perry visited Ukraine this week. 

In response to a question about whether Ukraine would continue to buy coal from the United States and potentially also liquefied natural gas, Groysman said that “liquefied gas is very interesting for Ukraine. We talked about the whole spectrum of our cooperation in the energy sector.”

As for coal, he added, “we will buy it from our international partners until we cover the domestic deficit.” 

Washington has also previously issued loan guarantees for Ukrainian debt. Groysman said another such guarantee was “under discussion.” 

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Business Bosses Alarmed as Resignations Imperil Brexit Deal

Business leaders expressed growing alarm Thursday as a draft Brexit agreement seen as the only chance of preserving some stability in U.K.-EU trading threatened to unravel, sending stock prices and the pound plunging.

Just 12 hours after British Prime Minister Theresa May announced that her cabinet had agreed to the terms of the draft agreement, Brexit minister Dominic Raab and work and pensions minister Esther McVey quit, saying they could not support it.

Their departures and those of other, junior ministers, revived the specter for business of Britain leaving the European Union without a deal next March, and sent shares in British housebuilders, retailers and banks tumbling.

“The political situation remains uncertain,” German carmaker BMW said in a statement. “We must therefore continue to prepare for the worst-case scenario, which is what a no-deal Brexit would represent.

“We continue to call on all sides to work toward a final agreement which maintains the truly frictionless trade on which our international production network is based.”

The European Union is Britain’s biggest trading partner, accounting for 44 percent of U.K. exports and 53 percent of imports to the UK.

After 45 years of membership, industries including defense, cars and aerospace have created intricate supply chains that rely on smooth, “just-in-time” delivery of thousands of parts across the sea that divides Britain from the continent.

Business leaders fear that the country could stumble toward a no-deal Brexit where border checks block ports and fracture the supply chains that support the likes of Rolls-Royce and BAE Systems.

Karen Betts, the head of the Scotch Whisky Association, said a no-deal Brexit would cause “considerable difficulties” for the industry and increase cost and complexity. It accounts for around 20 percent of all U.K. food and drink exports.

‘Only deal in town’

A senior executive at one of Britain’s biggest banks said this was the most disastrous government he had ever seen.

“The rest of the world is looking at us and laughing. It is time to have some stability so business can get some certainty. This is what the country needs.”

Industry bosses who had been briefed on the draft agreement by ministers late Wednesday had broadly welcomed it as the best chance of a compromise that would secure a transition period and avert the chaos of no deal at all.

May’s office also released statements from a number of major companies such as Diageo, the London Stock Exchange and Royal Mail welcoming the draft deal.

“Most business people ultimately are pragmatists and this is about playing the cards we have been dealt rather than wishing for a better hand,” Roger Carr, chairman of BAE Systems, told BBC Radio.

Iain Anderson, executive chairman of public affairs firm Cicero, which represents many finance companies, said although most executives did not like May’s deal they realized it was now the only game in town.

“Business is watching with horror the resignations now taking place,” he said. “Yesterday we had a plan and stability and today we do not.

“There is now no time to negotiate another deal. We thought we had stability — now we have instability writ large.”

The U.K. chief of German industrial group Siemens, which employs 15,000 people in the U.K., reiterated his call to get behind the draft agreement even as senior politicians called for May to quit.

“We hope all sides keep calm, look at the facts, and move to support this draft to provide UK business with greater certainty,” Juergen Maier said in an emailed statement.

Even if May survives, her chances of winning a vote in parliament to approve the draft agreement are seen as slim.

Market jitters

Lawmakers across the political spectrum have said May’s deal will leave Britain bound by EU rules without having any say.

Many have argued it will also damage the integrity of the United Kingdom by aligning Northern Ireland with the rest of the EU in order to avoid a hard border with EU-member Ireland.

Many executives spoken to by Reuters were trying to guess what could happen next, either a national election, a second referendum or the extension of the negotiating period.

One senior executive at a FTSE 100 company was still holding out hope, however, that lawmakers would eventually be persuaded to vote for the deal when it comes before parliament before the end of the year.

“We’re going to need the market to throw up and scare them all into voting for it,” he said. The pound was down 1.8 percent against the dollar in early evening trading.

The CEO of French outdoor advertising company JCDecaux, which runs London’s bus-shelter advertising and makes 10 percent of its sales in Britain, called the situation “obviously very serious.”

“Today’s events reinforce the uncertainties in the market,” Jean-Charles Decaux told Reuters in an interview on the sidelines of an industry conference in Barcelona.

Martin Sorrell, ex-CEO and founder of ad agency group WPP and one of Britain’s best-known businessmen, said the country was in a state. “The situation this morning saps the confidence of the city and the country,” he told Reuters.

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Report: China Appears to Ease North Korea Sanctions

A U.S. congressional commission said Wednesday that China appears to have relaxed enforcement of sanctions on North Korea and called on the Treasury Department to provide a report on Chinese compliance within 180 days.

In its annual report, the U.S.-China Economic and Security Review Commission said the Treasury report should include a classified list of Chinese financial institutions, businesses and officials involved in trading with North Korea that could be subject to future sanctions.

The bipartisan commission said China had appeared to enforce sanctions on North Korea more thoroughly than in the past in 2017 and in early 2018.

But this effort appeared to have relaxed since a thaw in relations between China and North Korea as the long-time ally of Beijing began to engage with the United States this year.

Key lifelines

“China appears to have eased off sanctions enforcement, despite its promises to keep sanctions intact until North Korea gets rid of its nuclear weapons,” the report said.

“North Korean workers have returned to jobs in northeast China, economic activity and tourism have picked up in border towns, flights in both directions have resumed, and the two countries have conducted high-profile official exchanges to discuss economic development,” it said.

It said China always left “key lifelines” in place for North Korea and there were “holes” in enforcement that included “ship to ship” transfers of goods.

The report said the Treasury Department, in recommending Chinese sanctions targets, should also “explain the potential broader impacts of sanctioning those entities.”

The United Nations Security Council has unanimously boosted sanctions on North Korea since 2006 in a bid to choke off funding for its weapons programs. The United States has imposed sanctions in the past on Chinese and other foreign firms for violating those steps.

Reward Pyongyang?

China and Russia have said the Security Council should reward Pyongyang for “positive developments” after U.S. President Donald Trump and North Korean leader Kim Jong Un met in June and Kim pledged to work toward denuclearization.

China’s top diplomat and politburo member Yang Jiechi said after talks in Washington last week that China would “continue to enforce strictly relevant U.N. Security Council resolutions.”

Trump has suggested China may be exerting negative pressure on U.S. efforts to press North Korea to denuclearize in response to U.S. trade measures on Beijing.

The U.S. Treasury did not immediately respond to a request for comment on the commission report, but the State Department said it expected all U.N. states to implement sanctions resolutions until North Korea gave up its nuclear weapons.

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