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A ceasefire in the US-China trade war is doing little to relieve pressure on the Federal Reserve to stimulate the economy.
The two countries agreed on Saturday to resume trade talks after President Donald Trump offered concessions to his Chinese counterpart, Xi Jinping, when the two met at the sidelines of the Group of 20 summit in Japan. As part of their latest agreement, Washington promised no new tariffs and an easing of restrictions on Huawei Technologies Co. China agreed to make unspecified new purchases of US farm products and return to the negotiating table.
But the Fed, which signaled rate cuts could come soon due partly to uncertainty caused by the trade war, still faces a slowing global economy as well as businesses domestically putting off spending until China and the United States reach a lasting truce.
“It does appear that, in particular, the negotiations between the US and China are resuming, which is obviously a positive development,” Fed Board of Governors Vice Chair Richard Clarida said on Monday at an economics conference in Helsinki, “but beyond that, ultimately, how those negotiations are resolved is certainly going to be an important factor in thinking about prospects for the global economy.”
Clarida said the US economy is currently “in a good place” but that “uncertainties have increased along several dimensions.” Data released on Monday by the Institute for Supply Management showed the US manufacturing sector expanded in June but at the slowest pace since October 2016.
Markets are overwhelmingly betting the Fed’s next move will be its first rate cut since the global financial crisis a decade ago, and Trump has demanded easier policy to strengthen the economy and his hand at the negotiating table with Beijing.
On Monday, global stock benchmarks jumped on the weekend’s trade news, with the S&P 500 .SPX opening at a record high. Still, US Treasury bonds traded well within recent ranges, pointing to investors’ continued expectations that the Fed’s next move will be a rate cut as soon as its July 30-31 policy meeting.
source (TDS)
