Not much Fed can do right now to help world economy

Federal Reserve chair Jerome Powell

In addition to the Fed’s focus on balancing inflation against employment, Federal Reserve chair Jerome Powell is dealing with two other sources of stress. Investors have been critical of how he communicates policy and The Donald has been demanding, more aggressive by the day, for more monetary accommodation via interest rate cuts and quantitative easing.

Powell has juz given Trump the finger.

Powell has now called the current era of Fed history the “emerging new normal”, and said it offered three challenges: low inflation, financial risks, and how the Fed can support economic growth when interest rates are already so low. The Fed, he added, “faces heightened risks of lengthy, difficult-to-escape periods in which our policy interest rate is pinned near zero.”

How to support economic growth when interest rates are already so low is an important question for central bankers all over the world. They had gathered in Jackson Hole, Wyoming, to among other things, discuss whether policy rates have any effect on the real economy.

With his historical timeline, Mr Powell offered an answer to both. The current era of slower growth, downward pressure on inflation, and lower interest rates is the consequence of long-term trends. And there is not much the Fed can do right now to help.

It’s a very pessimistic (and hawkish: nothing much can be done) speech.

Here’s how the Economist put it

He spoke of the difficulty the Fed faced in assessing and responding to Mr Trump’s trade war. And he mentioned that if interest rates globally remain near zero, then central banks may need new policies. But on the subject of the moment—what the Fed will do next—he gave little away. “We will act as appropriate to sustain the expansion, with a strong labour market and inflation near its symmetric 2% objective,” he said.

Mr Powell may have felt he could say little more, given the disagreement within the Fed. But both the recent minutes and the speech today devoted more words to the possibility that low rates might contribute to financial instability than has recently been the norm in the Fed’s discussions. That may be a sign of more determined opposition to additional easing than recognised hitherto.

https://www.economist.com/finance-and-economics/2019/08/23/now-donald-trump-calls-the-feds-chairman-an-enemy

And btw, Trump’s not that dumb

At least one observer felt the hawkish overtones of the speech to be crystal clear. “As usual, the Fed did NOTHING!” Mr Trump tweeted after Mr Powell’s remarks. “My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?” The president thus cast a longer shadow than the Tetons over the day’s events.

https://www.economist.com/finance-and-economics/2019/08/23/now-donald-trump-calls-the-feds-chairman-an-enemy

How all this impacts us:

S’pore: the canary in the coalmine/ Is the ground sweet for the PAP?

Latest “bad” economic data is really “gd” news for PAP

“Only cold spell coming, but not Winter,” says Heng

Ground is not sweet economically/ Authorities may have to do something but no gd options

 

Cynical Investor

Cynical Investor blogs at Thoughts of a Cynical Investor

 

 

 

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19 Responses to “Not much Fed can do right now to help world economy”

  • oxygen:

    THE 2009 GFC RECESSION NEVER REALLY ENDS,economy only kept afloat by a flood of cheap debt leverage.

    Cave-men and cave-women snoozing inside their caves just didn’t know of this -

    Hype, smoke, and hot air’ clouding Singapore real estate

    https://www.msn.com/en-sg/news/singapore/hype-smoke-and-hot-air-clouding-singapore-real-estate/ar-AAFGEh3

    and one view warns of this

    The next recession will destroy millennials

    https://www.msn.com/en-sg/money/news/the-next-recession-will-destroy-millennials/ar-AAGp0ak?li=BBr8Cnr

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  • TL Tan:

    It is true that monetary policy has reached its limits to stimulate growth. However, there is still ample room for fiscal stimulus (with the exception of the Eurozone), especially in the developing world. Indonesia for example, has a very low debt-to GDP ratio of only 30%. The population is very young and the country still has lots of room for urbanization, implying demand for commodities such as coking coal and iron ore remain very strong. Furthermore, the true productivity effects of the technology revolution have not yet been felt. This period is only a slight bump in what is overall very douns long-term propspects for the global economy.

