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US debt level pushing fast towards $US22 trillion, and a look into Fed deliberations

On my way through a selection of economic articles & announcements this week, I looked at the US Debt Clock website a couple of times, and pondered how long it would be until the US clocked up $US22 trillion of national debt.

In addition, the US Federal Reserve open market committee issued the minutes yesterday from its 8 November meeting, showing there was considerably more discussion about future interest rate strategy than blunt headlines of up versus hold indicated.

According to the St Louis Federal Reserve Bank in its latest quarterly calculations, also out yesterday, total US public debt at 30 June was $US21.195 trillion – a long way off $US22 trillion, but rising fast.

After a debt crisis in early 2013, the legislated debt ceiling was raised to $US16.699 trillion in May 2013. President Donald Trump again suspended the debt ceiling on February 9 this year, through to 1 March 2019.

The Committee for a Responsible Federal Budget estimated public debt would hit $US22 trillion in March 2019, but it could happen earlier.

Total public debt went through $US21 trillion on 15 March 2018 and was closing in on $US21.8 trillion this morning. It’s quite hard to run a stopwatch on it, but the debt rises by $US1 million about every 36 seconds. At that rate it should hit $US22 trillion in 84 days – 23 February 2019.

This is a debt picture which makes US President Donald Trump – and plenty of others – keen to hold interest rates down. The US Federal Reserve had begun to raise its federal cashrate, increasing the target range for the federal funds rate to 2-2.25% in September but holding it at that level on 8 November.

US national public debt:gdp.

The St Louis Fed showed federal debt (total public debt) as a percentage of gross domestic product, seasonally adjusted, was 103.84% at the end of the second quarter of 2018, down from 105.23% in the previous quarter and 105.26% in the fourth quarter of 2016.

Debt caution evaporates

Despite those high ratios, now that Barack Obama’s out of office the Republicans don’t seem to have the same caution about rising debt as they used to. They’ve been aided in this reinterpretation of sound policy by having a new president who’s built his business empire on debt, and is keen to lift spending in some sectors, particularly the military budget.

Among interpretations of the Fed open market committee’s November minutes, one view was that the US central bank would hold back from raising its funds rate, which gave the US sharemarkets a boost.

The minutes show the committee went well beyond a yes/no on specific rates, holding a debate on various aspects of policy, including the levels of reserves it would require in an environment where banks had built up reserves as a precaution, making money market rates less sensitive to small fluctuations in the demand for & supply of reserves.

Fed staff also briefed the committee on alternative policy rates. The minutes showed no decision following that discussion, except to continue the discussion on options for long-run implementation frameworks.

The overall federal debt level, and the absence or re-imposing of a debt ceiling, weren’t factors leading the discussion.

Fed surveys strategy options

An examination of market behaviour & market movers’ expectations didn’t disclose any favouring of one policy likelihood over another: “On balance, the turbulence in equity markets did not leave much imprint on near-term US monetary policy expectations. Respondents to the open market desk’s recent survey of primary dealers and survey of market participants indicated that respondents placed high odds on a further quarter-point increase in the target range for the federal funds rate at the December open market committee meeting.

“That expectation also seemed to be embedded in federal funds futures quotes. Further out, the median of survey respondents’ modal expectations for the path of the federal funds rate pointed to about 3 additional policy firmings next year, while futures quotes appeared to be pricing in a somewhat flatter trajectory.”

Later in the minutes, the committee noted: “Almost all participants [staff, advisors & committee members] reaffirmed the view that further gradual increases in the target range for the federal funds rate would likely be consistent with sustaining the committee’s objectives of maximum employment & price stability.”

That read like a ‘We can keep raising the rate and blame somebody else, or blame everybody’ response – perhaps handy, knowing that President Trump wants no rate rise.

