Investor confidence in Germany’s growth outlook improved for a fifth straight month as global riskssubsided, suggesting Europe’s largest economy will shake off its weakness as the year progresses. Despite the streak of improvement, the negative reading means pessimists still outnumber optimists among survey participants. “Major economic risks are considered to be less dramatic than before,” ZEW President Achim Wambach said. “The possible delay in the Brexit process as well as the renewed hope for a deal on the U.K.’s withdrawal from the EU seem to have given rise to more optimism among financial market experts. Progress made in the negotiations between China and the U.S. to end the trade war between the two nations may also have contributed.”
As universally expected, the Federal Open Market Committee (FOMC) voted unanimously to keep the range for the fed funds rate between 2.25% and 2.50%. The committee downgraded its assessment of the economy, saying that “growth of economic activity has slowed from its solid rate in the fourth quarter.” More formally, the median FOMC member now forecasts that real GDP will grow 2.1% in 2019, which is down from the 2.3% rate that the median projected in December (the last time the forecast was made public). The median GDP forecast for 2020 has edged down to 1.9% from 2.0% previously. The FOMC also trimmed its PCE inflation forecast for 2019 and 2020, and it now does not see unemployment receding much further from its current rate of 3.8%
Furthermore, the committee made some decisions regarding its balance sheet. At present, the Fed is allowing a maximum of $30 billion of Treasury securities to roll off its balance sheet every month. Starting in May, the maximum amount of Treasury securities that will be allowed to roll off will be reduced to $15 billion per month. Starting in October the overall size of the balance sheet will remain unchanged, for an unspecified period of time
The MPC voted unanimously to maintain Bank Rate at 0.75%. It voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion. The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion.
As the Committee has previously noted, short-term economic data may provide less of a signal than usual about the medium-term growth outlook.
CPI inflation rose slightly to 1.9% in February and is expected to remain close to the 2% target over coming months. The labour market remains tight and annual pay growth, having risen through 2018, has remained around 3 1/2%.
The economic outlook will continue to depend significantly on the nature and timing of EU withdrawal, in particular: the new trading arrangements between the European Union and the United Kingdom; whether the transition to them is abrupt or smooth
Japan’s core gauge excluding fresh food unexpectedly edged down in February
Looking forward, signals for core inflation are not positive. Expected falls in mobile charges and child education are likely to weigh on prices in 2019. A stronger yen, triggered by the Federal Reserve’s shift to a passive view on U.S. interest rates, may also weigh on import prices, adding to the challenging factors for the Bank of Japan
The BOJ’s slow progress and the accumulating side effects of its stimulus program have increasedcalls for a more flexibleapproach to the target. Finance Minister Taro Aso said things could go wrong if the bank focuses on it too much