Two years after aggressively raising interest rates, the Federal Reserve is in a delicate balancing act as it aims to steer inflation back to its long-term 2 per cent goal. Getting it wrong will have spillover effects in the US and around the globe.
With rates likely at their peak target range and Personal Consumption Expenditure (PCE) Price Index showing inflation battened down to 2.4 per cent, the Fed is setting the stage for the next phase in its fight: cutting interest rates.
Fed officials have cautioned against declaring victory too soon even as a soft landing appears in sight.
And although the central bank still projects it will cut rates three times this year, it suggested recent bumpy inflation data warrants a careful approach moving forward.
“I don't think we really know whether this is a bump on the road or something more. We'll have to find out,” the Fed's chairman Jerome Powell told reporters last week.
“In the meantime, the economy strong, the labour market is strong, inflation has come way down, and that gives us the ability to approach this question carefully.”
That uncertainty is central to the Fed's coming decisions on interest rates.
“Part of the problem here is that they won't know that they've overdone it until it's too late because they'll only know it when the economy slows down and unemployment starts to rise. So the maths is a bit of a lag,” said Joseph Gagnon, senior fellow at the Peterson Institute for International Economics and a former senior economist at the Federal Reserve Board.
“By the time they realise that they have overdone it, they're going to be in a rush to cut rates and they may be too late.”
And their moves will be closely watched by other central banks in Europe, the UK and the Gulf, which are also preparing for rate cuts. The Bank of England and European Central Bank could begin dialling back as soon as June, which is when markets expect the Fed will issue its first rate cut.
“People seem to take a cue from the US, and when US interest rates rise other countries' rates rise, and we can debate about why that is, but it seems to be true,” Mr Gagnon said.
“That will be bad news for other countries in the sense that they'll see higher rates. It'll push the dollar up or push their currencies down, which maybe they don't want because that's bad for their inflation.
“It sort of desyncs the whole world.”
Going too early, however, runs the risk of seeing inflation reaccelerate. This would likely force the Fed to raise interest rates once more.
Again, this would affect the entire world, with other central banks forced to react to the Fed's decisions.
“When the Fed tightens, lending tends to flow to the US. And when money flows to the US, other central banks are forced to either raise interest rates or let their currencies depreciate,” said John Leahy, a professor at the Ford School and the Department of Economics at University of Michigan and former Fed visiting scholar.
Peter Andersen, founder of Andersen Capital Management, does not believe the Fed is in a position where it needs to cut interest rates this year.
“I consider the current rates as the most normal rate I have seen in many years, and also symbolic of a normally functioning economy, not an economy that's on crutches with low rates, not an economy that's crushed with super high rates, but if anything, slightly low to average,” said Mr Andersen.
While he commended the Fed for its progress against inflation with so much “soft data”, Mr Andersen argued dialling back this year would undo all the work the Fed has done after bringing the economy to a margin of safety.
“The margin of safety will shrink tremendously,” he said.
Still, the Fed remains in a delicate position, because as inflation has been steadily climbing down, the US unemployment rate has slowly been creeping up to its current level of 3.9 per cent.
Higher interest rates are meant to cool the economy in times of high inflation, but it also runs the risk of slowing the economy too much, which can eventually result in a recession or greater levels of unemployment.
“If the Fed doesn't loosen, and the economy goes into recession, that's a completely different situation,” Mr Leahy said.
“If the US economy goes into recession, the spillovers are basically that when the US economy goes into recession, generally Europe goes into recession. The world doesn't do well.”
He also believes the current Fed is distinct from previous administrations for taking more consideration of unemployment into its policy decisions.
“I think what this Fed is trying to do is trying to balance much more inflation and unemployment. And if there's any argument for cutting rates, it is that the you want to get ahead of a potential rise and unemployment coming later,” Mr Leahy said.
Adding to this uncertainty and difficulty is the novelty of this inflationary period. Unlike in previous cycles, much of the inflationary pressures were caused by supply-chain issues related to the Covid-19 pandemic.
