As China’s central bank cuts rates, U.S. regulators consider opposite course

While U.S. businesses and stock markets continued to watch the Federal Reserve for signs that an interest-rate increase is near, the People’s Bank of China — China’s central bank — was cutting rates on Friday for the sixth time in less than a year.
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While U.S. businesses and stock markets continued to watch the Federal Reserve for signs that an interest-rate increase is near, the People���s Bank of China — China’s central bank — was cutting rates on Friday for the sixth time in less than a year.

China is trying to get its slowing economy growing faster; in this country the Federal Reserve is weighing an increase in rates for the first time in nine years but has not seen sufficient evidence of growth and inflation to trigger action.

"The Fed may be considering raising interest rates, but in much of the rest of the world, China included, central banks are facing weak growth and a lack of inflation, and are thus more likely to ease rather than tighten monetary policy," Louis Kuijs, head of Asia economics at Oxford Economics Ltd. in Hong Kong, told Bloomberg.

The Fed is holding its next-to-last scheduled meeting of the year this week, but few observers expect the central bank to make a rate move and there is growing skepticism that it will take such a step before the year ends.

The Wall Street Journal said Sunday that mixed reports on the U.S. economy, China’s slowing growth and reduced eurozone inflation expectations make it more likely that the Fed will not act this year.

The new week began with a disappointing report Monday on new-home sales in the United States. Sales fell to nearly a one-year low in September after two months of gains.

The Commerce Department said sales fell 11.5 percent to a seasonally adjusted annual rate of 468,000 units. The department also revised August's sales pace down to 529,000 units from a previously reported 552,000.

Today brings the Conference Board’s Consumer Confidence Index for October. The consensus forecast is that the index will slip slightly to 102.5 from 103 in September. On Friday the final University of Michigan Consumer Sentiment Index for October will be released.

In its preliminary report for the month, the Michigan Survey of Consumers said the public’s mood had brightened considerably. The index rose to 92.1, the first advance in four months, from 87.2 in September.

On Thursday the Commerce Department will release its report on third-quarter gross domestic product. The consensus forecast is for growth of just 1.7 percent after a gain of 3.9 percent in the second quarter.

On Friday, the University of Michigan’s report on consumer sentiment will be accompanied by Commerce Department reports on personal income and consumer spending for September. The income forecast is for a gain of 0.2 percent, down from 0.3 percent for August, and the spending forecast is for a gain of 0.2 percent, down from 0.4 percent in August.

If the data show an increase from previous results and the twin reports on consumer confidence point upward, income, spending and confidence will begin to converge in a way that will impress the business community and may signal the Federal Reserve that a rate increase before year’s end would be a good idea, after all.

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