The discussion points that followed represented up, down & no change, giving Fed chair Jerome Powell the ability to acquiesce with the president’s preference, or push ahead with lifting the funds rate to a level where it’s closer to the long-term average and allows for easing if conditions worsen: “Consistent with their judgment that a gradual approach to policy normalisation remained appropriate, almost all participants expressed the view that another increase in the target range for the federal funds rate was likely to be warranted fairly soon if incoming information on the labour market & inflation was in line with or stronger than their current expectations.

“However, a few participants, while viewing further gradual increases in the target range of the federal funds rate as likely to be appropriate, expressed uncertainty about the timing of such increases. A couple of participants noted that the federal funds rate might currently be near its neutral level and that further increases in the federal funds rate could unduly slow the expansion of economic activity and put downward pressure on inflation & inflation expectations.”

There was also concern that the committee was signalling intentions – that it would raise rates at stipulated intervals or frequency – and that it would be better to be vague, basing rate changes on new data rather than a programme seen as being set in place.

Quantitative tightening

One aspect of the Fed deliberations that’s been emphasised less is the now-continual withdrawal of maturing Treasury securities from the market at the rate of $US30 billion/month, and agency debt & mortgage-backed securities at $US20 billion/month (assuming that much in each category matures in a month).

Fed view on China

Among global considerations, the US Fed committee’s markets had this to say on China: “In China, investors were concerned about the apparent slowing of economic expansion and the implications of continued trade tensions with the US.

“Chinese stock price indexes declined further over the inter-meeting period and were off nearly 20% on the year to date. The renminbi continued to depreciate, moving closer to 7.0 renminbi/$US – a level that some market participants viewed as a possible trigger for intensifying depreciation pressures. Anecdotal reports suggested that Chinese authorities had intervened to support the renminbi.”

Half-pie view on affordability

The committee minutes surprised me on one issue which is international – the relationship between house prices & interest rates: “Real residential investment declined further in the third quarter, likely reflecting a range of factors including the continued effects of rising mortgage interest rates on the affordability of housing.

“Starts of both new single-family homes & multifamily units decreased last quarter, but building permit issuance for new single-family homes – which tends to be a good indicator of the underlying trend in construction of such homes – was little changed on net. Sales of both new & existing homes declined again in the third quarter, while pending home sales edged up in September.”

The first surprise was the lack of comment on mortgage rates rising despite minimal movement in the base federal funds rate. The second surprise was that the Fed should see higher borrowing costs as affecting “affordability” – presumably the affordability of paying for what’s already bought – without comment on whether this would also bring pressure on house prices, which is a second segment of the affordability question.

Comments on volume alone, without factoring in price movements, leave the question open on whether supply will slump, thus maintaining price levels, or suppliers will agree to lower returns.

This issue is playing out in Australia at the moment, particularly in Sydney, where oversupply based on investor (and especially foreign investor) ambitions & high immigration is being followed by a sharp decline in values.

Different price/mortgage issues will arise in Auckland as immigration declines further, barring of foreign investors takes effect and supply of townhouses & standalone homes rises.

Links:
US Debt Clock
Federal Reserve open market committee minutes 8 November 2018
St Louis Federal Reserve Bank, total US public debt
St Louis Federal Reserve Bank, federal debt as percentage of gdp
The Balance, 1 August 2018: US debt ceiling & its current status

Attribution: Federal Reserve, St Louis Federal Reserve Bank, US Debt Clock, The Balance.

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Fed holds rate

The US Federal Reserve kept the target range for the federal funds rate at 2-2.25% today, and gave no indication when it might next change the rate.

Fed chair Jerome Powell said in his summary of the state of the market:

“Information received since the Federal open market committee met in September indicates that the labour market has continued to strengthen and that economic activity has been rising at a strong rate.

“Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year. On a 12-month basis, both overall inflation & inflation for items other than food & energy remain near 2%. Indicators of longer-term inflation expectations are little changed, on balance.