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  • CI and Tan KL are Plagiarists:

    Cynical Investor & Tan Kin Lian. Both of you think TRE readers stupid like both of you? Only the stupid will respond to your articles.

    Cynical Investor:
    In addition to the Fed’s focus on balancing inflation against employment, Federal Reserve chair Jerome Powell is dealing with two other sources of stress. Investors have been critical of how he communicates policy and The Donald has been demanding, more aggressive by the day, for more monetary accommodation via interest rate cuts and quantitative easing.

    See the link below from Financial Times which CI copy whole chunk:

    https://www.ft.com/content/ef0d0436-c5a9-11e9-a8e9-296ca66511c9

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  • pap clown and S$m gang:

    CI and Tan KL are Plagiarists:
    Cynical Investor & Tan Kin Lian. Both of you think TRE readers stupid like both of you? Only the stupid will respond to your articles.

    See the link below from Financial Times which CI copy whole chunk:

    https://www.ft.com/content/ef0d0436-c5a9-11e9-a8e9-296ca66511c9

    very well said, bro.

    they talk like they know what is happening. such a shame. it shows their lack of education, and their lack of shame.

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  • Asd:

    Go ask yr Heng Heng… old goose say he save sg 2008 crisis… ask him go save the world..

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  • Rabble-rouser:

    @ TL Tan:an
    Hello! You’re slurring your words (In Caps) here! If you don’t believe in what your writing, give it up!

    TL Tan: what is overall very DOUNS long-term PROPSPECTS for the global economy

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  • Asd:

    Wow lan ai clown investor… cut and paste than add abit of salt ar..

    Sound like dam pro investor but just a noobie king…

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  • TruBlu:

    Look at stats of FORBES BILLIONAIRES past 10/15 years.

    Despite workers losing jobs n a slow growing global economy,number of BILLIONAIRES INCREASES; so too their TOTAL NET WORTH.

    GLOBALISATION HAS BEEN TURNED INTO GOBBLE-LIE-sation.

    How to have GROWTH WITHOUT WIDE SPREAD WEALTH DISTRIBUTION?
    AGGREGATE DEMAND IS EFFECTIVELY REDUCED.

    HOARDING IMPEDES GROWTH.
    BLAME IT ON THE BEZOs n the Lis???

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  • TruBlu:

    The MONEY the Central Banks PRINTED has gone into the pockets of the RICH N POWERFUL BUSINESSMEN DEFEATING ITS ORIGINAL PUTPOSE?

    GREED IS THE ROOT CAUSE OF EVIL EVERYWHERE.

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  • Harder Truths:

    Is this why the d*shonourable son is leaving? So he can escape the blame and pass it on to greater fools?

    Watch out for his main people in cabinet to follow him after next erection – I SMELL A RAT.

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  • Rabble-rouser:

    Typical Cynical Investor article – as usual barking up the wrong tree!

    The power of Central Banks were overrated & overly simplified. The real Global Economy is the real deal, not Central Banks. The Global Economy is about trade (shipping, logistics) & settlement over the act of trading (transfers, bank financing, cash flows, etc).

    And Donald Trump just wrecked the Global Economy with his US/China trade wars by his childish actions. He just flicked at the first domino tile leading to a cascading effect of falling domino tiles. Trump has got no sense of economics nor business acumen. How he made his billions makes it bewildering to many as to how he did it? The guy’s a walking disaster!

    First off, our global economy works first on extraction, production & manufacturing which are then onsold through the global supply chains either as capital goods or as intermediate products. At the final Global Supply link are the end-users or the consumers.

    Trump’s trade war creates disruption & added inflation in the form of tariffs & taxes to the global supply links as well to the consumer. It introduces an element of higher inflation, higher consumer prices & disrupted supply lines at a time of slow economic recovery.

    High consumer end prices means either a reduction in consumption or severe economic hardship for those who can’t cut consumption because either they have low income or big debts to service. Consumption might shrink tremendously leading to a lower money velocity of spending, shrinking cash flows & either increasing losses/reduced profits aka a Recession. It’s the cash flow, stupid!

