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Some Federal Reserve policymakers expressed concern at their most recent meeting that markets are expecting more rate cuts than the central bank intends to deliver, according to minutes released Wednesday.

The Federal Open Market Committee approved a quarter-point rate cut at the Sept. 17-18 meeting, putting the overnight funds rate in a target range of 1.75% to 2%.

But documents released at the meeting also showed sharp divisions among members about the future path of policy.
Minutes amplified those concerns, along with some worry that a market clamoring for easier monetary policy might be getting ahead of itself. The summary said that “a few participants” at the September meeting said prices in futures markets “were currently suggesting greater provision of accommodation at coming meetings than they saw as appropriate.”

As things stand, markets are heavily betting that the Fed will follow up its rate cuts of July and September with another in October. Markets also see more reductions on the way in 2020.

Because of the potential misunderstanding, “it might become necessary for the Committee to seek a better alignment of market expectations regarding the policy rate path with policymakers’ own expectations for that path,” the minutes stated.

What they left out of statement

In addition, the minutes note that “several” participants thought the committee, in its post-meeting statement, should provide some guidance as to how long the Fed would remain accommodative due to concerns over tariffs. The final statement did not include that type of language.

The “dot plot” of member expectations released at the meeting showed that five members favored the Fed not approving any additional cuts this year after the most recent move, five more seeing an increase ahead, and seven wanting an additional cut.

The final tally among the 10 voting members saw three dissents from Fed presidents – Eric Rosengren of Boston and Esther George of Kansas City, who favored holding the line, and James Bullard of Boston who wanted a half-point cut. That marked the most dissenters since December 2014.

In justifying the cut, Fed officials cited concerns over slowing global growth spilling over into the U.S., the ramifications from the U.S-China trade war, and persistently low inflation that had been running below the Fed’s 2% target.

Trade a concern

Minutes showed that trade was the overriding concern. The issue garnered 28 mentions in the document, with members repeatedly expressing concerns about the impact tariffs were having on business activity.

Members said that while they saw U.S. growth as generally solid, the forecast risks “were tilted to the downside.”
“Important factors in that assessment were that international trade tensions and foreign economic developments seemed more likely to move in directions that could have significant negative effects on the U.S. economy than to resolve more favorably than assumed,” the minutes said.

“In addition, softness in business investment and manufacturing so far this year was seen as pointing to the possibility of a more substantial slowing in economic growth than the staff projected. The risks to the inflation projection were also viewed as having a downward skew, in part because of the downside risks to the forecast for economic activity,” the summary continued.

Officials also noted that “a clearer picture of protracted weakness in investment spending, manufacturing production, and exports had emerged” and members also were watching the yield-curve inversion, a reliable indicator that a recession is ahead.

Still, members noted current conditions remain strong, with “robust” consumption and an employment picture that continued to improve.

Those who favored holding the line worried about financial stability risks that low interest rates posed. Others also stated concern that cutting rates now would leave the Fed little wiggle room the next time a slowdown emerged.

Repo discussion

Fed officials also discussed the recent upset in overnight lending markets that resulted in a spike in short-term rates. The central bank addressed the issue with several temporary liquidity actions aimed at stabilizing the market.
Members said future discussions about the proper size of bank reserves would be appropriate.

In a speech Tuesday, Fed Chairman Jerome Powell said the central bank likely will start repurchasing Treasury bills as part of a move to grow the balance sheet and reserves. Members also suggested looking into a standing repo facility to address funding issues.

The minutes stressed, as did Powell, the importance of distinguishing that type of balance sheet growth from the quantitative easing programs the Fed used during and after the financial crisis.

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US to extend license allowing its companies to continue business with Huawei, report says



A Huawei logo is pictured at their store at Vina del Mar, Chile July 18, 2019.

Rodrigo Garrido | Reuters

The United States is set to extend a license allowing U.S. companies to continue doing business with Chinese technology company Huawei Technologies Co Ltd, the New York Times reported on Friday, citing people familiar with the deliberations.

An earlier reprieve issued by the U.S. Commerce Department is set to expire on Monday, but the administration of U.S. President Donald Trump is expected to extend it for a period of time, according to the report, which added that the decision could change given the ongoing trade talks between the U.S. and China.

Huawei and the Commerce Department did not immediately respond to a Reuters request for comment outside regular working hours.

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Prince Andrew says in BBC interview he has no recollection of meeting accuser



Prince Andrew, Duke of York attends Day 4 of Royal Ascot at Ascot Racecourse

Mark Cuthbert I UK Press via Getty Images

Britain’s Prince Andrew said in comments broadcast on Friday that he had no recollection of ever meeting an American woman who alleges she was forced to have sex with him when she was underage.

Andrew also told BBC television that he had “let the side down” by staying with U.S. financier Jeffrey Epstein after Epstein’s conviction for paying a teenage girl for sex.

One of Epstein’s accusers Virginia Giuffre has said she was forced to have sex with Andrew in London, New York and on a private Caribbean island between 1999 and 2002, when she says Epstein kept her as a “sex slave”.

In an excerpt of an interview given by Andrew to the BBC’s Newsnight program, the prince was asked about the claim by Giuffre that she had sex with him in a house in London.

“I have no recollection of ever meeting this lady, none whatsoever,” Andrew said.

Andrew, 59, is the second son of Queen Elizabeth. He married Sarah Ferguson in 1986 and the couple divorced 10 years later although they remain close friends.