“Consistent with its statutory mandate, the committee seeks to foster maximum employment & price stability. The committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labour market conditions and inflation near the committee’s symmetric 2% objective over the medium term. Risks to the economic outlook appear roughly balanced.

“In view of realised & expected labour market conditions & inflation, the committee decided to maintain the target range for the federal funds rate at 2-2.25%.

“In determining the timing & size of future adjustments to the target range for the federal funds rate, the committee will assess realised & expected economic conditions relative to its maximum employment objective & its symmetric 2% inflation objective. This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures & inflation expectations, and readings on financial & international developments.”

Attribution: Bank release.

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Fed raises rate again as storm clouds gather

As further storm clouds gathered over international trade yesterday, the US Federal Reserve concentrated its vision on home affairs and raised the target range for the federal funds rate another quarter percent overnight.

The Fed raised its rate in March & June, each time by 25 basis points. The latest raise takes the rate to a range of 2-2.25%.

The US central bank said in its explanation: “Information received since the Federal open market committee met in August indicates that the labour market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending & business fixed investment have grown strongly. On a 12-month basis, both overall inflation & inflation for items other than food & energy remain near 2%. Indicators of longer-term inflation expectations are little changed, on balance.”

The committee said further gradual increases in the target range would be “consistent with sustained expansion of economic activity, strong labour market conditions and inflation near the committee’s symmetric 2% objective over the medium term”.

It said risks to the economic outlook “appear roughly balanced”.

However, external risks increased.

At the United Nations, President Donald Trump stamped his new order in place, saying: “America is governed by Americans. We reject the ideology of globalism and accept the ideology of patriotism.”

President Trump also increased US trade tariffs to cover a further $US200 billion of goods imported from China.

His trade policy is one of bullying, and the answer to it may turn others to similar behaviour. That would ensure his “ideology of patriotism” takes hold, moving the world away from the era of largely free trade.

His political policy is also one of bullying – versus China, versus Iran, versus Venezuela.

Much of the world has been watching rather than reacting, but much of the new US economic & political stance is aimed at preventing China from rising to a level with the US – or higher – in the global power stakes.

The Trump style would force less powerful nations to take sides. In the interim, China will pursue its Belt & Road, South China Sea, African & South American support and South Pacific expansion goals.

While the US actions will raise costs for Chinese exporters by reducing their earnings from US trade, the US has been wilfully raising its own costs exponentially by no longer holding to any ceiling in national debt.

We can expect further disruption internationally as the US acts to change its debt payment requirements, China focuses on lifting trade elsewhere, and other nations seek alternatives.

Attribution: Fed release.

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Fed to pull $US40 billion/month out of market

The US Federal Reserve’s open market committee held its breath for another meeting and kept its target for the federal funds rate at 1.75-2% yesterday.

More importantly, in its quantitative tightening programme – a start to reducing the $US1.4 trillion of securities built up through quantitative easing since the global financial got underway in 2008 – the bank will pull $US24 billion/month of maturing Treasury securities & $US16 billion/month of agency mortgage-backed securities from the market.

Other than that, Fed chair Jerome Powell issued the standard release, saying the labour market had continued to strengthen, economic activity had been rising at a strong rate, job gains had been strong on average, and household spending & business fixed investment had grown strongly.

Mr Powell did go a step further than earlier intentions to raise the rate, also mentioning the size, so it might be bigger than the occasional quarter percent. But he wasn’t committing to a when, saying that would depend on assessments of a large number of conditions.

Attribution: Fed release.

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First $US1 trillion deficit expected, true nature of tariff campaign laid open, Trump budget review projects growth

The Trump budget will take the US deficit over $US1 trillion for each of the next 3 years, according to the mid-year projections by the White House’s Office of Management & Budget.

Behind that headline figure, though, is a complicated picture showing general economic advances – and those advances are likely to be felt internationally.

In one part of the picture, the growth of regulation in the Obama years – on the principle that corporates can’t be trusted – has been reversed, at speed, by the Trump administration, which will be welcomed by corporates averse to regulation.

