Fed Chair Says U.S. Economy Is in a ‘Favorable Place’
Plus: The annual G-7 summit, U.S.-Taliban peace talks, and the other stories we’re following today.
Here is today’s Foreign Policy brief: The U.S. Federal Reserve chairman delivers a keynote speech as the world looks on, the annual G-7 summit approaches, and yet another round of U.S.-Taliban peace talks gets underway in Qatar.
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Fed Chairman Jerome Powell Speaks on U.S. Policy
U.S. Federal Reserve Chairman Jerome Powell delivered the keynote speech Friday at the Fed’s annual conference in Jackson Hole, Wyoming. He said the U.S. economy was in a “favorable place” and refrained from directly addressing upcoming decisions about interest rates. He said the Fed would seek to “look through” short-term geopolitical risks.
Bankers from around the world are looking to Powell to explain the U.S. central bank’s strategy to continue reducing interest rates—despite the fact that the U.S. economy does not obviously appear to be slowing down. After the Fed lowered interest rates in July, for the first time in a decade, central banks in other countries followed suit, a trend that the Fed might find hard to reverse. While it has emerged that U.S. policymakers disagreed over the July rate cut, the U.S. central bank is expected to announce another reduction at its Sept. 17-18 meeting.
Why is the Fed lowering interest rates? U.S. Federal Reserve officials were also divided over the reason for the cut, but the decision was certainly shaped by global uncertainty caused in part by the U.S.-China trade war. “It’s clear that one of the Fed’s concerns is the slowdown in growth around the world—Germany and China in particular,” David Wessel, a senior fellow in economic studies at the Brookings Institution, wrote in an email.
“The Fed likes to say it isn’t the central bank of the world, but it can’t ignore the rest of the world and the impact that the global economy has on the pace of growth and inflation here at home,” he added.
Will markets react? Markets are already anticipating another U.S. rate cut, but investors will pore over Powell’s remarks looking for clues on where the Fed thinks the U.S. economy is headed. “I don’t know what Powell will say at Jackson Hole, but I’m sure he will be choosing his words very carefully because global markets will weigh each one of them,” Wessel said. “He will not predict an imminent recession: The Fed doesn’t see one on the horizon.”
What will the Fed decide in September? Expect another rate cut, but not a major shift. Unless something significant happens between now and September, “the most likely outcome is a quarter-point rate cut—not a bigger one,” Wessel said.
What We’re Following Today
Annual G-7 summit approaches. Leaders from the Group of Seven economies are gearing up for the annual summit in Biarritz, France, which begins on Saturday. Tensions are high. As U.S. President Donald Trump appears ready to tout the U.S. economic model, other leaders are grappling with the effects of Trump’s trade policies on their economies. Meanwhile, British Prime Minister Boris Johnson will find himself among EU leaders who have been resisting his demand that they renegotiate the Brexit deal. The summit is likely to be the first in history that ends without a joint statement.
Ninth round of Afghanistan peace talks underway in Doha. The United States has resumed peace talks with Taliban officials in Doha, Qatar, as the sides near a deal that would allow a withdrawal of foreign troops after 18 years of war. If they reach an agreement, it would set up separate negotiations between the Taliban and the Afghan government in Kabul to reach a permanent cease-fire. The lead U.S. negotiator, Zalmay Khalilzad, is expected to travel to Kabul after the Taliban meetings.
Hong Kong’s banks address ongoing protests. As the political crisis in Hong Kong threatens to derail the city’s economy, its finance sector has responded directly to the protests. On Thursday, banks took out full-page ads in the city’s newspapers calling for “social order.” The city’s stock market has dropped more than 25 percent since June, and tourism is suffering. Protesters have planned another airport disruption on Saturday.
Iranian tanker to sail past Greece? The Iranian oil tanker released by Gibraltar on Sunday has not requested to dock in Greece as planned, according to the Greek prime minister. It was scheduled to arrive by Monday. The ship was intercepted by Britain in July. The United States suspects that it is delivering oil to Syria—a violation of U.S. sanctions—and is seeking to detain it again. Greece has already said that it would not offer aid to the Iranian tanker.
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Keep an Eye On
A U.N. report on Myanmar’s military violence. U.N. investigators released a report on Thursday finding that the sexual violence committed by Myanmar’s military against Rohingya civilians indicated “genocidal intent.” No military leaders have been held accountable for the crimes. Meanwhile, Rohingya refugees in Bangladesh have again refused repatriation, with many saying they will only return to Myanmar if they are granted citizenship—and safety.
Interpol’s red notice for ex-FARC commander. Interpol has issued a red notice for the FARC commander-turned-Colombian politician Seuxis Pausias Hernández (known by the nom de guerre Jesús Santrich), who is wanted in the United States on drug trafficking charges. Colombian President Iván Duque has accused Venezuela of harboring him. Santrich’s disappearance could threaten Colombia’s fragile peace deal, the Economist reports.
Japan and South Korea’s escalating dispute. On Thursday, Japan summoned the South Korean ambassador in Tokyo to criticize Seoul’s decision to scrap an intelligence-sharing pact between the two countries. The move could undermine efforts to track North Korean missile launches, and it marks yet another escalation in Japan and South Korea’s ongoing dispute over Tokyo’s historical responsibility for injustices during its occupation of the Korean Peninsula from 1910-1945.
The battle to rebuild Libya. Foreign stakeholders including China, Russia, Italy, France, and the Persian Gulf States are competing over reconstruction projects in Libya, with the most lucrative in the country’s oil industry. The militarization of this contest could be prolonging the country’s conflict, Samuel Ramani argues in FP.
Odds and Ends
Australia’s national airline, Qantas, will begin testing its Sydney-New York and Sydney-London routes this fall with crew members and employees. The guinea pig passengers will wear smart watches to monitor their health and be provided with blood flow exercises and meditation tips to endure the roughly 19-hour journey; pilots will have their melatonin levels checked and wear electroencephalograms to monitor their alertness. At approximately 10,000 miles, the routes will be the longest commercial flights in the world. Qantas has yet to choose which jet would be used for the route, which could start operating as soon as 2022.
As the global bee population declines, the European Commission has proposed placing beehives at public buildings around the European Union, Politico reports. The project would launch at the end of next year. Progress on restricting bee-harming pesticides in the bloc, meanwhile, remains stagnant.
Foreign Policy Recommends
Could the $60 billion palm oil trade go the way of the tobacco industry? According to a Reuters investigation, Malaysia—which along with Indonesia produces most of the world’s palm oil supply—thinks that it might. The country has launched a global public relations effort to defend its industry as concerns over deforestation and greenhouse gas emissions mount, especially in Europe. Malaysia has turned to PR firms including DCI, a Washington-based group whose previous clients include Myanmar’s military junta and tobacco and oil companies. As policymakers grapple with palm oil’s environmental impact, DCI has proposed to the industry an approach that would cast the concerns of NGOs as “eco-colonialist.” Benjamin Soloway, associate editor
That’s it for today.
Update, Aug. 23, 2019: This post has been updated to reflect Fed chair Jerome Powell’s remarks.