    Trump’s senseless jawboning for a lower interest rate regime to prop up an already high US stockmarket without any rationale nor real fundamentals.

    And at the same time, Trump took up the notion “Making America Great Again” for a trade war with China to address nearly 5 decades of various US political decisions (on Internatiobal trade, on Globalization & Global Finance);
    * to abandon US industrialization; the futility to manufacture inside a high wage economy;
    * to consume using the advantages of the US$ reserve Currency Status which the world uses as an International Currency for trade, investment & wealth hoarding.

    The QE-fuelled Global Eco-system have created loads of debt dependent zombies.
    - Cont’d -

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  • Rabble-rouser:

    - Cont’d -
    A good analogy is a like a fixed wage earner who has a credit card debt. He never settles his credit card purchases but rollover his credit balance by making the minimum payment on his card. Of course, his credit card balance starts to balloon. He then seeks & applies for a new credit card to transfer part of his outstanding balance over. Now he balances 2 credit cards by making 2 sets of minimum payments. As long as his income is enough to play this game, he is just one step ahead of the bankruptcy courts.
    Already, Restructuring Experts in S’pore are warning SG$12 Billion worth of bonds which are maturing in 2020 & are facing risks of being unable to refinance them in a increasingly wary capital market afraid of higher default risks & fear of non-repayment of loans.
    https://www.straitstimes.com/business/companies-markets/singapore-faces-more-bad-debts-as-bonds-mature-experts

    S’pore’s economic contraction will be even more severe when the imposition of additional GST is included. No, not reducing interest rates but the spectre of declining cash flows is the fear in the economy!

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  • Python 5:

    oxygen: The next recession will destroy millennials

    Oxygen, must destroy the 70%. that is the most important.
    destroy them utterly with the 5Ds. debts, divorce, destitution, depression, death.

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  • cut and paste is plagiarism:

    CI and Tan KL are Plagiarists:
    Cynical Investor & Tan Kin Lian. Both of you think TRE readers stupid like both of you? Only the stupid will respond to your articles.

    See the link below from Financial Times which CI copy whole chunk:

    https://www.ft.com/content/ef0d0436-c5a9-11e9-a8e9-296ca66511c9

    It has been long established that the cystical incestor is a cheat, a shame to the papa and mama who birthed the cheat.

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  • oxygen:

    @ TL Tan

    INDONESIA, THE BRIGHT SPOT for economic development?

    TL Tan: It is true that monetary policy has reached its limits to stimulate growth. However, there is still ample room for fiscal stimulus (with the exception of the Eurozone), especially in the developing world. Indonesia for example, has a very low debt-to GDP ratio of only 30%. The population is very young and the country still has lots of room for urbanization, implying demand for commodities such as coking coal and iron ore remain very strong. Furthermore, the true productivity effects of the technology revolution have not yet been felt. This period is only a slight bump in what is overall very douns long-term propspects for the global economy.

    Read these for your education of both Intrepid Mining and IndoAust – it seems LIGHTNING STRIKE AT THE SAME PLACE -TUJUH BUKIT – TWICE.

    Sydney Morning Herald : ndoAust and its workers were forced to evacuate the Tujuh Bukit site in April 2008 in the same dramatic fashion as Intrepid in July this year.

    https://www.smh.com.au/business/jv-partners-play-mining-shell-game-with-intrepid-20121216-2bhif.html?skin=text-only

    and in 2012, a repeat show.

