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Trump calls for US interest rate cut; fears of UK Brexit recession – business live Trump calls for US interest rate cut; fears of UK Brexit recession – business live
(32 minutes later)
One of Donald Trump’s potential rivals for the White House, Democratic senator Elizabeth Warren, has warned that the US economy is at risk of a serious downturn.
But rather than blaming the Federal Reserve, Warren says Trump’s “reckless” actions could be responsible.
In a blogpost, she warns:
Warning lights are flashing. Whether it’s this year or next year, the odds of another economic downturn are high — and growing,”
“The country’s economic foundation is fragile. A single shock could bring it all down. And the Trump Administration’s reckless behavior is increasing the odds of just such a shock.”
She cites the slowdown in manufacturing, and worries that America could hit its debt ceiling soon.
America’s economy has been outpacing other advanced countries in recent years, growing by 3.1% in 2018 (more than twice as fas as the UK). But the slowdown in Europe and the damage caused by the trade war with China could be hurting, just as the boost from Trump’s tax cuts fades.
Donald Trump’s frequent attacks on the Federal Reserve are already undermining the bank’s reputation for independence.Donald Trump’s frequent attacks on the Federal Reserve are already undermining the bank’s reputation for independence.
Investors must now calculate whether the Fed will act purely in line with its mandate, based on the data, or whether criticism from the tweeter-in-chief will sway policymakers.Investors must now calculate whether the Fed will act purely in line with its mandate, based on the data, or whether criticism from the tweeter-in-chief will sway policymakers.
The Bond Vigilantes team at M&G, the City asset managers, point out that undermining central bankers can end badly:The Bond Vigilantes team at M&G, the City asset managers, point out that undermining central bankers can end badly:
As @realDonaldTrump’s tweets pile pressure on the Fed, remember that in the 60s, President Johnson is said to have physically bullied the Fed Chair to pressure him to keep rates low. Inflation subsequently exploded. https://t.co/qmWBOyOqzB pic.twitter.com/oGnokFOpMFAs @realDonaldTrump’s tweets pile pressure on the Fed, remember that in the 60s, President Johnson is said to have physically bullied the Fed Chair to pressure him to keep rates low. Inflation subsequently exploded. https://t.co/qmWBOyOqzB pic.twitter.com/oGnokFOpMF
Over in Washington, Donald Trump has renewed his campaign for US interest rates to be cut, with a fresh volley of tweets criticising the Federal Reserve.Over in Washington, Donald Trump has renewed his campaign for US interest rates to be cut, with a fresh volley of tweets criticising the Federal Reserve.
Trump is arguing that the Fed has hurt the economy by raising rates too high -- perhaps concerned that this Friday’s GDP report will show the US economy has slowed?Trump is arguing that the Fed has hurt the economy by raising rates too high -- perhaps concerned that this Friday’s GDP report will show the US economy has slowed?
He also claims that rates are MUCH too high. That sounds like a call for the Fed to cut aggressively, perhaps by 50 basis points? (the markets currently expect a 25bps cut next week).He also claims that rates are MUCH too high. That sounds like a call for the Fed to cut aggressively, perhaps by 50 basis points? (the markets currently expect a 25bps cut next week).
With almost no inflation, our Country is needlessly being forced to pay a MUCH higher interest rate than other countries only because of a very misguided Federal Reserve. In addition, Quantitative Tightening is continuing, making it harder for our Country to compete. As good.....With almost no inflation, our Country is needlessly being forced to pay a MUCH higher interest rate than other countries only because of a very misguided Federal Reserve. In addition, Quantitative Tightening is continuing, making it harder for our Country to compete. As good.....
....as we have done, it could have been soooo much better. Interest rate costs should have been much lower, & GDP & our Country’s wealth accumulation much higher. Such a waste of time & money. Also, very unfair that other countries manipulate their currencies and pump money in!....as we have done, it could have been soooo much better. Interest rate costs should have been much lower, & GDP & our Country’s wealth accumulation much higher. Such a waste of time & money. Also, very unfair that other countries manipulate their currencies and pump money in!
It is far more costly for the Federal Reserve to cut deeper if the economy actually does, in the future, turn down! Very inexpensive, in fact productive, to move now. The Fed raised & tightened far too much & too fast. In other words, they missed it (Big!). Don’t miss it again!It is far more costly for the Federal Reserve to cut deeper if the economy actually does, in the future, turn down! Very inexpensive, in fact productive, to move now. The Fed raised & tightened far too much & too fast. In other words, they missed it (Big!). Don’t miss it again!
