2019-10-14 Bloomberg Businessweek-Europe Edition

E C O N O M I C S

34

Edited by

Cristina Lindblad

unusual nature of the forces at play—and the fact

that many of them are geopolitical and emanate

from abroad—makes it more difficult to decide

how far to go in easing credit. There’s also the

question of how effective rate cuts are at treat-

ing what is, at its root, a confidence problem:

Businessesareloathtoinvestbecausetheyfear

supplychainsareunraveling.

“Thebroadergeopoliticalrisksareimportant

rightnow,”Powelltoldaneconomicconferencein

DenveronOct.8.“Youhavetobewatchingthose

carefullyandassesstheimplications.”Heleftopen

thepossibilitythattheFedwouldcutinterestrates

againwhilevoicingconfidencethatthe10-yeareco-

nomicexpansionwouldremainontrack.“This

feelsverysustainable,”hesaid.

If businessesbecomemoreoptimistic,there’s

a chancetheeconomycouldsnapbackascompa-

niesrestartspendingplanstheyputonholdand

monetarystimuluskicksinwithgreaterforce.“The

scenariosarequiteextreme,”saysJPMorganChase

& Co.chiefeconomistBruceKasman.“Eitherwe

bendandthenbreakorwebendandthenbounce.”

A study by IHS Markit’s Macroeconomic

Adviserscalculatedthatgrossdomesticproduct

couldbeboostedbyabout0.5%if uncertaintyover

tradepolicyultimatelydissipates.Thatdoesn’tlook

likely(nextpage).

BloombergEconomics’modelputstheoddsofa

recessioninthenext 12 months at about 25%. “The

chances of a recession are higher than they were at

Thiswon’tbea run-of-the-millrecession—ifinfact

theU.S.endsuptumblingintoone.

Traditionally,U.S.downturnsarehomegrown

andhousehold-led,usuallytriggeredbya spike

ininflationandinterestratesandfueledbyan

unwindingoffinancialandeconomicexcesses.

Noneofthatis arguablyatworkthistime.

Instead,what’satplayisa globalgeopolitical

shocktobusinesssentimentthat’spromptingU.S.

companiestocurbspendingamiduncertainties

includingtheU.S.-ChinatradewarandBritain’s

messydivorcefromtheEuropeanUnion.“The

globaleconomycontinuestosoften,andweare

takingstepstocutcapacity,”saidFredSmith,

chiefexecutiveofficerofFedExCorp.—acom-

panythat’sregardedasaneconomicbellwether—

duringa Sept.17 conference call. The softness is

being “driven by increasing trade tensions and pol-

icy uncertainty,” he said.

That poses problems for Federal Reserve

Chairman Jerome Powell and his fellow policy-

makers as they weigh whether to cut interest rates

later this month for the third time this year. The

● Federal Reserve rate cuts

may not be enough to head off

a downturn caused by a crisis

of business confidence

INFLATION IS

MIA!

It’s geopolitics, stupid