US Fed to join ranks of other central banks in stimulating economy

July 31, 2019: The Federal Reserve is walking a tight rope of competing economic forces but is set on Wednesday to rejoin the central banks worldwide that are easing access to credit to keep growth from faltering.

President Donald Trump, whose aggressive trade policies have thrown a wrench into the world economy and complicated the Fed's carefully laid plans, will certainly cheer a rate cut and likely call for more, as he has been doing for months.

Economists, however, are torn. Many say the US economy does not need additional stimulus.

Fed Chair Jerome Powell is due to announce the outcome of the latest two-day policy meeting on Wednesday afternoon.

But others see on the horizon a slowdown in China's growth, the European Union on the brink of an unknown Brexit outcome, added to a drop off in US business investment and rising corporate debt levels, and say the Fed is right to retreat for now.

Mohamed El-Erian, chief economic adviser at Allianz, said “unwinding” the December increase in the Fed's benchmark lending rate will put the central bank back “where some of us thought it should be going into 2019.”

And, he said on Twitter, “The Fed's dramatic dovish pivot has opened the way/forces other central banks to also loosen monetary policy.”

The European Central Bank, which has held the policy interest rate at zero, indicated it is ready to provide more stimulus — even turning rates negative — as did the central banks of Britain and Japan.

The Fed in the past has for the most part been ahead of the curve, cutting quickly as the global financial crisis erupted in late 2007, and then raising rates as the United States began to recover before other advanced economies.


Posted on: 2019-07-31T10:35:00+05:00