In a second excerpt, shown by the BBC before the full broadcast of the interview at 2100 GMT on Saturday, Andrew was asked about his decision to stay in Epstein’s home in New York after his conviction.

“I stayed with him and that’s…that’s…that’s the bit that…that…that, as it were, I kick myself for on a daily basis because it was not something that was becoming of a member of the royal family and we try and uphold the highest standards and practices and I let the side down, simple as that,” he said.

Giuffre, who was previously named Virginia Roberts, has said that she first had sex with Andrew when she was 17 and underage.

A picture showing the prince with his arm around Giuffre’s waist from 2001 has appeared in British media. Unnamed supporters of Andrew told the Daily Telegraph newspaper in August that the picture had been faked.

Andrew has previously denied any inappropriate relations with Giuffre.

When the allegations were first made, a Buckingham Palace spokesman said it was “emphatically denied” that Andrew had any form of sexual contact or relationship with her.

Andrew has previously said he stood by the palace statements. He recently apologized over his friendship with Epstein.

He has also previously acknowledged he made a mistake after a photograph of him with Epstein in New York was published in a British newspaper in December 2010. The former investment banker was then a registered sex offender.

Epstein, 66, died by hanging himself in his Manhattan jail cell on Aug. 10.

Andrew’s former wife Ferguson sent him a message of support shortly before the interview excerpts were broadcast on Friday.

“It is so rare to meet people that are able to speak from their hearts with honesty+pure real truth, that remain steadfast and strong to their beliefs,” she said on Twitter. “Andrew is a true+real gentleman and is stoically steadfast to not only his duty but also his kindness + goodness @TheDukeOfYork.”

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Trump wants South Korea to pay more for defense. He shouldn’t stop there



Defense Secretary Mark Esper speaks at a joint press conference after the 51st Security Consultative Meeting (SCM) with South Korean Defence Minister Jeong Kyeong-doo at the Defence Ministry in Seoul on November 15, 2019.

Jung Yeon-je | Reuters

It turns out President Donald Trump’s long-running demand that NATO countries pay more for their own defense isn’t just about Europe. Now, the administration is stepping up its efforts to get Asian countries to cough up more too.

The specific Asian country in the spotlight is South Korea. U.S. Defense Secretary Mark Esper used his current trip there to pressure Seoul into paying more for the massive U.S. military presence there. According to one South Korean lawmaker Esper wants much more, as in five times more or $5 billion annually.

That sounds like a big mark-up. But let’s face it, defending the free world isn’t cheap. A big reason why is the countries that aren’t part of the free world, like China, are spending record amounts on defense as well.

Demanding that Seoul pay more is basically the only option the U.S. has now. That’s because the idea of closing American bases in South Korea or pulling out the 28,500 U.S. troops there is unthinkable in the face of the constant nuclear and conventional military threats from North Korea.

But cutting the number of U.S. bases isn’t, or shouldn’t be such a controversial idea in many other parts of the world. The U.S. currently has about 800 military bases in more than 70 countries. That number includes 174 bases and other military installations in Germany alone. We even have one in Aruba.

Each one of these foreign bases costs the taxpayers not just in maintenance bills, but in payments we often must make to those foreign countries to use their land or coastlines. There are also the costs of maintaining diplomatic relationships with those nations to make sure they don’t suddenly kick our troops and bases out. At last count, the cost of maintaining those bases is $156 billion per year.

The U.S. currently has about 800 military bases in more than 70 countries. That number includes 174 bases and other military installations in Germany alone.

It’s unrealistic to think most of the base maintenance cost can be eliminated. But a big chunk of it certainly can, especially if some of the politicians who typically protect certain bases from closure get out of the way.

While the Trump administration has seen some success in getting NATO countries to increase their share of defense spending, the base closing and U.S. troop removal part of the equation isn’t going as well. The continuing controversy over the removal of just a small number of U.S. troops from Northern Syria is the best example of that.

There are other more inventive ways to cut down on America’s costs to defend the free world that aren’t just proposals. One strong example is the agreement we have with Israel on how it uses the $3.8 billion in military assistance the U.S. sends to it annually.

Israel must spend at least 74 percent of that money on U.S.-made defense products, and by 2028, that requirement will rise to 100%. Often those products are co-developed with Israeli defense contractors, like the Iron Dome anti-missile system that’s been heavily used this past week during a barrage of rocket fire from Gaza into Israeli civilian areas.

These requirements aren’t just a form of American economic protectionism; they’re also a key security precaution. Mixing U.S. weapons systems with other defense products made by America’s enemies and allies alike can lead to finding weaknesses in those American systems.

That’s the reasoning behind the Trump administration’s decision to cut Turkey out of the F-35 stealth jet fighter program after Ankara decided to buy Russia’s S-400 anti-aircraft missile system.

That decision was driven by a fear that having the F-35s and S-400s in such close proximity could give Turkish or Russian engineers an easier path to discovering flaws in the F-35 that the S-400 could exploit. The same form of economic and military caution is driving a new threat by the U.S. to sanction Egypt if goes ahead with its plan to buy at least 20 more Su-35 fighter jets from Russia.

Not all of this plan is moving smoothly, but we do see the three key elements to achieving something many have long thought was impossible: reducing U.S. defense spending without jeopardizing security. The working formula is getting our allies to pay more, closing bases and removing troops where they’re not needed, and requiring countries we help protect to do their defense shopping exclusively with the U.S. All this and future U.S. administrations should do now is keep it up.

Jake Novak is a political and economic analyst at Jake Novak News and former CNBC TV producer. You can follow him on Twitter @jakejakeny.

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