Fed’s “wait and see” stance on inflation keeps global economies on their toes

Summary

Marketplace Morning Report: Episode Summary Title: Fed’s “Wait and See” Stance on Inflation Keeps Global Economies on Their Toes
Host: Marketplace
Release Date: February 20, 2025

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Introduction

In this episode of the Marketplace Morning Report, host Liana Byrne delves into the Federal Reserve's cautious approach to managing inflation and its ripple effects on the global economy. The discussion broadens to include market updates, international news, and an in-depth look at the upcoming German federal elections, highlighting how economic uncertainties are shaping political sentiments.

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Federal Reserve’s “Wait and See” Stance on Inflation

Key Discussion: Liana Byrne opens the episode by addressing the Federal Reserve's recent decision to adopt a “wait and see” approach regarding inflation. This strategy implies that the Fed is not yet ready to cut interest rates and is instead monitoring economic indicators to determine the best course of action.

Expert Insight: Simon French, Chief Economist and Head of Research at Panmure Liberium, explains the broader implications of the Fed’s decisions:

“[00:43] Simon French: The Trump administration and strong demand together are leading to what looks increasingly like a secondary pickup in U.S. prices. [...] if they choose a path for interest rates that is appropriate for the US Economy, it will have inevitably big spillovers of the cost of borrowing, the cost of the rewards to saving for people all over the world."

Global Impact: French elaborates on how high U.S. interest rates can affect other economies:

• Europe: Slower economic growth due to increased energy costs stemming from the Ukraine conflict.
• Emerging Markets: A strong U.S. dollar can lead to inflationary pressures as these countries import materials priced in dollars.

Notable Quotes:

• Simon French [01:24]: "Now the US Central bank, the Federal Reserve have to respond to domestic economic conditions... [the Fed’s decisions] will have inevitably big spillovers... for people all over the world."

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Market Updates

European Markets:

• Stoxx 600 Index: Increased by 3.10%.
• Schneider Electric: Rose nearly 6% following a stronger profit margin forecast.
• Mercedes Benz: Declined by 1.5% after issuing an earnings warning.
• Airbus: Experienced a dip due to flagged production challenges.

Regional Highlights:

• Myanmar: Authorities have begun deporting approximately 600 Chinese nationals accused of participating in internet scam operations. This move follows heightened pressure from China and intensified actions by Thailand against scam networks.

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International News: China and Myanmar

Report by Jonathan Head: The episode features a report from Bangkok by BBC’s Jonathan Head, detailing the evacuation of Chinese nationals from Myanmar:

“[02:44] Jonathan Head: The two chartered airliners departed from Mesot with two Chinese police officers escorting each of the evacuated workers. [...] Thailand has stepped up its campaign against the scam compounds, cutting power and telecommunications from the Thai side of the border and issuing Arrest warrants for leaders of the local armed groups accused of hosting them."

Context: Under Chinese pressure, Thailand has intensified efforts to dismantle scam operations, leading to the shutdown of compounds and repatriation of involved foreigners.

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German Federal Election and Economic Concerns

Election Overview: Germans are preparing for a snap federal election, with the economy being a pivotal issue. Europe's largest economy saw a contraction of 0.2% last year and is projected to grow by only 0.3% in 2025.

Voter Sentiments: Reporter Kevin Canners interviews voters in Trap Tower Park, Berlin, capturing their economic anxieties:

“[03:42] Kevin Canners: I regularly watch the daily news, so I know that the economic situation is bad."

Personal Stories:

• Tanja, a Teacher: Highlights job security concerns due to the prevalence of temporary and mini-jobs.

  “[04:53] Tanja: I think it's harder because there are a lot of mini jobs that are temporary jobs or that you ask to come in to work for a couple of hours."

• Ricardo, a Veterinarian: Discusses the dichotomy between his stable job and the struggles faced by others finding employment post-pandemic.

  “[05:10] Ricardo: Many people are struggling to find jobs after being cut from their companies."

Economic Influence on Voting: A recent poll by ZDF indicated that 44% of German voters consider the economy the most important factor in their voting decisions. This economic strain is leading to increased support for alternative political parties:

“[06:06] Unnamed Retired Teacher: [...] a lot of people who are living on the edge and I don't know how they're managing now. So I can well imagine that they are dissatisfied and maybe won't vote the way the mainstream would like them to."

Rise of the Far-Right: The Alternativa für Deutschland (AfD) party is expected to perform strongly, raising concerns among voters about the potential shift towards right-wing policies.

Notable Quotes:

• Margaret Raeder [05:07]: "Ricardo is 30. I'm a veterinarian. [...] my job is going well, but he says that people around me are having a much harder time."
• Kevin Canners [06:25]: "The economy I'm more influenced by the danger from the right."

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Conclusion

The episode underscores the interconnectedness of global economies, highlighting how decisions by the U.S. Federal Reserve can have far-reaching impacts. Additionally, it sheds light on the socio-political ramifications within Germany, where economic pressures are driving voters towards alternative political options. As global markets remain volatile and political landscapes shift, the episode emphasizes the importance of staying informed on these dynamic developments.