Trump’s claim that there is “almost no inflation” doesn’t stand up, though. Core inflation rose by 2.1% per annum in June, an 18-month high, and slightly over the Fed’s target.Trump’s claim that there is “almost no inflation” doesn’t stand up, though. Core inflation rose by 2.1% per annum in June, an 18-month high, and slightly over the Fed’s target.
But still, his call for an insurance rate cut may resonate with Fed policymakers, as several have hinted that they favour such a move.But still, his call for an insurance rate cut may resonate with Fed policymakers, as several have hinted that they favour such a move.
The pound has lost more than 5% of its value against the US dollar in the last 12 weeks, as fears of a no-deal Brexit have intensified.The pound has lost more than 5% of its value against the US dollar in the last 12 weeks, as fears of a no-deal Brexit have intensified.
UK holidaymakers heading abroad this summer will feel sterling’s weakness. And Michael Brown, senior analyst at Caxton FX, fears there could be further losses in the future:UK holidaymakers heading abroad this summer will feel sterling’s weakness. And Michael Brown, senior analyst at Caxton FX, fears there could be further losses in the future:
“For the pound, politics will remain the main focus in the week ahead, with the new Conservative Party leader set to be announced tomorrow.“For the pound, politics will remain the main focus in the week ahead, with the new Conservative Party leader set to be announced tomorrow.
Markets will be focused primarily on the Prime Minister’s Brexit plan, with moves towards a no-deal Brexit likely to result in downward pressure on the pound.Markets will be focused primarily on the Prime Minister’s Brexit plan, with moves towards a no-deal Brexit likely to result in downward pressure on the pound.
NIESR’s warning that the UK could already be entering a Brexit-induced recession hasn’t helped sterling.NIESR’s warning that the UK could already be entering a Brexit-induced recession hasn’t helped sterling.
The pound is now down almost half a cent today at $1.245, heading towards the 27-month lows struck last week.The pound is now down almost half a cent today at $1.245, heading towards the 27-month lows struck last week.
The news that a government minister has quit even before Boris Johnson get a chance to measure 10 Downing Street for new curtains has reminded the City that Britain’s next PM will face the same parliamentary challenges as Theresa May.The news that a government minister has quit even before Boris Johnson get a chance to measure 10 Downing Street for new curtains has reminded the City that Britain’s next PM will face the same parliamentary challenges as Theresa May.
So with a no-deal Brexit looming, and the economy weak, there’s little love for the pound today.So with a no-deal Brexit looming, and the economy weak, there’s little love for the pound today.
JP Morgan told its clients that Britain’s “chronic” balance of payments problem is a worry:JP Morgan told its clients that Britain’s “chronic” balance of payments problem is a worry:
While the trigger for the pound’s slide is the re-rating of hard Brexit risk, the reason GBP has been so sensitive to political risk is the UK’s uniquely vulnerable external position. The UK runs the largest current account deficit of any major economy and has amongst the lowest real yields, especially now that the BoE is priced to ease as the economy contracts, not to hike.While the trigger for the pound’s slide is the re-rating of hard Brexit risk, the reason GBP has been so sensitive to political risk is the UK’s uniquely vulnerable external position. The UK runs the largest current account deficit of any major economy and has amongst the lowest real yields, especially now that the BoE is priced to ease as the economy contracts, not to hike.
Overseas investors are thus not compensated for the maximal level of UK political risk, and without this they have little reason to invest as another Brexit deadline approaches with zero visibility.Overseas investors are thus not compensated for the maximal level of UK political risk, and without this they have little reason to invest as another Brexit deadline approaches with zero visibility.
City investors would, on balance, marginally prefer Jeremy Hunt to replace Theresa May rather than Boris Johnson.City investors would, on balance, marginally prefer Jeremy Hunt to replace Theresa May rather than Boris Johnson.
That’s according to a survey from The Share Centre, which also warns that whoever wins has “much to do to regain personal investors’ confidence” given the negative view of the Conservative government since the 2017 General Election.That’s according to a survey from The Share Centre, which also warns that whoever wins has “much to do to regain personal investors’ confidence” given the negative view of the Conservative government since the 2017 General Election.
They say:They say:
When asked, given the commitments made, which of the leadership contenders would be best for personal investors, 35% said Hunt as compared to 29% who favoured Boris Johnson.When asked, given the commitments made, which of the leadership contenders would be best for personal investors, 35% said Hunt as compared to 29% who favoured Boris Johnson.
