Even the Fed Is Hard-Pressed to Put America First

(Bloomberg Opinion) -- The U.S. has a border problem – even the Federal Reserve can agree.

. While the central bank’s mandate is domestic, global problems are starting to seep into its decision-making: from the trade war and China's slowdown to Europe’s economic sluggishness. What's striking about the message from Chairman Jerome Powell on Wednesday is not only that he cited pressures from abroad with euphemisms like “cross currents” and “uncertainties,” but that he addressed them so often during his 45-minute media briefing, with descriptions of manufacturing challenges in the euro zone and China.

. This isn't the first time Powell has folded such language into his remarks. But this time he dialed up the volume. Good. In a financially connected world, myopic focus on one’s own backyard can be perilous.

. The dovishness prevalent in the Federal Open Market Committee's statement and Powell's press conference has little to do with last month's disappointing payrolls numbers; they tend to look at three-month averages, which are still relatively strong. America’s decade-long expansion looks set to continue.

. There are nagging shortcomings, though, mostly related to inflation and its frustrating inability to rally to the 2% target and stay there. That gives the Fed the scope to cut rates. The current trade conflict and its collateral damage to an already-slackening world growth rate could have Powell pulling the trigger in July, September – or both.

. With the Fed now clearly in an easing mood, what’s the international monetary response? In Asia, already-dovish central banks have even more leeway.

The region's policymakers got their first opening when the Fed halted its steady path of rate hikes in January as China and Europe slowed and trade tensions rose. Some officials followed through with cuts, or at least signaled that they would ensue.

. The Reserve Bank of Australia – whose stunning economic track record, to hear it from Powell, presided over the end of the business cycle – trimmed rates this month and signaled Thursday there are more to come .

. While the Bank of Japan stood pat , this comes in the context of existing ultra-easy policy. Economists predict its next move will be further accommodation. The Philippines and Malaysia have cut and even Indonesia – perennially worried about the capital flight a rate cut could foreshadow – has been making noises about joining the party. South Korea's abstinence is increasingly hard to defend.

. The biggest piece of this Asian monetary configuration, of course, is China, which began easing before the Fed’s pause.

. The Fed has pivoted in response to dour external affairs before, as I wrote here . Switches in 2015 and 2016 were also related to economic tremors in China and Europe. In the late 1990s, Russia and the Asian financial crisis also swayed the Fed’s considerations. Assuming the Fed’s rate cuts do materialize, they won't be the last. Nor should they be.

. Even though the the U.S. accounts for a declining share of global gross domestic product, the dollar remains the world’s currency. As long as that’s the case, the state of the global economy will be America's problem.

. To contact the editor responsible for this story: Rachel Rosenthal at rrosenthal21@bloomberg.net

. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

. Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.

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Even the Fed Is Hard-Pressed to Put America First