June 14, 2018-The U.S. economy is “rising at a solid rate,” the Federal Reserve said yesterday as it raised its short-term interest rate from 1.75 to 2 percent and projected two more increases this year.
A strong labor market, household spending, and business investment are strengthening the economy while the inflation rate hovered around 2 percent, the Federal Open Market Committee statement said.
Asked about U.S. trade tensions between the United States and its partners, Federal Reserve Chairman Jerome Powell said he hears rising concerns from business leaders who are delaying investment decisions. He added, however, that at this point, it is simply “a risk” rather than a current reality.
“Right now, we don’t see that in the numbers at all,” Powell said. “The economy is very strong. The labor market is strong. Growth is strong.”
As for potential economic growth from fiscal policy changes, “there’s so much uncertainty around this,” Powell said. “Our approach is going to be to watch and see and hope we get significant effects to potential growth out of the tax bill. We’ll just have to wait and see.”
As for the data, the Federal Reserve projects economic growth to be 2.8 percent in 2018, 2.4 percent in 2019 and 2.0 percent in 2020. Meanwhile, it sees the unemployment rate at 3.6 percent this year and 3.5 percent in 2019 and 2020 while the inflation rate hovers around 2.1 percent. The numbers are inline with its earlier March projections.
Global Economic Outlook is ‘Darkening Daily’
Meanwhile,heads of international finance and trade organizations are expressing deep concerns about the global economic outlook, despite its current strength.
“The clouds on the horizon are getting darker by the day,” said International Monetary Fund Chief Christine Lagarde at a press conference on Monday. She added, “And I was going to say by the weekend.”
It is, no doubt, a reference to the G7 Summit in Canada, where U.S. President Donald Trump threatened trade tariffs, left early and reneged on his promise to support the joint communique. (For prior reporting see June 11 GER article and June 10 GER article.
The cause of the darkening outlook, Lagarde said, is a “deterioration in confidence” due to an “attempt to challenge the way in which trade has been conducted.”
Global Leaders Reiterate Support for the International Order
The IMF chief took part in a meeting in Berlin on Monday in which she signed off on a statement supporting global cooperation and multilateral organizations. She joined heads of the World Bank, the World Trade Organization, the Organization for Economic Cooperation, the International Labor Organization, and the African Development Bank., as well as German Chancellor Angela Merkel.
Although the statement projected a favorable outlook of global growth of 3.9 percent in 2018-19, slightly higher than the 3.8 percent growth in 2017, it also warned of “increasing protectionist tendencies.”
The leaders expressed a commitment to “both institutional and informal links among national governments, international organizations and other stakeholders, including such fora as the G7 and G20.”
Some spoke more frankly in a press conference that followed.
“The rising trade tensions that we see before us risk a major economic impact, undermining the strongest sustainable period of trade growth since the financial crisis,” said WTO Director General Roberto Azevedo.
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