Weekly Commentary: Central Banker to the World
July 11 – Bloomberg (Rich Miller): “Federal Reserve Chairman Jerome Powell is starting to sound a bit like he’s the world’s central banker. In Congressional testimony this week, he repeatedly cited a slower global economic expansion in laying out the case for easier U.S. monetary policy. ‘There’s something going on with the growth around the world, particularly around manufacturing and investment and trade,’ he told the House Financial Services Committee… as he all but promised an interest-rate cut at the end of this month.”
Chairman Powell was decisive. While not directly announcing an imminent cut, he essentially pre-committed to reducing rates at the July 31st meeting. Record stock prices don’t matter. Booming corporate Credit is no issue. June’s big gain in payrolls and a 3.7% unemployment rate are not part of the decision function. A Friday afternoon Bloomberg headline resonated: “A Stock Market Dying to Know What Powell Knows About the Economy.”
The so-called “insurance” rate cut is all about the global environment, with monetary policy’s traditional domestic focus relegated to history. The reduction will be justified by “crosscurrents,” “uncertainties” and below-target inflation. But is the global economy really in such bad shape to warrant preemptive monetary stimulus during a period of market ebullience? What Does Powell – and his cadre of global central bankers – Know?
China’s GDP is expected to expand between 6.0% and 6.5% this year. While slowing, growth throughout EM is forecast between three and four percent. Nothing to write home about, but euro zone GDP is expected to exceed 1.0% this year. Japan could see 3.0% 2019 GDP growth. Bank American Merrill Lynch today lowered their forecast for 2019 global GDP growth to 3.3% from 3.6%. Deserving of even lower rates and more QE?
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