After 2021, the mid-session review sent to Congress on 13 July by the White House office’s director, Mick Mulvaney, shows the deficit tailing off steadily through to 2028. That’s the same picture as before, but with a deficit running about $US100 billion/year higher than in the February budget.

The review lifts the deficit as a percentage of gdp by about 0.4% every year. So, for 2019, it would rise from 4.7% to 5.1%, declining to 4.8% in 2020 and steadily down to 1.4% in 2028 (versus a 1.1% projection made in February).

2 causes of the changed projections are the 2017 tax cuts President Donald Trump introduced, and the much higher budget for military spending. Mr Trump said he signed the bill to increase military spending, which carried an increase in non-military spending with it. But, going forward, his proposals would cut that non-military tag by $US900 billion.

Those aside, the message the White House sent was that the Make America Great Again slogan was working wonderfully:

“The economic recovery following the 2008-09 downturn was unusually slow relative to other post-war recoveries. Recently, economic growth has generally been modest, with real gdp growing at only 1.8% during the 4 quarters of 2016. Since this administration took office, growth has increased considerably.

“In contrast to its lacklustre performance in 2016, real gdp grew at 2.6% over the 4 quarters of 2017, slightly exceeding this administration’s 2018 budget forecast of 2.5%. Meanwhile, the labour market in 2018 has been remarkably strong, with payroll employment posting robust & sustained growth and unemployment rates falling to historic lows. By June, the unemployment rate stood at 4.0% and the economy had added over 3.2 million non-farm jobs since the president took office.”

In contrast to the furore over tariffs, the Trump message is about a growing US economy – and the message in this document about the big increases in tariffs is that they are a bargaining ploy:

“Much like draining the swamp that is Washington DC, the president has been driving to change the behaviour of trading partners around the world acting in bad faith by using existing US trade laws to thwart unfair trade practices and improving deals that simply do not work for America.

“The president’s objective of shifting the world economy to a new equilibrium, one with more reciprocity in trade agreements and reductions in global barriers, would deliver a substantial boost to US & world growth.”

That’s to say, the Trump imposition of tariffs is a big stick intended to force other countries, particularly China, to rethink and to lower their tariffs – in which case, he would do the same.

For the US internal economy, budget office director Mulvaney said the Trump policies were also working:

“The president’s policies have also resulted in a surge in investment. In the 6.5 years between the start of the recovery in the third quarter of 2009 & 2015, growth in real private non-residential fixed investment averaged 4.8%, and had slowed to just 0.7% in 2016. Since then, growth jumped to 6.3% for the 4 quarters of 2017, and in the first quarter of 2018 grew at an annual rate of 10.4%.

“Growth of equipment investment jumped to 11.6% in the fourth quarter of 2017 and 5.8% in the first quarter of 2018, thanks largely to the tax law’s allowance for full expensing of equipment investment retroactively to September 2017. Meanwhile, real private business investment in structures & intellectual property has also surged – up 16.2% for structures and 13.2% for intellectual property, respectively, in the first quarter of 2018. Planned capital expenditure indices have accordingly reached record or near-record highs.”

Repatriation

One measure affecting US companies investing & trading in other countries is their improved ability, under the changed tax laws, to repatriate money. Bank of America Merrill Lynch analysts estimate US companies are holding $US3.5 trillion of accumulated profits outside the country. About $US300 billion was repatriated in the December 2017 quarter, and Apple alone has an estimated $US285 billion it could repatriate. That also has the consequences of boosting the $US and lifting tax income through one-off payments, at the same time having negative effects wherever the money is repatriated from. But, on the assumption that the repatriation provision won’t be removed, US investment offshore can be expected to increase.

Link:
White House budget 2019, mid-session review 13 July 2018

Attribution: White House budget review, Bank of America Merrill Lynch.

