The Bank of England may cut interest rates again. The pound lost ground against the dollar and the euro when that news hit the press. The Brits, under Boris Johnson’s guidance, want to leave the EU at the end 0f 2020 with a free trade agreement. But EU President Ursula von der Leyen said adding all the fine details in the trade agreement may take more time.
The U.K. economy is in bad shape. England’s economy shrank by .03 percent in November, and U.K. economists forecast zero-growth in 2020. The Brexit debacle did a number on U.K.’s economic health, and the Bank of England may not have enough financial gas in its tank to prevent the country from going into recession mode.
The European Union’s economy is not much better. Interest rate cuts always stimulated economies when fiscal policies battered economic growth. But in a world where trade wars continue to fester, and the Middle East is on the verge of a shooting war interest rate cuts don’t have the same impact as they did twenty years ago.
The Federal Reserve and the Bank of England, as well as other central banks, were the catalysts that drove business cycles and financial markets, but those days are over. In several countries interest rates are low, and they can’t go lower. And low inflation and slow economic growth won’t allow central banks to raise rates.
Japan experience three recessions over the last twelve years even though the Bank of Japan cut interest rates to zero. Mr. Trump keeps pushing the Federal Reserve to cut interest rates to the bone and inject more cash into the economy. But Powell and the Feds told Trump to butt out. Mr. Trump knows it’s only a matter of time before his tariff war stops consumer spending. Business investment is in the toilet, and the budget deficit will add $1 trillion to the national debt every year for the next ten years.
Mr. Trump told the press signing the phase one part of the trade deal would give farmers the orders they need from China. The Chinese also agreed to try to stop intellectual property thief and yuan manipulation. But several economists think China will have a hard meeting its commitment to buy $40 billion worth of farm products over the next two years.
Phase one is more truce than a solution. Trump still kept tariffs on $250 billion worth of Chinese products on the table, and the Chinese still have a 21 percent tariff on some American products. The tech part of the trade war will continue to erode the U.S. economy as well as the global economy in 2020. The tech issues will be around for years according to Wall Street economists.
Source: https://www.vox.com/world/2020/1/15/21064070/trump-china-phase-one-trade-deal-signing
Dil Bole Oberoi
