Real Time Economics: Fed Forced to Weigh Mixed Economic Signals

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The European Central Bank suddenly sounds a lot more dovish. Will the Fed follow? 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.

Losing Patience

Federal Reserve officials meet Tuesday and Wednesday recognizing they may need to cut interest rates should the economic outlook darken. The question is whether that moment has arrived or if they need more information before deciding, Nick Timiraos writes.

• The case for a cut is stronger than when officials last met April 30-May 1. Back then, they felt more optimistic about the economy, largely because a U.S.-China trade deal appeared in sight.
• Now the picture is mixed. President Trump increased tariffs on China, consumer spending is still solid but the manufacturing sector, inflation and global growth were all slowing even before the recent escalation in trade tensions.

• Markets see a roughly 20% chance the Fed announces a cut tomorrow and a more than 80% chance it moves by its July meeting. At a minimum, officials on Wednesday appear likely to replace language in their policy statement that since January has said they would be “patient” in making further rate changes. The language signaled a stance with no bias towards moving rates up or down.

WHAT TO WATCH TODAY

U.S. housing starts for May are expected to slip to an annual pace of 1.23 million from 1.235 million a month earlier. (8:30 a.m. ET)

European Central Bank President Mario Draghi and Bank of England Governor Mark Carney speak on a panel at the ECB’s central banking forum in Sintra, Portugal, at 10:00 a.m. ET.

The Federal Reserve begins a two-day policy meeting in Washington, D.C.

TOP STORIES

ECB Signals Possible Rate Cut

European Central Bank President Mario Draghi signaled the bank could cut interest rates or expand its giant bond-buying program as soon as its next policy meeting in July, Tom Fairless reports.

• The comments represent a clear statement of intent from Mr. Draghi, who is wrestling with the fallout from international trade tensions on Europe’s critical manufacturing sector and stubbornly low inflation.
• Headwinds: Eurozone exports fell 2.5% in April compared to March, the European Union’s statistics agency said Tuesday, and Germany’s ZEW index, a gauge of sentiment in financial markets, fell by 19 points to minus 21.1 in June.
• The world’s major central banks have rapidly shifted gear in recent months, shelving plans to increase short-term interest rates and seeking instead to ease policy amid signs that the global economy is softening.

 

The World’s Oldest vs. the World’s Most Populous Democracy

The U.S. and India have hit a rough patch, Bill Spindle and Courtney McBride report.

• India imposed tariffs on $220 million of U.S. products on Sunday. The move was widely seen as retaliation for U.S. tariffs on aluminum and steel and the U.S. removal this month of special benefits on some Indian exports.
• Secretary of State Mike Pompeo visits New Delhi next week and President Trump is set to meet Prime Minister Narendra Modi later this month in Japan. The meetings will help determine whether one of the most important relationships for both countries stays on track.

Score One for Equal Pay

The U.S. women’s soccer team is in France trying to win a fourth World Cup. Its lawyers are in court trying to win equal pay, playing, training and travel conditions with the men’s team. The latest exhibit: From 2016 to 2018, women’s games generated about $50.8 million in revenue compared with $49.9 million for the men, according to U.S. soccer’s audited financial statements. In 2016, the year after the last World Cup, the women generated $1.9 million more than the men, Rachel Bachman reports.

Facebook Likes Crypto

Facebook Tuesday formally announced plans to launch a cryptocurrency called Libra. The social media company named a series of big, corporate partners—including financial-services heavyweights Mastercard and PayPal Holdings, and tech giants Uber Technologies and Spotify Technology—that it said will help it create a “secure, scalable and reliable” cryptocurrency, Jeff Horwitz and Parmy Olson report.

The effort has been closely watched as one of the most mainstream efforts to deploy digital currencies and has helped push the price of bitcoin higher in recent weeks.

TWEET OF THE DAY

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Q&A: Readers Respond

Do you think the Fed should announce a rate cut Wednesday? Why?

“I don’t think they will, and I don’t think they should…just yet. The data are muddled—not all great, but not clearly heading in a negative direction, either.” —Amanda J. Phalin

“No, the Fed should not announce a rate cut as ‘insurance’ against a potential slowdown that is (arguably) self-inflicted due to trade policy. This is a classic case of moral hazard, allowing future administrations to make otherwise harmful economic decisions with impunity as they would assume they are backstopped by the Fed.” —Justin Irby

“I hope the Fed does not lower rates at this time primarily because they are not historically high, inflation is low and most importantly, the inevitable recession will come and the Fed needs the weapon of lower interest rates to stem the tide of fear.” —Dave Romenesko

“I don’t think that the Fed should announce a rate cut. From my perspective, business is booming, the stock market is doing fine, people are shopping and businesses are having trouble finding people to hire.” —Michael Moy

(Responses are lightly edited.)

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from Real Time Economics https://on.wsj.com/2RkYicV