World responds to executive orders and congressional plans. US unemployment will serve as opening salvo to unified Republican government. Japan holds interest rates. Bank of England to make first interest rate decision since hard Brexit announcement. All in The Week Ahead.
US and world respond to executive orders and congressional plans
The last week has been an incredibly chaotic week for the United States and the coming week will likely hold more executive actions. In his first week in office, the new president issued a possibly unconstitutional executive order banning green card holders and refugees from 7 Muslim-majority countries; the Republicans remained in total disarray on a plan to repeal and replace the Affordable Care Act; the administration re-imposed the “Mexico City” gag rule on providing foreign aid to organizations abroad that provide abortion access; Trump threatened to cut funding for cities that don’t provide appropriate levels of support to federal Immigration and Customs Enforcement (ICE) agents; and, last but not least, directed the federal government to explore the creation of a border wall between the United States and Mexico.
While it is likely that all of this will be fought in court, and a substantial amount of it may be struck down for violating the 1st (freedom of religion, Establishment Clause), 5th and 14th (due process) amendments, as well as possibly fail to secure Congressional funding, nevertheless these developments have caused reverberations across the world as governments quickly condemned these actions. Iran has already formally responded by denying admission of US citizens to their country and the Netherlands has announced it would create its own abortion fund to make up for the gap in US spending.
Executive orders are likely to continue this week, and Congressional leaders who have largely been silent on recent developments will eventually by pressured to respond. How exactly any of this progresses is uncertain at this point, but it will likely dominate US markets and Washington, DC.
Unemployment statistics from US will serve as opening salvo to unified Republican government
On Friday, unemployment statistics for the US economy will be released, the last during the Obama administration. Current projections have the labor market tightening, making it unlikely there will be any further reductions in the unemployment rate (currently at 4.7%). Unemployment is likely to remain stable, though the tightness of the labor market may change depending on whichever policies emanate out of Washington. The elimination of the Affordable Care Act, for example, is expected to lead to a rise in unemployment, and any major policy restricting trade or raising tariffs is likely to lead to job loss from the un-spinning of North American supply chains, particularly in the automotive and agricultural sectors.
This week will also include the Federal Reserve monthly meeting on Wednesday, which is not expected to include an interest rate hike — most current projections are that an interest rate movement is not likely until probably July at the earliest. The Federal Reserve’s press conference should include helpful information regarding the Fed’s view of the trajectory of the U.S. economy for the quarter.
Japan likely to stand pat on interest rates
In keeping with past behavior, the Bank of Japan is likely to maintain interest rates at -0.1%. Unlike some OECD nations that have moved in the direction of cautious optimism — tempered now by geopolitical instability — Japan’s central bank has operated more conservatively than most and is likely to maintain that behavior now.
The recent behavior and posturing made by the current US administration seems likely to bypass Japan, which could provide opportunities for the country as it enters an uncertain political and economic environment. The Japanese government has been able to maintain positive relations with the Russian and EU governments, and may benefit if the US government takes retaliatory trade measures against the Mexican or Chinese governments. Additionally, despite its vehement anti-trade rhetoric, the administration has been open to one-off bilateral trade agreements, and if it emerges successful from a US-UK agreement, it may move over to other developed nations like Japan.
Bank of England to make first interest rate decision since hard Brexit announcement
The Bank of England, like its counterparts in Japan and the United States, is unlikely to make any major changes this week to interest rates on Thursday. Also similar to the United States, the substantial policy uncertainty from London and Brussels makes it less likely that the Bank will act aggressively so long as the specifics of the hard Brexit announced by Prime Minister Theresa May remain ill-defined, even in the event the labor market tightens further.
In fact, given the policy uncertainty from the United States and the UK, as well as the potential for significant policy changes that could ensue following elections in the Netherlands and France later this year, where the rise of right-wing nationalist Euroskeptic parties could alter Europe’s geopolitical landscape, it would be unsurprising if central banks around the world chose to pursue more conservative interest rate goals and decisions to provide a buffer in the event of a significant and unexpected economic backslide.
The Week Ahead provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, The Week Ahead presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes.
This edition of The Week Ahead was written by GRI Analyst Brian Daigle.