President
Donald Trump's plans to upend US trade policy with import tariffs and
new negotiations, slash taxes, and spend on infrastructure makes the
Federal Reserve's work more challenging this week.
Since his election in November, Trump's pronouncements have left US central bankers guessing and citing the "considerable uncertainty" for monetary policy until they turn into specific policies.
Fed members have raised the possibility they may have to increase interest rates faster than they had planned before Trump's surprise election victory, and have said they will be watching for the new administration's policies.
But meanwhile, economists say that when the policy-setting
Federal Open Market Committee gathers in Washington Tuesday and
Wednesday to review monetary policy, it is likely to stand pat, as the
outcome of any new Trump fiscal and trade moves remains far off.
"My guess is there won't be any action," said Edwin Truman, a former FOMC staff economist now at the Peterson Institute for International Economics in Washington.
"The outlook looks a bit stronger, both in the United States and the world," he told AFP. "But as for the shape of fiscal policy ... we don't really know a lot more than we did in December."
The Fed in December raised rates for only the second time in a decade, increasing the target range by a quarter point to 0.5-0.75 percent to help head off inflation as the somewhat sluggish recovery from the Great Recession continues.
The odds of another increase remain below 40 percent until the third meeting of the year in May, according to Fed fund futures markets.
US central bankers have made clear that despite the fairly tepid recovery, the economy appears to be on track to achieve its primary goals of full employment and two percent inflation.
The unemployment rate has remained under five percent and job creation has been steady at an average of 165,000 new positions a month. Despite years of low inflation, the Fed's favored price measure, the personal consumption expenditures index, has been trending up slowly.
However, economic growth slowed sharply in the final quarter of last year, pulling 2016 growth down to 1.6 percent, the lowest since 2011.
- New FOMC voters -
Adding another wrinkle to the attempts to gauge how the Fed will react, the composition of the Federal Open Market Committee will change as it always does at the first meeting of the year, and this time will include three first-time voters.
The change might mean the committee could become less hawkish than it was in 2016, when Esther George of the Kansas City Fed dissented at six of last year's eight Fed meetings to vote in favor of rate hikes. The Boston Fed's Eric Rosengren dissented in September, while Cleveland's Loretta Mester dissented in September and November.
Those three will be replaced by some of the newest Fed officials: Patrick Harker, head of the Philadelphia Fed bank, Neel Kashkari of Minneapolis, and Robert Kaplan of Dallas.
Fed Chair Janet Yellen has said the economy is on course to meet the Fed's targets for inflation and full employment, but the central bank will be watching to see what policies the administration pursues. She has said spending to increase productivity would be welcome, since that would increase growth without driving inflation.
Trump's new policies could affect the Fed's path but "at this point, however, the size, timing and composition of such changes remain uncertain," she said in a recent speech.
- Trump's big 'meh' -
Jared Bernstein of the Center on Budget and Policy Priorities said that while Wall Street had rallied since the election, Americans were beginning to understand that any direct influence from Trump on the economy was most likely to occur further down the road.
"Market participants continue to take Donald Trump way too seriously in terms of fiscal policy," he said.
"Yes, there's going to be a tax cut. The earliest it's going to kick in is 2018," Bernstein told AFP. "An infrastructure plan is a big question mark. House Republicans see it as a big 'meh.'"
"The Fed has understood this, maybe because they're here in DC and they're not quite as excitable."
Tim Duy, an economist at the University of Oregon and close observer of the Fed, said the uncertainty that Trump had created was still weighing on policymakers and could fuel inflation.
"I get the sense they think the administration's policies are leading to an environment that is weighted to the upside with inflation risks," Duy said.
Getty/AFP/File / SPENCER PLATT
Economists say the
policy-setting Federal Open Market Committee is likely to stay pat on
monetary policy as the outcome of any new Trump fiscal and trade moves
remains far off
President Donald Trump's plans to upend US trade policy
with import tariffs and new negotiations, slash taxes, and spend on
infrastructure makes the Federal Reserve's work more challenging this
week.Since his election in November, Trump's pronouncements have left US central bankers guessing and citing the "considerable uncertainty" for monetary policy until they turn into specific policies.
Fed members have raised the possibility they may have to increase interest rates faster than they had planned before Trump's surprise election victory, and have said they will be watching for the new administration's policies.
"My guess is there won't be any action," said Edwin Truman, a former FOMC staff economist now at the Peterson Institute for International Economics in Washington.
"The outlook looks a bit stronger, both in the United States and the world," he told AFP. "But as for the shape of fiscal policy ... we don't really know a lot more than we did in December."
The Fed in December raised rates for only the second time in a decade, increasing the target range by a quarter point to 0.5-0.75 percent to help head off inflation as the somewhat sluggish recovery from the Great Recession continues.
