Tags: inflation | fed | rate | cut

Here's Why Fed Won't Cut Rates Soon

Here's Why Fed Won't Cut Rates Soon
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Wednesday, 10 April 2019 10:31 AM Current | Bio | Archive

The Consumer Price Index increased 0.4 percent in March on a seasonally adjusted basis after rising 0.2 percent in February. Over the last 12 months, the all items index increased 1.9 percent before seasonal adjustment.

The all items index increased 1.9 percent for the 12 months ending March, a larger increase than the 1.5-percent rise for the period ending February, according to the CPI data. The index for all items less food and energy rose 2.0 percent over the last 12months.

In simple words, inflation rates are practically at the Fed’s target level, so a rate cut by the Fed isn't in the cards.

The dollar index quotes at about 96.0240, slightly higher from yesterday’s close.

Meanwhile, the European Central Bank (ECB) left its key interest rates unchanged and expects them to remain at their present levels at least “through” the end of 2019.

So, no surprise and no change.

The euro quotes at about $1.1258, slightly lower from yesterday’s close.

In the interminably tedious EU-UK divorce, Donald Tusk, President of the European Council has written to the heads of government urging a long but flexible extension period to the exit while noting that the UK can revoke Article 50 if it chooses to.

Yes, the UK could get a two year extension by revoking and re-imposing Article 50.

So, it probably would be better for EU leaders to agree to an extension on the EU’s terms.

Do financial markets care? No, they do not.

The financial markets are expecting for now an extension towards the end of the year. The act of extension “hints” at a softer final settlement.

In the meantime, companies are likely to continue to delay big investment decisions in the UK until they know what happens next. It is perhaps worth noting that if the EU has up to a one year delay, they might end up dealing with a “different” UK Prime Minister at the end of that time period.

The British pound quotes at about USD $1.3089, slightly up from yesterday’s close.

Yesterday, the IMF lowered its global growth forecast for 2019 to 3.3 percent from the previous level of 3.5 percent in its latest World Economic Outlook (WEO). It also projects a decline in growth this year for 70 percent of the global economy, but for China it projects it to grow by 6.3 percent this year, which is up from 6.2 percent it projected earlier.

In the context of all this, it might be helpful for investors to have, if possible, the most recent data at hand to have a clearer picture of where we could be headed for in important economies.

This morning we got industrial production data of France, Italy and the UK.

France's industrial production increased 0.4 percent from a month earlier in February, slowing from a downwardly revised 1.2 percent gain in January, but beating market expectations of a 0.5 percent decline. However, negative base effects still saw annual growth slide by 1.1 percentage points to 0.6 percent.

Italy’s industrial production increased 0.9 percent year-on-year in February, rebounding from a 0.8 percent drop in January and compared with market expectations of a 0.9 percent decline. It was the first gain in industrial activity since October of last year. On a monthly basis, industrial output went up 0.8 percent, after an upwardly revised 1.9 percent rise.

Industrial production in the United Kingdom edged up 0.1 percent year-on-year in February, recovering from a downwardly revised 0.3% fall in the previous month. It was the first gain in industrial activity since August of last year. On a monthly basis, industrial output went up 0.6 percent, after an upwardly revised 0.7 percent gain in January.

For investors, it’s also noteworthy that China, which is now performing a quarter of the world’s manufacturing, and in February China being subject to the Lunar New Year holiday distortions, as investors we should perhaps be prepared for “noise” in “everyone’s” manufacturing data in the earlier months of the year as Chinese disruption will affect manufacturers further up the supply chain.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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Inflation rates are practically at the Fed’s target level, so a rate cut by the Fed isn't in the cards.
inflation, fed, rate, cut
693
2019-31-10
Wednesday, 10 April 2019 10:31 AM
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