Also surprising is the resilience of the economy in the face of the Fed's interest rates. Instead of falling into a recession, the US economy grew at a 3.2 per cent annualised pace last year.
“The difficulty the Fed is facing is that it's been hit with this series of fairly unique events. And it's managed remarkably well,” Mr Leahy said.
“The fact that we're even having this conversation is probably a good thing for them.”
The specs
Engine: 2.0-litre 4-cyl
Power: 153hp at 6,000rpm
Torque: 200Nm at 4,000rpm
Transmission: 6-speed auto
Price: Dh99,000
On sale: now
The specs
Engine: 2.0-litre 4cyl turbo
Power: 261hp at 5,500rpm
Torque: 405Nm at 1,750-3,500rpm
Transmission: 9-speed auto
Fuel consumption: 6.9L/100km
On sale: Now
Price: From Dh117,059
AndhaDhun
Director: Sriram Raghavan
Producer: Matchbox Pictures, Viacom18
Cast: Ayushmann Khurrana, Tabu, Radhika Apte, Anil Dhawan
Rating: 3.5/5
In numbers
1,000 tonnes of waste collected daily:
- 800 tonnes converted into alternative fuel
- 150 tonnes to landfill
- 50 tonnes sold as scrap metal
800 tonnes of RDF replaces 500 tonnes of coal
Two conveyor lines treat more than 350,000 tonnes of waste per year
25 staff on site
Ads on social media can 'normalise' drugs
A UK report on youth social media habits commissioned by advocacy group Volteface found a quarter of young people were exposed to illegal drug dealers on social media.
The poll of 2,006 people aged 16-24 assessed their exposure to drug dealers online in a nationally representative survey.
Of those admitting to seeing drugs for sale online, 56 per cent saw them advertised on Snapchat, 55 per cent on Instagram and 47 per cent on Facebook.
Cannabis was the drug most pushed by online dealers, with 63 per cent of survey respondents claiming to have seen adverts on social media for the drug, followed by cocaine (26 per cent) and MDMA/ecstasy, with 24 per cent of people.
Know before you go
- Jebel Akhdar is a two-hour drive from Muscat airport or a six-hour drive from Dubai. It’s impossible to visit by car unless you have a 4x4. Phone ahead to the hotel to arrange a transfer.
- If you’re driving, make sure your insurance covers Oman.
- By air: Budget airlines Air Arabia, Flydubai and SalamAir offer direct routes to Muscat from the UAE.
- Tourists from the Emirates (UAE nationals not included) must apply for an Omani visa online before arrival at evisa.rop.gov.om. The process typically takes several days.
- Flash floods are probable due to the terrain and a lack of drainage. Always check the weather before venturing into any canyons or other remote areas and identify a plan of escape that includes high ground, shelter and parking where your car won’t be overtaken by sudden downpours.
VEZEETA PROFILE
Date started: 2012
Founder: Amir Barsoum
Based: Dubai, UAE
Sector: HealthTech / MedTech
Size: 300 employees
Funding: $22.6 million (as of September 2018)
Investors: Technology Development Fund, Silicon Badia, Beco Capital, Vostok New Ventures, Endeavour Catalyst, Crescent Enterprises’ CE-Ventures, Saudi Technology Ventures and IFC
ELIO
Starring: Yonas Kibreab, Zoe Saldana, Brad Garrett
Directors: Madeline Sharafian, Domee Shi, Adrian Molina
Rating: 4/5
Ain Dubai in numbers
126: The length in metres of the legs supporting the structure
1 football pitch: The length of each permanent spoke is longer than a professional soccer pitch
16 A380 Airbuses: The equivalent weight of the wheel rim.
9,000 tonnes: The amount of steel used to construct the project.
5 tonnes: The weight of each permanent spoke that is holding the wheel rim in place
192: The amount of cable wires used to create the wheel. They measure a distance of 2,4000km in total, the equivalent of the distance between Dubai and Cairo.
