Archives for January 2020

“It’s a very serious issue,” Mr. Powell said. “There will clearly be implications, at least in the near-term, for Chinese output,” adding that “we just have to see what the effect is globally.”

Mr. Powell said the central bank is “very carefully monitoring the situation.”

The Fed is trying to stay nimble as growth chugs along but price increases remain subdued.

Mr. Powell said the Fed is “not comfortable with inflation running persistently below our 2 percent symmetric objective” and said that “in theory inflation should be moving up” given the United States economy is in its 11th year of an expansion and unemployment is very low. Mr. Powell noted that the 2 percent goal is “not a ceiling,” suggesting that price gains above that level would not be problematic for the Fed.

The comments, along with the statement, suggest the Fed is in no rush to make any major rate or policy adjustments barring a significant change in the economic trajectory.

That is unlikely to sit well with Mr. Trump, who has been pushing the central bank to slash rates further. In a tweet on Tuesday, Mr. Trump said “the Fed should get smart lower the Rate,” arguing that comparatively high rates in the United States are putting the country at a disadvantage.

The central bank does not answer to the White House, and officials regularly reiterate that they set a policy with an eye toward their twin goals: maximum employment and stable inflation.

Yet officials are facing a conflicting backdrop when it comes to achieving those targets.

Hopes of a global growth turnaround had been climbing, helped along by an initial trade deal with China. Mr. Trump also signed a revised North American Free Trade Agreement on Wednesday, bringing more than two years of fraught negotiations to a close.

Article source: https://www.nytimes.com/2020/01/29/business/economy/fed-interest-rates-decision.html?emc=rss&partner=rss

At a meeting in Buenos Aires in November 2018, Mr. Trump joined the leaders of Canada and Mexico in signing the revised deal. But he still faced an uphill path to get the pact approved in Congress, particularly the Democratic-controlled House of Representatives.

“I hope he understands what he’s signing today,” Ms. Pelosi said at a news conference, holding up a fact sheet outlining the changes Democrats secured for labor, enforcement, environment and prescription drugs. “Just because he’s the person signing it would not be a reason we would not do something good for the American people.”

On Capitol Hill, Democrats sought to remind people that the pact would not have won overwhelming bipartisan support without their changes, particularly the updates to labor enforcement.

“The only reason that the president is having a signing today is because of what we did as Democrats,” Representative Richard E. Neal of Massachusetts, the chairman of the Ways and Means Committee, said at an infrastructure news conference.

Some Democrats were quick to point out that the deal being celebrated by Republicans at the White House was far more in line with Democratic priorities than with traditional conservative ones.

“It actually kind of puts a smile on my face,” said Representative Jimmy Gomez, Democrat of California, in an interview. “It’s ironic. They’re lauding the most progressive trade deal in the history of this country.”

“They should send her a box of chocolates,” Mr. Gomez said of Ms. Pelosi, who has a famous penchant for chocolate, particularly from California. “Dark. Ghirardelli.”

Article source: https://www.nytimes.com/2020/01/29/business/economy/usmca-trump.html?emc=rss&partner=rss

The final provision, as written, could also prove relatively ineffective at shifting production, because it is not indexed to inflation. An average wage of $16 an hour will be less constraining in 2023 dollars than it is today.

Stronger labor rules in Mexico

The U.S.M.C.A. includes expansive changes that, at least on paper, should help level the playing field among workers in the United States, Canada and Mexico.

NAFTA’s original provisions on labor and environment were added as side letters after the original agreement was signed, to win the support of Democrats and ensure the deal’s passage during the Clinton administration. The U.S.M.C.A. moves these chapters into the main body of the trade agreement, meaning issues like the right to organize are now subject to the pact’s normal procedures for settling disputes.

The deal also expands those commitments, requiring more protections for workers, blocking imports of goods made with forced labor, and setting up mechanisms to ensure that those rules are enforced.

In response to the concerns of congressional Democrats, it sets up an independent panel that can investigate factories accused of violating labor rights and stop shipments of that factory’s goods at the border. It establishes an interagency committee to monitor Mexico’s labor reforms, as well as American attachés who will report to Congress on the progress.

In an annex to the agreement, Mexico also committed to enact sweeping legal changes to combat forced labor and violence against workers, and allow for independent unions and labor courts. The International Trade Commission has estimated that, if the changes are made, they will increase wages for Mexico’s unionized workers and decrease their pay gap with American workers.

Less protection for drug companies

In a major concession to Democrats, the Trump administration agreed to pare back certain protections for an advanced and very expensive class of drugs called biologics. The final agreement removes a provision that had offered the drugs 10 years of protection from cheaper alternatives in both Canada and Mexico.

Article source: https://www.nytimes.com/2020/01/29/business/economy/usmca-deal.html?emc=rss&partner=rss

Interest rates have fallen to historic lows, leaving policymakers with limited room to control the economy by cutting borrowing costs. The problem demands pre-emptive solutions, which officials are expected to announce in mid-2020. For example, the Fed could formally embrace periods of slightly higher inflation.

But inflation remains a dirty word in much of America, making that tweak a tough sell.

In a move that could help improve the optics of any change, Mr. Powell and his colleagues have involved ordinary people in the conversation.

As central bankers and academic economists have gathered to consider the future, they have also met with job placement professionals, community organizers and single parents in board rooms, food pantries and classrooms to talk about how monetary policy affects their lives.

In November, Mr. Powell spent time in East Hartford, Conn., where factories still buzz but sagging houses and defunct stores dot the side streets. Mr. Powell spoke with local leaders gathered in an elementary school gymnasium, took a bus tour of the area and scribbled notes as community members talked about a labor market development initiative.

“I felt like he was genuinely interested,” said Amy Peltier, who directs the program.

Not everyone buys the message. Like Mr. Trump, Senator Bernie Sanders, who is seeking the Democratic nomination for president, has questioned the Fed’s decision to raise interest rates nine times between 2015 and 2018.

Officials made those moves, all of which Mr. Powell voted for, because they expected low unemployment to begin to spur higher inflation. It hasn’t, even after they cut rates three times in 2019 in response to trade uncertainty and a weakening outlook.

Mr. Powell has never said the Fed made a mistake. But he led on last year’s pivot — hinting that the Fed might consider rates cuts in a June speech. He worked to build consensus around the three cuts, even as some voting members dissented against reducing rates at a time when unemployment hovered near a 50-year low.

Article source: https://www.nytimes.com/2020/01/28/business/economy/federal-reserve-jay-powell.html?emc=rss&partner=rss