This translated into a preference among those who expressed an opinion between Jeremy Hunt and Boris Johnson of 51% stating that Jeremy Hunt should be the next Prime Minister as compared to 49% favouring Boris Johnson.This translated into a preference among those who expressed an opinion between Jeremy Hunt and Boris Johnson of 51% stating that Jeremy Hunt should be the next Prime Minister as compared to 49% favouring Boris Johnson.
The survey also found that just one in seven investors believe the Conservative Government since 2017 has been good for personal investors -- quite a blow to the Thatcherite vision of a share-owning democracy.The survey also found that just one in seven investors believe the Conservative Government since 2017 has been good for personal investors -- quite a blow to the Thatcherite vision of a share-owning democracy.
Here are the key points from NIESR’S new report on the UK economy:Here are the key points from NIESR’S new report on the UK economy:
Economic growth has stalled and there is around a one-in-four chance that the economy is already in a technical recession.Economic growth has stalled and there is around a one-in-four chance that the economy is already in a technical recession.
The outlook beyond October, when the United Kingdom is due to leave the European Union, is very murky indeed with the possibility of a severe downturn in the event of a disorderly no-deal Brexit.The outlook beyond October, when the United Kingdom is due to leave the European Union, is very murky indeed with the possibility of a severe downturn in the event of a disorderly no-deal Brexit.
On the assumption that a no-deal Brexit is avoided, the economy is forecast to grow at around 1 per cent in 2019 and 2020 as uncertainty continues to hold back investment and productivity growth remains weak.On the assumption that a no-deal Brexit is avoided, the economy is forecast to grow at around 1 per cent in 2019 and 2020 as uncertainty continues to hold back investment and productivity growth remains weak.
On the assumption of an orderly no-deal Brexit, the economy is forecast to stagnate, before starting to grow again in 2021.On the assumption of an orderly no-deal Brexit, the economy is forecast to stagnate, before starting to grow again in 2021.
Some loosening of the public purse appears inevitable and we expect public sector borrowing to rise above 2 per cent of GDP, with the possibility of substantial over-runs of the government’s fiscal objectives in the event of a no-deal BrexitSome loosening of the public purse appears inevitable and we expect public sector borrowing to rise above 2 per cent of GDP, with the possibility of substantial over-runs of the government’s fiscal objectives in the event of a no-deal Brexit
They’ve also produced this fan chart, showing how they expect the UK economy to fare over the next few years.They’ve also produced this fan chart, showing how they expect the UK economy to fare over the next few years.
Each coloured area shows a 10% probability of coming true (so there’s plenty of uncertainty in the forecast!).Each coloured area shows a 10% probability of coming true (so there’s plenty of uncertainty in the forecast!).
NIESR reckon sterling would plunge by 10% under a no-deal Brexit scenario, which would sent it down towards $1.10 against the US dollar.NIESR reckon sterling would plunge by 10% under a no-deal Brexit scenario, which would sent it down towards $1.10 against the US dollar.
That would be inflationary, driving up the cost of imports.That would be inflationary, driving up the cost of imports.
Dr Garry Young of @NIESRorg says the pound could fall by 10% under no-deal Brexit. Bank rate could be cut to 0.25%. Inflation could rise to 4%. The Bank would then need to raise rates to higher than they are today (0.75%) to tackle rising inflation.Dr Garry Young of @NIESRorg says the pound could fall by 10% under no-deal Brexit. Bank rate could be cut to 0.25%. Inflation could rise to 4%. The Bank would then need to raise rates to higher than they are today (0.75%) to tackle rising inflation.
NIESR is painting a dark picture of Britain’s economic prospects, says Bloomberg:NIESR is painting a dark picture of Britain’s economic prospects, says Bloomberg:
The U.K.’s exit from the European Union may have already pushed the U.K. into a technical recession, according to the National Institute of Economic and Social Research.The U.K.’s exit from the European Union may have already pushed the U.K. into a technical recession, according to the National Institute of Economic and Social Research.
In a gloomy set of new forecasts, Niesr predicted that, even assuming a smooth exit in October, the nation will grow 1% in 2019 and 1% in 2020. There’s an around a one-in-four chance that the economy is already shrinking, the think tank said.In a gloomy set of new forecasts, Niesr predicted that, even assuming a smooth exit in October, the nation will grow 1% in 2019 and 1% in 2020. There’s an around a one-in-four chance that the economy is already shrinking, the think tank said.