SPEC%20SHEET%3A%20SAMSUNG%20GALAXY%20Z%20FOLD%204
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RESULTS
2pm: Handicap (PA) Dh40,000 (Dirt) 1,200m
Winner: Najem Al Rwasi, Fabrice Veron (jockey), Ahmed Al Shemaili (trainer)
2.30pm: Handicap (PA) Dh40,000 (D) 2,000m
Winner: Fandim, Fernando Jara, Majed Al Jahouri
3pm: Maiden (PA) Dh40,000 (D) 1,700m
Winner: Harbh, Pat Cosgrave, Ahmed Al Mehairbi
3.30pm: Maiden (PA) Dh40,000 (D) 1,700m
Winner: Wakeel W’Rsan, Richard Mullen, Jaci Wickham
4pm: Crown Prince of Sharjah Cup Prestige (PA) Dh200,000 (D) 1,200m
Winner: Jawaal, Fernando Jara, Majed Al Jahouri
4.30pm: Sheikh Ahmed bin Rashid Al Maktoum Cup (TB) Dh200,000 (D) 2,000m
Winner: Tailor’s Row, Royston Ffrench, Salem bin Ghadayer
Living in...
This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.
MISSION: IMPOSSIBLE – FINAL RECKONING
Director: Christopher McQuarrie
Starring: Tom Cruise, Hayley Atwell, Simon Pegg
Rating: 4/5
How to help
Send “thenational” to the following numbers or call the hotline on: 0502955999
2289 – Dh10
2252 – Dh 50
6025 – Dh20
6027 – Dh 100
6026 – Dh 200
Richard Jewell
Director: Clint Eastwood
Stars: Paul Walter Hauser, Sam Rockwell, Brandon Stanley
Two-and-a-half out of five stars
COMPANY%20PROFILE
%3Cp%3EFounder%3A%20Hani%20Abu%20Ghazaleh%3Cbr%3EBased%3A%20Abu%20Dhabi%2C%20with%20an%20office%20in%20Montreal%3Cbr%3EFounded%3A%202018%3Cbr%3ESector%3A%20Virtual%20Reality%3Cbr%3EInvestment%20raised%3A%20%241.2%20million%2C%20and%20nearing%20close%20of%20%245%20million%20new%20funding%20round%3Cbr%3ENumber%20of%20employees%3A%2012%3C%2Fp%3E%0A
THE%20SWIMMERS
%3Cp%3E%3Cstrong%3EDirector%3A%20%3C%2Fstrong%3ESally%20El-Hosaini%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EStars%3A%20%3C%2Fstrong%3ENathalie%20Issa%2C%20Manal%20Issa%2C%20Ahmed%20Malek%20and%20Ali%20Suliman%C2%A0%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3ERating%3A%20%3C%2Fstrong%3E4%2F5%3C%2Fp%3E%0A
Expert advice
“Join in with a group like Cycle Safe Dubai or TrainYAS, where you’ll meet like-minded people and always have support on hand.”
Stewart Howison, co-founder of Cycle Safe Dubai and owner of Revolution Cycles
“When you sweat a lot, you lose a lot of salt and other electrolytes from your body. If your electrolytes drop enough, you will be at risk of cramping. To prevent salt deficiency, simply add an electrolyte mix to your water.”
Cornelia Gloor, head of RAK Hospital’s Rehabilitation and Physiotherapy Centre
“Don’t make the mistake of thinking you can ride as fast or as far during the summer as you do in cooler weather. The heat will make you expend more energy to maintain a speed that might normally be comfortable, so pace yourself when riding during the hotter parts of the day.”