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Credits:

• Host: Liana Byrne
• Economist: Simon French, Panmure Liberium
• Reporters: Jonathan Head (Bangkok), Kevin Canners (Berlin)
• Contributors: Margaret Raeder, Tanja, Ricardo

Transcript

[Liana Byrne]

The Fed's wait and see stance on inflation is keeping global economies on their toes. Live from the UK this is the Marketplace Morning Report from the BBC World Service, I'm Liana Byrne. Now, the Federal Reserve's latest meeting minutes suggests they want to see more evidence that inflation is cooling before even thinking about cutting interest rates. That's not just an American story. When borrowing costs stay high in the US it can ripple around the globe. Simon French, chief economist and head of research at investment bank Panmure Liberium, will explain this for us. Hello, Simon.

[Simon French]

Hello, Liana.

[Liana Byrne]

Simon, just explain to us how inflation in the U.S. could actually not just be an issue for the U.S. it could be a global issue.

[Simon French]

The Trump administration and strong demand together are leading to what looks increasingly like a secondary pickup in U.S. prices. Now, that may seem quite remote to listeners in other parts of the world, but the US Central bank, the Federal Reserve have to respond to domestic economic conditions. And if they choose a path for interest rates that is appropriate for the US Economy, it will have inevitably big spillovers of the cost of borrowing, the cost of the rewards to saving for people all over the world.

[Liana Byrne]

Are there countries or regions that are more vulnerable to this?

[Simon French]

Well, starting in Europe, I think the demand backdrop, the growth backdrop in European countries, courtesy of the events in Ukraine leading to a big increase in energy costs, means that those economies are growing at a much slower pace. So that would be quite a negative spillover. Similarly, for emerging markets, the impact of the Federal Reserve keeping interest rates relatively high is a strong dollar and traditionally a strong dollar hasn't been particularly good for emerging markets. Potentially quite inflationary for them if they import quite a lot of materials denominated in US Dollars.

[Liana Byrne]

Okay. Simon French, thank you so much for joining us in Marketplace.

[Simon French]

It's my pleasure.

[Liana Byrne]

Now let's do the numbers. European markets are inching higher. The Stoxx 600 is up 3.10 of a percent. Electrical giant Schneider Electric is up rising nearly 6% on a stronger profit margin forecast. But Mercedes Benz slid 1.5% after an earnings warning and Airbus dipped after flagging production challenges. Meanwhile, authorities in Myanmar have started sending back hundreds of Chinese nationals accused of working in Internet scam operations. Reports say around 600 people are heading home. The BBC's Jonathan Head has more from Bangkok.

[Jonathan Head]

The two chartered airliners departed from Mesot with two Chinese police officers escorting each of the evacuated workers. Under pressure from China, Thailand has stepped up its campaign against the scam compounds, cutting power and telecommunications from the Thai side of the border and issuing Arrest warrants for leaders of the local armed groups accused of hosting them. They have responded by promising to shut down the compounds and handing over thousands of the foreigners who were working in them.

[Liana Byrne]

Jonathan Head reporting. Now on Sunday, Germans are heading to the polls for a snap federal election. One of the main issues in this vote is the economy. Europe's largest economy contracted by 0.2% last year and is forecast to grow by just 0.3% in 2025. Our reporter in Berlin, Kevin Canners, has been talking to voters in Trap Tower park about how economic worries are shaping their decision.

[Kevin Canners]

I regularly watch the daily news, so I know that the economic situation is bad.

[Margaret Raeder]

Margaret Raeder is a retired doctor. She watches the news every day, which here is full of stories about the struggling economy. I spoke to her on a brisk cloudy day here in Traptor Park, a large grassy area lined with trees in the south of Berlin. Many of the conversations I heard were about politics, with the election and the cost of living on people's minds.

[Kevin Canners]

So it doesn't look good. And it seems that people are trying to explain it by saying that energy has become too expensive and that this has made the economy too expensive compared to other countries.

[Margaret Raeder]

According to one recent poll by the public service TV station ZDF, 44% of German voters said the economy was the most important factor influencing their choice. That certainly seemed to be the case back in the park.

[Tanja]

My name is Tanja and I'm a teacher here in Berlin.

[Margaret Raeder]

Tanya says she feels safe in her job, but says many other people are dealing with growing uncertainty individuals.

[Tanja]

I think it's harder because there are a lot of mini jobs that are temporary jobs or that you ask to come in to work for a couple of hours.

[Margaret Raeder]

Ricardo is 30.

[Ricardo]

I'm a veterinarian.

[Margaret Raeder]

He moved to Germany as a teen and got his citizenship five years ago. He says because so many people bought pets during the pandemic, his job is going well, but he says that people around him are having a much harder time.

[Ricardo]

Many people are struggling to find jobs after being cut from their companies.

[Margaret Raeder]

All of this economic uncertainty is having a knock on effect on politics. People are finding costs going up across the board, including on rent, and as our retired teacher says, that's affecting how people might vote.

[Unnamed Retired Teacher]

Fortunately, we're not so tight that we can't pay for it, but there are a lot of people who are living on the edge and I don't know how they're managing now. So I can well imagine that they are dissatisfied and maybe won't vote the way the mainstream would like them to.

[Margaret Raeder]

And that way. Well, the far right Alternativa for Deutschland or AfD is expected to do well in this election, which is even more of a concern for most people I spoke to than the economy. The party has been consistently polling second in Germany for more than a year and a half.

[Kevin Canners]

The economy I'm more influenced by the danger from the right.

[Margaret Raeder]

In Berlin, I'm Kevin Kaynors for Marketplace.

[Liana Byrne]

And I'm Liana Byrne with the Marketplace morning Report from the BBC World Service.