The outlook worsens if there a no-deal Brexit, with Niesr seeing the possibility of a “severe” downturn in the event of a disorderly departure. Even if an “orderly” no deal exit is secured, Niesr says the economy will stagnate next year, with inflation accelerating to 4.1% as the pound drops about 10%.The outlook worsens if there a no-deal Brexit, with Niesr seeing the possibility of a “severe” downturn in the event of a disorderly departure. Even if an “orderly” no deal exit is secured, Niesr says the economy will stagnate next year, with inflation accelerating to 4.1% as the pound drops about 10%.
Brexit may have already pushed the UK into a technical recession, Niesr says https://t.co/v8hGUDIymR via @_DavidGoodman @OliviaGKA #tictocnews pic.twitter.com/MrWPmNYeyoBrexit may have already pushed the UK into a technical recession, Niesr says https://t.co/v8hGUDIymR via @_DavidGoodman @OliviaGKA #tictocnews pic.twitter.com/MrWPmNYeyo
NIESR says there is a significant danger of a UK recession in the next year.NIESR says there is a significant danger of a UK recession in the next year.
As well as a one-in-four chance that the economy is already shrinking, there’s a 30% danger of a recession in 2020.As well as a one-in-four chance that the economy is already shrinking, there’s a 30% danger of a recession in 2020.
Professor Jagjit Chadha, the think tank’s director, says:Professor Jagjit Chadha, the think tank’s director, says:
“However we look at it, there will not be much economic joy in a no-deal Brexit,”“However we look at it, there will not be much economic joy in a no-deal Brexit,”
We discover early next month whether Britain’s economy shrank in the second quarter of 2019, as NIESR fears is possible.We discover early next month whether Britain’s economy shrank in the second quarter of 2019, as NIESR fears is possible.
But to be an official recession, the economy would then also have to contract in July-September -- which is possible, if no-deal Brexit fears hurt business investment and consumer spending.But to be an official recession, the economy would then also have to contract in July-September -- which is possible, if no-deal Brexit fears hurt business investment and consumer spending.
.@NIESRorg warn there is a 30% chance of a recession in the U.K. next year - largely because of no-deal Brexit, but there could still be one with a deal, given the lack of momentum in the economy.@NIESRorg warn there is a 30% chance of a recession in the U.K. next year - largely because of no-deal Brexit, but there could still be one with a deal, given the lack of momentum in the economy
NIESR’s director, Jagjit Chadha, is warning that a no-deal Brexit would “throw concrete” into the wheels of the UK economy, knocking around 5% off GDP in the long run.NIESR’s director, Jagjit Chadha, is warning that a no-deal Brexit would “throw concrete” into the wheels of the UK economy, knocking around 5% off GDP in the long run.
In the short term, though, the Bank of England could cut interest rate to prop up growth, he adds.In the short term, though, the Bank of England could cut interest rate to prop up growth, he adds.
No-deal Brexit could “throw concrete” in the wheels of the UK economy ⁦@jagjit_chadha⁩ warns - saying the long-run impact would be about 5% of GDP every year pic.twitter.com/OBKu4Sk4HnNo-deal Brexit could “throw concrete” in the wheels of the UK economy ⁦@jagjit_chadha⁩ warns - saying the long-run impact would be about 5% of GDP every year pic.twitter.com/OBKu4Sk4Hn
He says Bank of England and Treasury responses could offset the initial impact, meaning growth could fall to about zero - rather than the immediate recession scenario used by the BOE - but it won’t offset the long runHe says Bank of England and Treasury responses could offset the initial impact, meaning growth could fall to about zero - rather than the immediate recession scenario used by the BOE - but it won’t offset the long run
He says the Bank could respond with interest rate cuts, more QE, if demand falls. But - there are benefits of the Treasury running fiscal deficits - ie. higher levels of government borrowing - to reboot the economy, as monetary policy is close to running out of ammoHe says the Bank could respond with interest rate cuts, more QE, if demand falls. But - there are benefits of the Treasury running fiscal deficits - ie. higher levels of government borrowing - to reboot the economy, as monetary policy is close to running out of ammo
The title of NIESR’s press conference is “Economic Prospects Deteriorate As New PM Takes Over”, which rather sets the tone for prime minister Johnson (or possibly Hunt).The title of NIESR’s press conference is “Economic Prospects Deteriorate As New PM Takes Over”, which rather sets the tone for prime minister Johnson (or possibly Hunt).