    They stole our gold mine!

    https://www.smh.com.au/business/companies/they-stole-our-gold-mine-20121219-2bm4w.html

    and

    Today Online: DBS has ended its bid for PT Bank Danamon in Indonesia, after the proposed transaction languished for over a year waiting for approval from Indonesia’s financial regulators.

    https://www.todayonline.com/business/dbs-walks-away-bid-acquire-indonesias-bank-danamon

    and this

    Indonesia Still Looking to Strip Freeport-McMoRan of World’s Largest Gold Mine

    https://www.fool.com/investing/2017/04/20/indonesia-still-looking-to-strip-freeport-mcmoran.aspx

    WITHOUT FOREIGN INVESTMENT IN CAPITAL AND TECHNOLOGY, INDONESIA WILL REMAIN THIRD WORLD ECONOMY FOREVER.

    @ TL Tan, your narrative broad sweep of hallucination dwells in your own fantasy land.

    Indonesia has a LONG HISTORY OF SOVEREIGN RISKS UNENDING.

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  • TruBlu:

    THE MIGHTY USA PRESIDENT IS THE MOST DEMOCRATIC DICTATOR.
    the FED CHAIRMAN IS NOW NO MORE INDEPENDENT,he is being grabbed by the balls by his BO$$,DT.

    In any case,DT N HIS PEOPLE are very afraid of the RISE OF GIANT PANDA which was once their FAVOURITE ‘CASH-COWS’ slogging for pittance just a couple or more decades ago.

    NO?
    GO ASK HP,LEVIS,NIKE AND OTHERS!

    AMERCIANS ARE NOE UNHAPPY THAT THE PANDAs they fed have now become GIANT$$$???

    So,die die MUST ‘SLOW’ their ‘PRE-MATURED’ GROWTH which USA even took A LOT MORE YEARSSSS????

    HOWS THAT FOR THE LEADER OF DEMOCRACY?

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  • TruBlu:

    MORE seriously,THE FED,of course CANNOT DO ANYTHING at all.

    there is TOO MUCH DEBT CHURNED OUT THE LAST TWO DECADES!

    it was meant to give a BOO$T TO THE ECONOMY AT LARGE BY PUTTING MONEY INTO THE HANDS OF THE PEOPLE BUT,ALAS,THE MONEY PRINTED ONLY WENT TO THE RICH N POWERFUL through A PROCE$$ the RICH N MIGHTY CALLS LOVINGLY AS ‘GLOBALISATION’???

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  • Haigen-Diaz:

    Problem is Cynical Investor completely misplaced blame based on fundamental misunderstanding of macroeconomics – confusing MONETARY stimulus with FISCAL stimulus…The Fed kept rates artificially low for a decade and employed three rounds of quantitative easing – which is MONETARY stimulus. Could argue this is partially responsible for creating the stunning rise in income inequality over the last decade (as it resulted in inflating asset prices, i.e. the stock market) but is not responsible for “getting the economy going”

    At the same time the Republicans in Congress prevented any further / much needed FISCAL stimulus following the TARP programs at the end of the Bush Administration / beginning of the Obama administration.

    The Fed must “re-load” its ammunition for the next cycle, which means unwinding the emergency measures it kept in place for far too long. That meant raising rates and reducing the size of its balance sheet.

    Trump does not know or care about economic policy. What he does know is if there is a recession anytime before Nov. 3rd, 2020 he is out of a job. He doesn’t care about consequences beyond that date, he doesn’t understand the term anyway.

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  • Rabble-rouser:

    Mate! TL Tan was just born yesterday.

    If he had been conceived in an earlier era. He would have learnt about “BRE-X” – an even bigger Indonesian Mining Scandal & outright Geological Fraud which rocked the Indonesian Mining Industry & the Global financial world. Intrepid is small potatoes by comparison.

    Bre-X even took the then-President Suharto’s family (who greedily muscled in for a minority stake) on a ride to nowhere. The fraud then spectacularly blew up in everyone faces including Suharto’s family of “influ-prenuers”. This Bre-X scandal which was one of the main factors that ultimately ended “Bapak” Suharto’s reign during the 1998 Asian Currency Crisis.

    TL Tan’s Indonesian business knowledge is incredibly hilarious!

    oxygen;: @ TL Tan

    INDONESIA, THE BRIGHT SPOT for economic development?

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