The US Federal Reserve has been driving up US borrowing costs ever since June 2004. That could be about to change, economists believe after compelling evidence that the US economy is hitting the brakes.
The central bank's Federal Open Market Committee (FOMC) meets tomorrow to decide whether to continue with 17 straight hikes that have pushed the headline US interest rate up to 5.25 percent.
If the majority of Fed-watchers on Wall Street are correct, Chairman Ben Bernanke and his FOMC colleagues will decide that enough is enough, after rates had sunk to historic lows in response to a 2001 recession.
"We look for them to leave the rate unchanged for a long period and not just a short-term pause," Societe Generale economist Stephen Gallagher said.
"The Fed has been on the fence, faced with higher inflation and slowing growth. The desire has been to pause, provided inflation and inflation expectations could stabilize," he said.
"This [Friday's] employment report adds to softening evidence on the economy and will restrain inflation expectations," Gallagher said.
In the last big piece of economic news before the FOMC session, the government said on Friday that US employers added just 113,000 new jobs last month, while the jobless rate ticked up to 4.8 percent from 4.6 percent in June.
It was the fourth straight month that the Labor Department's "non-farm payrolls" report had proven tepid. Most worrying for an economy driven by consumer spending, retailers are proving most reluctant to take on new staff.
Slower consumer spending on the back of a cooling property market was to blame for second-quarter growth slipping to 2.5 percent, after GDP expanded at a red-hot pace of 5.6 percent in the first three months.
"Weak second-quarter GDP growth, and a smaller-than-expected gain in July's payroll employment, mean that the Fed is likely to take a breather at Tuesday's FOMC meeting," Global Insight chief economist Nariman Behravesh said.
"However, all the inflation indicators are flashing yellow and may soon be flashing red," he said.
"The Fed's statement on August 8th will continue to leave the door open for further hikes -- or cuts -- if necessary," he said.
Because of a startling rally in the commodities markets, US businesses are now being forced to pass on price increases to their customers as they themselves pay more for their supplies and raw materials.
Years of productivity growth helped to keep a lid on inflation, but now wage pressures are clearly building, as shown by a 0.4 percent increase in average hourly earnings that was outlined in Friday's jobs report.
Bernanke, however, has said that he believes cooling growth should curb inflation in the coming months, despite the wage pressures and high energy prices.
NO-LIMITS PARTNERSHIP: ‘The bottom line’ is that if the US were to have a conflict with China or Russia it would likely open up a second front with the other, a US senator said Beijing and Moscow could cooperate in a conflict over Taiwan, the top US intelligence chief told the US Senate this week. “We see China and Russia, for the first time, exercising together in relation to Taiwan and recognizing that this is a place where China definitely wants Russia to be working with them, and we see no reason why they wouldn’t,” US Director of National Intelligence Avril Haines told a US Senate Committee on Armed Services hearing on Thursday. US Senator Mike Rounds asked Haines about such a potential scenario. He also asked US Defense Intelligence Agency Director Lieutenant General Jeffrey Kruse
STUMPED: KMT and TPP lawmakers approved a resolution to suspend the rate hike, which the government said was unavoidable in view of rising global energy costs The Ministry of Economic Affairs yesterday said it has a mandate to raise electricity prices as planned after the legislature passed a non-binding resolution along partisan lines to freeze rates. Chinese Nationalist Party (KMT) lawmakers proposed the resolution to suspend the price hike, which passed by a 59-50 vote. The Taiwan People’s Party (TPP) voted with the KMT. Legislative Speaker Han Kuo-yu (韓國瑜) of the KMT said the resolution is a mandate for the “immediate suspension of electricity price hikes” and for the Executive Yuan to review its energy policy and propose supplementary measures. A government-organized electricity price evaluation board in March
NOVEL METHODS: The PLA has adopted new approaches and recently conducted three combat readiness drills at night which included aircraft and ships, an official said Taiwan is monitoring China’s People’s Liberation Army (PLA) exercises for changes in their size or pattern as the nation prepares for president-elect William Lai’s (賴清德) inauguration on May 20, National Security Bureau (NSB) Director-General Tsai Ming-yen (蔡明彥) said yesterday. Tsai made the comment at a meeting of the Legislative Yuan’s Foreign Affairs and National Defense Committee, in response to Democratic Progressive Party (DPP) Legislator Wang Ting-yu’s (王定宇) questions. China continues to employ a carrot-and-stick approach, in which it applies pressure with “gray zone” tactics, while attempting to entice Taiwanese with perks, Tsai said. These actions aim to help Beijing look like it has
China is mischaracterizing UN Resolution 2758 for its own interests by conflating it with its “one China” principle, US Deputy Assistant Secretary for China and Taiwan Mark Lambert said on Monday. Speaking at a seminar held by the German Marshall Fund, Lambert called for support for Taiwan’s meaningful participation in the international community at a time when China is increasingly misusing Resolution 2758. The resolution had a clear impact when it changed who occupied the China seat at the UN, Lambert said. “Today, however, the PRC [People’s Republic of China] increasingly mischaracterizes and misuses Resolution 2758 to serve its own interests,” Lambert said. “Beijing