Chandrashekar Nandi, physiotherapist at Burjeel Hospital in Dubai
Read more from Kareem Shaheen
MOUNTAINHEAD REVIEW
Starring: Ramy Youssef, Steve Carell, Jason Schwartzman
Director: Jesse Armstrong
Rating: 3.5/5
BlacKkKlansman
Director: Spike Lee
Starring: John David Washington; Adam Driver
Five stars
Company%20profile
%3Cp%3E%3Cbr%3E%3Cstrong%3EName%3A%3C%2Fstrong%3E%20Khodar%3Cbr%3E%3Cstrong%3EBased%3A%3C%2Fstrong%3E%20Cairo%20and%20Alexandria%2C%20in%20Egypt%3Cbr%3E%3Cstrong%3EFounders%3A%3C%2Fstrong%3E%20Ayman%20Hamza%2C%20Yasser%20Eidrous%20and%20Amr%20El%20Sheikh%3Cbr%3E%3Cstrong%3ESector%3A%3C%2Fstrong%3E%20agriculture%20technology%3Cbr%3E%3Cstrong%3EFunding%3A%3C%2Fstrong%3E%20%24500%2C000%3Cbr%3E%3Cstrong%3EInvestors%3A%3C%2Fstrong%3E%20Saudi%20Arabia%E2%80%99s%20Revival%20Lab%20and%20others%3Cbr%3E%3Cstrong%3EEmployees%3A%3C%2Fstrong%3E%2035%3C%2Fp%3E%0A
Kanguva
Director: Siva
Stars: Suriya, Bobby Deol, Disha Patani, Yogi Babu, Redin Kingsley
More from Neighbourhood Watch:
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COMPANY PROFILE
Company name: Letstango.com
Started: June 2013
Founder: Alex Tchablakian
Based: Dubai
Industry: e-commerce
Initial investment: Dh10 million
Investors: Self-funded
Total customers: 300,000 unique customers every month
The%20specs%20
%3Cp%3E%3Cstrong%3EEngine%3A%20%3C%2Fstrong%3EDual%20permanently%20excited%20synchronous%20motors%3Cbr%3E%3Cstrong%3EPower%3A%20%3C%2Fstrong%3E516hp%20or%20400Kw%3Cbr%3E%3Cstrong%3ETorque%3A%20%3C%2Fstrong%3E858Nm%3Cbr%3E%3Cstrong%3ETransmission%3A%20%3C%2Fstrong%3ESingle%20speed%20auto%3Cbr%3E%3Cstrong%3ERange%3A%20%3C%2Fstrong%3E485km%3Cbr%3E%3Cstrong%3EPrice%3A%20%3C%2Fstrong%3EFrom%20Dh699%2C000%3C%2Fp%3E%0A
More from Neighbourhood Watch:
UAE currency: the story behind the money in your pockets
Squid Game season two
Director: Hwang Dong-hyuk
Stars: Lee Jung-jae, Wi Ha-joon and Lee Byung-hun
Rating: 4.5/5
The biog
Siblings: five brothers and one sister
Education: Bachelors in Political Science at the University of Minnesota
Interests: Swimming, tennis and the gym
Favourite place: UAE
Favourite packet food on the trip: pasta primavera
What he did to pass the time during the trip: listen to audio books
Global state-owned investor ranking by size
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China
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UAE
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Japan
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Norway
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Canada
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Singapore
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Australia
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Saudi Arabia
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South Korea
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Sole survivors
- Cecelia Crocker was on board Northwest Airlines Flight 255 in 1987 when it crashed in Detroit, killing 154 people, including her parents and brother. The plane had hit a light pole on take off
- George Lamson Jr, from Minnesota, was on a Galaxy Airlines flight that crashed in Reno in 1985, killing 68 people. His entire seat was launched out of the plane
- Bahia Bakari, then 12, survived when a Yemenia Airways flight crashed near the Comoros in 2009, killing 152. She was found clinging to wreckage after floating in the ocean for 13 hours.
- Jim Polehinke was the co-pilot and sole survivor of a 2006 Comair flight that crashed in Lexington, Kentucky, killing 49.
