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Macroeconomic & Geopolitical

Weekly Update June 7, 2019

7 June 2019 - 4 min read

The three things you need to know this week: The rates outlook amid recent Fedspeak, sliding global growth according to the World Bank and still tight labor markets in the U.S.

Overview

Rates Outlook: Recent Fedspeak from Chairman Jerome Powell, Vice Chairman Richard Clarida and St. Louis Fed President James Bullard (FOMC voter) indicates the FOMC is becoming more amenable to a rate cut. Powell and Clarida stated the Fed would act appropriately if growth and inflation slow and that they are paying attention to the yield curve inversion. Bullard suggested a rate cut "may be warranted soon" and argued that even if a sharper-than-expected slowdown does not materialize, a rate cut could help inflation and associated expectations move closer to target. Fed funds futures are currently suggesting a 90% chance of 25 bps rate cut by September.

Global Growth: The World Bank lowered its 2019 global growth forecast to 2.6% from 2.9% in January, citing a slowdown in trade growth and a decline in global investment. Geographically, the primary driver was the Euro Area, while Japan’s forecast was revised down slightly for this year. While the U.S. forecast was unchanged, the report noted the balance of risks are tilted to the downside. This mainly reflects potentially destabilizing policy developments, including escalating trade tensions and instability in emerging markets.

Fed Beige Book: Most Federal Reserve districts saw slight improvement in economic activity in the April/May time frame, but growth improvements were tempered by worries over rising trade tensions. Manufacturing activity was mostly positive, but there were some signs of slowing. Residential real estate and construction activity improved overall, and consumer spending reports were mostly positive. The report noted that employment growth in many areas was being constrained by tight labor markets, which has sparked some wage pressure as companies are forced to compete for workers.

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