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The Federal Reserve’s policy statement and press conference Wednesday are the week’s highlights. We’ll also get a big dose of housing data and more details on White House spending plans. Good morning. Jeff Sparshott here to take you through key developments in the global economy. Send us your questions, comments and suggestions by replying to this email.
HOLD ME NOW
Federal Reserve officials are likely to end their meeting this week signaling little if any appetite to raise interest rates this year, part of a strategy designed to reduce the risks of a sharp slowdown in global growth. The Fed boosted its short-term benchmark rate four times last year and as recently as December indicated as many as three more in 2019. New forecasts to be released Wednesday are likely to show officials now expect to raise rates just once, or not at all, Nick Timiraos reports.
DIPPIN’ DOTS
The Fed will communicate rate expectations with its so-called dot plot. Every quarter, the central bank produces a chart of 19 officials’ individual projections for the benchmark rate, with a dot representing each person’s forecast. But the dots have caused investor confusion when the economy is at an inflection point. That’s because the rate forecast reflects a baseline outlook—the rate path if the economy behaves according to each individual’s expectations. It doesn’t show how officials gauge risks, Nick Timiraos writes.
Top Fed leaders pivoted in January to signal that rate rises are on hold while they assess the risks to economy. The dot plot to be released Wednesday would muddy this message if it showed several officials still expect to raise rates this year. Fed Chairman Jerome Powell in a recent speech downplayed the projections: “If you are too focused on a few dots, you may miss the larger picture,” he said.
WHAT TO WATCH TODAY
The National Association of Home Builders housing market index for March is expected to tick up to 63 from 62 a month earlier. (10 a.m. ET)
The White House will release its full set of budget documents. The Trump administration last week proposed a $4.7 trillion spending plan. Today’s publications will offer more details and context.
TOP STORIES
FOUR TRILLION HERE, FOUR TRILLION THERE
China’s spending spree during the global financial crisis helped pull the world economy out of recession. Beijing’s latest stimulus might not pack the same punch. The government has announced tax-cut and spending measures that add up to 4.6 trillion yuan ($685 billion), exceeding the 4-trillion-yuan pro-growth package from late 2008. However, China’s economy has become bigger since then, so a similar amount of stimulus doesn’t go as far as it used to go. The 4-trillion-yuan package represented 13% of China’s GDP in 2008 and less than 5% now, Lingling Wei reports.
It’s not clear how much more stimulus China can afford. By 2018, total debt outstanding of companies, central and local governments, and households hit nearly 250% of gross domestic product, up from less than 150% a decade earlier. Debt growth like that is dangerous, the International Monetary Fund has warned repeatedly.
NOW THAT’S A MINIMUM WAGE INCREASE
Here’s an economic experiment: What happens if you raise minimum wage—a lot—when unemployment is high? Greece and Spain aim to find out. Spain, for example, has raised its €736-a-month minimum wage by 22%, to €900 ($1,017). Critics say a higher minimum wage is the last thing these economies need, when millions are still struggling to find work. The unemployment rate is 14.1% in Spain and 18.5% in Greece, Nektaria Stamouli reports.
Counterpoint: “Higher salaries fuel greater spending, which can have a positive impact in the economy and lead to more jobs,” said Raymond Torres, an economist at Madrid think tank Funcas.
NICE WORK IF YOU CAN GET IT
The strong U.S. economy has created millions of jobs and pushed up wages for many Americans. It also helped many big-company CEOs secure another raise and total compensation worth $1 million a month. Median compensation for 132 chief executives of S&P 500 companies reached $12.4 million in 2018, up from $11.7 million for the same group in 2017, according to a Wall Street Journal analysis. The gains were driven by robust corporate profits and strong stock market returns for much of the year, Theo Francis reports.
FACTORY FLOOR
U.S. manufacturing output declined for the second consecutive month in February, a fresh sign that a long-predicted slowdown is hitting the U.S. economy. The question now is how sharp and long-lasting the slowdown will be. Many economists see U.S. growth picking up later this year, but not to the rates experienced last year in the immediate wake of federal tax cuts and spending increases, Sarah Chaney and Austen Hufford report.
GRAND OPENING
The number of available jobs in the U.S. rose in January to a near-record level, showing employers have a strong demand for workers. There were 7.58 million unfilled jobs on the last business day of January, just below a record 7.63 million set in November. Separate Labor Department data released last week showed payrolls rose by 20,000 in February, the smallest gain in more than a year. But with demand for workers high, February’s hiring slowdown could prove to be a blip, Eric Morath reports.
ROYAL OIL
OPEC and a group of 10 oil-producing nations led by Russia are deepening their crude production cuts, but remain split on whether the curbs should remain in place through the end of the year. Saudi Arabia met with Russia and a few other countries in Azerbaijan to review how the 24-nation coalition is complying with a December agreement to withhold 1.2 million barrels a day from global markets. The output cuts have led to a more than 25% rise in price of Brent oil since the year began, Summer Said and Benoit Faucon report.
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QUOTE OF THE DAY
I’m not a fan of MMT—not at all. —Berkshire Hathaway CEO Warren Buffett, speaking about Modern Monetary Theory (via Bloomberg)
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
Free college sounds nifty, but a four-year degree isn’t for everyone. “The solution, according to a growing number of governors and mayors, Republican and Democratic, is to reboot the antiquated system of technical education. Loosely speaking, America’s 1,332 community colleges are the equivalent of Germany’s vocational institutes. The biggest difference is that in Germany a trade is still highly valued. In America, the community college suffers from the ‘soft bigotry of low expectations,’ ” Edward Luce writes in the Financial Times.
The college-cheating scandal has focused attention on standardized testing—and the lengths students and parents will go to get a good score on SATs and ACTs. The student paper for New Trier (Ill.) High School was on the case a year ago. “A number of kids feeling the academic pressure at New Trier seek an Attention Deficit Hyperactivity Disorder (ADHD) diagnosis to give them an advantage on the ACT when private tutoring isn’t enough. Contrary to less affluent areas, parents are very aware of accommodation opportunities and the school is well equipped at getting them for their children after a diagnosis,” Ezra Wallach reported in the New Trier News.
UP NEXT: TUESDAY
U.S. factory orders for January are expected to rise 0.4% from the prior month. (10 a.m. ET)
President Trump holds a joint press conference with Brazil President Jair Bolsonaro at 1:45 p.m. ET.
The Federal Reserve begins a two-day policy meeting.
The Bank of Japan releases minutes from its Jan. 22-23 meeting at 6:50 p.m. ET.
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