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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.
Wait for It
The Federal Reserve held interest rates steady and signaled no appetite to raise them soon. New projections released after the Fed’s latest meeting showed most officials think rates are low enough to stimulate growth. If their favorable outlook holds, most expect they could leave rates unchanged through 2020. In that scenario, most see the Fed raising rates once or twice after that. But Chairman Jerome Powell’s press conference and language in the committee’s official policy statement indicated a lower threshold for the Fed to cut rates again than to raise them, Nick Timiraos writes.
So did the Fed mess up when it raised rates—four times—last year? Some critics certainly think so. The evidence: In December 2015, Fed officials thought the natural unemployment rate–the lowest sustainable without fueling inflation–was 4.7%. It is now 3.5%, yet inflation continues to run below the Fed’s 2% target. Had the Fed foreseen that, critics say, it would have raised rates more slowly or not at all, and employment and inflation today would have been higher. But if the Fed made an error, it was one from which it has recovered with little obvious damage: The job market has steadily strengthened and recession risks have faded, Greg Ip writes.
WHAT TO WATCH TODAY
The U.K. holds a general election. The vote will determine Brexit’s fate.
The European Central Bank releases a policy statement at 7:45 a.m. ET and Christine Lagarde holds her first news conference as ECB president at 8:30 a.m. ET.
U.S. jobless claims are expected to rise to 212,000 from 203,000 a week earlier. (8:30 a.m. ET)
The U.S. producer-price index for November is expected to rise 0.2% from the prior month. (8:30 a.m. ET)
Bank of Canada Gov. Stephen Poloz speaks in Toronto at 12:30 p.m. ET.
The Bank of Japan releases its December Tankan survey of business sentiment at 6:50 p.m. ET.
TOP STORIES
The Price Is Right
Inflation isn’t likely to take off anytime soon. U.S. consumer prices rose at a 2.1% annual pace in November due largely to higher energy and shelter costs, the Labor Department said Wednesday. Meanwhile, U.S. unit labor costs—a measure of labor costs and production output—were revised down sharply for the second and third quarters in a separate productivity report. The readings suggest that companies have less pricing power because of factors including globalization and consumers’ growing tendency toward comparison shopping—trends likely to continue even though U.S. unemployment is at historic lows and companies face higher prices for some products tied to tariffs, Sarah Chaney reports.
Can’t Buy Me Love
Big government spending is back. Prime Minister Boris Johnson is promising voters in Thursday’s U.K. election £100 billion ($128 billion) of investment in infrastructure and billions more for policing and health care. The Labour Party’s Jeremy Corbyn is offering an even greater bounty, with hundreds of billions in spending and borrowing to remake Britain as a 21st-century state-run economy. With these pledges, the U.K. joins the ranks of advanced economies where politicians are signaling an end to years of constrained fiscal policy. President Trump’s tax cuts and military spending pushed the federal budget deficit to $1 trillion. France and Spain are relaxing budget goals to pay for tax cuts and extra social benefits. The Netherlands, Finland and Germany are boosting outlays on welfare, defense and infrastructure. In Japan, Prime Minister Shinzo Abe’s cabinet has approved a $120 billion stimulus program, Jason Douglas reports.
Speaking of government spending: The U.S. budget deficit rose in the first two months of the fiscal year as higher spending on the military and health care pushed up government outlays. The budget gap over the past 12 months exceeded $1 trillion for the second month in a row, totaling 4.8% as a share of gross domestic product, Kate Davidson reports.
Elizabeth Warren’s wealth tax would raise $2.7 trillion over a decade, $1.1 trillion short of her presidential campaign’s estimates, according to a new analysis from the Penn-Wharton Budget Model. The difference stems in part from disagreement over the pervasiveness of tax avoidance. Still, the new study projects that the wealth tax would raise more money than critics have argued, and the analysis suggests it could be a significant new revenue source targeted at very few people, Richard Rubin reports.
Stop Me if You Think That You’ve Heard This One Before
U.S. and Chinese trade negotiators are still working on a way to strike a near-term deal, according to Beijing, as the deadline for a fresh round of U.S. tariffs draws near. “Trade teams from both sides are maintaining close communications,” Chinese Commerce Ministry spokesman Gao Feng said Thursday. The U.S. is scheduled to impose a new round of tariffs on Dec. 15, though recently officials from both countries have said that’s not a drop-dead date to reach a limited deal and there are signs the Trump administration could delay them.
Should Mr. Trump go ahead with tariffs scheduled for Sunday, they will hit consumer products for which there are few alternatives to Chinese imports. Previous tariff rounds were affixed on goods that Americans buy not only from China, but from other countries as well. The Trump administration has left for the last round goods—cellphones, laptops, videogame devices—that the U.S. sources from China 87% of the time, Anthony DeBarros and Maureen Linke report.
WHAT ELSE WE’RE READING
Former Federal Reserve Chairman Paul Volcker warns: “When I was writing my book, I observed that President Donald Trump had not attacked the independent U.S. Federal Reserve, for which I was grateful. To say that is no longer true would be an understatement. Not since just after the second world war have we seen a president so openly seek to dictate policy to the Fed. That is a matter of great concern, given that the central bank is one of our key governmental institutions, carefully designed to be free of purely partisan attacks. I trust that the members of the Federal Reserve Board itself, the members of Congress responsible for Fed oversight, and indeed the public at large, will maintain the Fed’s ability to act in the nation’s interest, free of partisan political purposes,” he wrote in an posthumously published Financial Times essay.
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