The odds of another increase remain below 40 percent until the third meeting of the year in May, according to Fed fund futures markets.
US central bankers have made clear that despite the fairly tepid recovery, the economy appears to be on track to achieve its primary goals of full employment and two percent inflation.
The unemployment rate has remained under five percent and job creation has been steady at an average of 165,000 new positions a month. Despite years of low inflation, the Fed's favored price measure, the personal consumption expenditures index, has been trending up slowly.
However, economic growth slowed sharply in the final quarter of last year, pulling 2016 growth down to 1.6 percent, the lowest since 2011.
- New FOMC voters -
Adding another wrinkle to the attempts to gauge how the Fed will react, the composition of the Federal Open Market Committee will change as it always does at the first meeting of the year, and this time will include three first-time voters.
The change might mean the committee could become less hawkish than it was in 2016, when Esther George of the Kansas City Fed dissented at six of last year's eight Fed meetings to vote in favor of rate hikes. The Boston Fed's Eric Rosengren dissented in September, while Cleveland's Loretta Mester dissented in September and November.
Those three will be replaced by some of the newest Fed officials: Patrick Harker, head of the Philadelphia Fed bank, Neel Kashkari of Minneapolis, and Robert Kaplan of Dallas.
Fed Chair Janet Yellen has said the economy is on course to meet the Fed's targets for inflation and full employment, but the central bank will be watching to see what policies the administration pursues. She has said spending to increase productivity would be welcome, since that would increase growth without driving inflation.
Trump's new policies could affect the Fed's path but "at this point, however, the size, timing and composition of such changes remain uncertain," she said in a recent speech.
- Trump's big 'meh' -
Jared Bernstein of the Center on Budget and Policy Priorities said that while Wall Street had rallied since the election, Americans were beginning to understand that any direct influence from Trump on the economy was most likely to occur further down the road.
"Market participants continue to take Donald Trump way too seriously in terms of fiscal policy," he said.
"Yes, there's going to be a tax cut. The earliest it's going to kick in is 2018," Bernstein told AFP. "An infrastructure plan is a big question mark. House Republicans see it as a big 'meh.'"
"The Fed has understood this, maybe because they're here in DC and they're not quite as excitable."
Tim Duy, an economist at the University of Oregon and close observer of the Fed, said the uncertainty that Trump had created was still weighing on policymakers and could fuel inflation.
"I get the sense they think the administration's policies are leading to an environment that is weighted to the upside with inflation risks," Duy said.
French
President Francois Hollande urged Europe to form a united front and
provide a "firm" response to US President Donald Trump, at a gathering
Saturday of southern European Union leaders.
"We must conduct firm dialogue with the new American administration which has shown it has its own approach to the problems we all face," he said at the end of the gathering as he was flanked by the other leaders who took part.
Trump has rattled America's traditional European allies with a range of radical policy plans.
He has called NATO "obsolete", announced he would rip up a
planned transatlantic trade plan and supported Britain's move to leave
the EU, praising the decision as "a wonderful thing" during a meeting
Friday with British Prime Minister Theresa May.
On Friday he also signed a sweeping executive order to suspend the arrival of refugees and impose tough controls on travellers from seven Muslim countries.
AFP / Mandel Ngan
In a flurry of calls US
President Donald Trump spoke to several world leaders to explain new
policies that have baffled and unnerved much of the rest of the world
During his first phone conversation with Trump late
Saturday, Hollande stressed the "economic and political consequences of a
protectionist approach", adding that the principle of "acceptance of
refugees" should be respected.
"Faced with an unstable and uncertain world, withdrawal into oneself is a dead-end response," Hollande was quoted as saying in an Elysee Palace statement.
Hollande had earlier told the gathering that "when he adopts protectionist measures, which could destabilise economies not just in Europe but the economies of the main countries of the world, we have to respond".
"And when he refuses the arrival of refugees, while Europe has done its duty, we have to respond."
- Ready to cooperate with Trump -
While officially the new administration in Washington was not on the agenda, the six other European leaders who took part in the summit also alluded to Trump.
AFP / PATRICIA DE MELO MOREIRA
Italian Prime Minister
Paolo Gentiloni said Europe was "ready, interested and willing to
cooperate" with the Trump administration
Italian Prime Minister Paolo Gentiloni said Europe was
"ready, interested and willing to cooperate" with the Trump
administration.
"But we are Europe, and we cherish our values," he added.
Spanish Prime Minister Mariano Rajoy defended the EU project, saying it had helped transform Europe into the world region with the "highest level of progress, civil rights and well being".
Also meeting in Lisbon were the leaders of Malta, Cyprus, Greece and Portugal.
The summit was a follow up to a first gathering in Athens in September 2016 as part of a push by Greek Prime Minister Alexis Tsipras to create a strong southern "axis" to counter the influence of nations in northern Europe.
The group is often referred to -- sometimes dismissively -- as "Club Med", even though one of its members, Portugal, is not on the Mediterranean.
It includes some of the nations hardest hit by the financial crisis.
Portugal and Greece both needed international bailouts worth tens of billions of euros which came with demands for tough austerity measures and economic reforms.
- Boost investment -
AFP / PATRICIA DE MELO MOREIRA
(L-R) Greek Prime
Minister Alexis Tsipras, Spanish Prime Minister Maiano Rajoy, French
President Francois Hollande, Portuguese Prime Minister Antonio Costa,
Cypriot President Nicos Anastasiades, Italian Prime Minister Paolo
Gentiloni speak
As in the first meeting in Greece, the mostly
centre-left leaders gathered in Portugal urged Brussels to do more to
boost flagging growth in the bloc.
A joint declaration signed by the participating countries said the EU should boost funding for strategic investment.
"We share the urgency of promoting investment, growth, employment, with a special focus on youth employment," it read.
The Lisbon summit comes ahead of a February 3 meeting of
EU leaders in Malta to look at the future of the bloc without Britain,
its second-largest economy and its richest financial centre.
Rajoy said Madrid would host a third summit of southern EU nations in April.
"These countries meet informally and they have no other goal other than to work for the people of the entire European Union," he said.
The goal is not to create an "organisation" inside Europe but to act "in the service of the entire European Union," added Hollande.
The so-called Visegrad group -- made up of Hungary, Slovakia, the Czech Republic and Poland -- have also held their own meetings to present a united front.
Hollande urges 'firm' European response to Trump
AFP/File / Adam BERRY
French President Francois
Hollande said Europe must "engage in a firm dialogue" with the US with a
goal towards solving global problems
French President Francois Hollande urged Europe to form
a united front and provide a "firm" response to US President Donald
Trump, at a gathering Saturday of southern European Union leaders."We must conduct firm dialogue with the new American administration which has shown it has its own approach to the problems we all face," he said at the end of the gathering as he was flanked by the other leaders who took part.
Trump has rattled America's traditional European allies with a range of radical policy plans.
On Friday he also signed a sweeping executive order to suspend the arrival of refugees and impose tough controls on travellers from seven Muslim countries.
AFP / Mandel Ngan
In a flurry of calls US
President Donald Trump spoke to several world leaders to explain new
policies that have baffled and unnerved much of the rest of the world
"Faced with an unstable and uncertain world, withdrawal into oneself is a dead-end response," Hollande was quoted as saying in an Elysee Palace statement.
Hollande had earlier told the gathering that "when he adopts protectionist measures, which could destabilise economies not just in Europe but the economies of the main countries of the world, we have to respond".
- Ready to cooperate with Trump -
While officially the new administration in Washington was not on the agenda, the six other European leaders who took part in the summit also alluded to Trump.
AFP / PATRICIA DE MELO MOREIRA
Italian Prime Minister
Paolo Gentiloni said Europe was "ready, interested and willing to
cooperate" with the Trump administration
"But we are Europe, and we cherish our values," he added.
Spanish Prime Minister Mariano Rajoy defended the EU project, saying it had helped transform Europe into the world region with the "highest level of progress, civil rights and well being".
The summit was a follow up to a first gathering in Athens in September 2016 as part of a push by Greek Prime Minister Alexis Tsipras to create a strong southern "axis" to counter the influence of nations in northern Europe.
The group is often referred to -- sometimes dismissively -- as "Club Med", even though one of its members, Portugal, is not on the Mediterranean.
It includes some of the nations hardest hit by the financial crisis.
Portugal and Greece both needed international bailouts worth tens of billions of euros which came with demands for tough austerity measures and economic reforms.
- Boost investment -
AFP / PATRICIA DE MELO MOREIRA
(L-R) Greek Prime
Minister Alexis Tsipras, Spanish Prime Minister Maiano Rajoy, French
President Francois Hollande, Portuguese Prime Minister Antonio Costa,
Cypriot President Nicos Anastasiades, Italian Prime Minister Paolo
Gentiloni speak
A joint declaration signed by the participating countries said the EU should boost funding for strategic investment.
"We share the urgency of promoting investment, growth, employment, with a special focus on youth employment," it read.
Rajoy said Madrid would host a third summit of southern EU nations in April.
"These countries meet informally and they have no other goal other than to work for the people of the entire European Union," he said.
The goal is not to create an "organisation" inside Europe but to act "in the service of the entire European Union," added Hollande.
The so-called Visegrad group -- made up of Hungary, Slovakia, the Czech Republic and Poland -- have also held their own meetings to present a united front.
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