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Fed lifts rate to 2%

The US Federal Reserve lifted its federal funds rate target range to 1.75-2% overnight, up 25 basis points on top of a similar raise in March.

At 2%, it’s now above the NZ Reserve Bank’s official cashrate of 1.75%.

At the foot of this story, you can check the shifts in US & NZ central bank rates over the last 3 years.

The US central bank reduced its target range for the funds rate to 0-0.25% in December 2008 and held it there until December 2015. It lifted its target rate to 1.25-1.5% in December 2017.

The rationale

The Fed’s open market committee said in its overnight decision that, since it met in May, information indicated that the labour market had continued to strengthen and that economic activity had been rising at a solid rate.

“Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly. On a 12-month basis, both overall inflation & inflation for items other than food & energy have moved close to 2%. Indicators of longer-term inflation expectations are little changed, on balance.

“Consistent with its statutory mandate, the committee seeks to foster maximum employment and price stability. The committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labour market conditions and inflation near the committee’s symmetric 2% objective over the medium term. Risks to the economic outlook appear roughly balanced.

“In view of realised & expected labour market conditions & inflation, the committee decided to raise the target range for the federal funds rate to 1.75-2%. The stance of monetary policy remains accommodative, thereby supporting strong labour market conditions and a sustained return to 2% inflation.

“In determining the timing & size of future adjustments to the target range for the federal funds rate, the committee will assess realised & expected economic conditions relative to its maximum employment objective & its symmetric 2% inflation objective. This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures & inflation expectations, and readings on financial & international developments.”

Links to Fed economic projections:
Projections (PDF)
Accessible materials

Earlier stories:
10 May 2018: Expect a 1.75% cashrate for some time, says Orr
14 December 2017: Fed lifts funds rate target
15 June 2017: Fed lifts rate again
15 December 2016: Corrected: Fed lifts rate
10 November 2016: Wheeler cuts cashrate to 1.75%
11 August 2016: Wheeler makes 25-point cut & warns of more
17 December 2015: Fed takes rate above zero

Attribution: Bank release.

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Fed holds itself in symmetrical balance – what?

The US Federal Reserve’s open market committee resolved overnight to keep the target range for the federal funds rate at 1.5-1.75%.

The central reason: “The stance of monetary policy remains accommodative, thereby supporting strong labour market conditions & a sustained return to 2% inflation.”

You’ve been able to read the same lines for years, with only cautious changes in the interest rate. The one new term in the 6-weekly statement is the word symmetric, tossed in twice. I can’t see the reason for it.

The main US means of manipulating a steady position over the 10 years since the global financial crisis erupted has been to increase public debt, which the US Debt Clock website now has at $US21.17 trillion. The website says the US has $US113 trillion of unfunded liabilities, a $US6 trillion federal budget deficit based on generally accepted accounting principles, a $US931,000 liability for every taxpayer and 39 million people living in poverty.

The central bank committee responsible for final decisions said:

“Information received since the committee met in March indicates that the labour market has continued to strengthen and that economic activity has been rising at a moderate rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Recent data suggest that growth of household spending moderated from its strong fourth-quarter pace, while business fixed investment continued to grow strongly. On a 12-month basis, both overall inflation & inflation for items other than food & energy have moved close to 2%. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

“Consistent with its statutory mandate, the committee seeks to foster maximum employment & price stability. The committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labour market conditions will remain strong. Inflation on a 12-month basis is expected to run near the committee’s symmetric 2% objective over the medium term. Risks to the economic outlook appear roughly balanced.

“In view of realised & expected labour market conditions & inflation, the committee decided to maintain the target range for the federal funds rate at 1.5-1.75%.

“In determining the timing & size of future adjustments to the target range for the federal funds rate, the committee will assess realised & expected economic conditions relative to its objectives of maximum employment & 2% inflation. This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures & inflation expectations, and readings on financial & international developments.

“The committee will carefully monitor actual & expected inflation developments relative to its symmetric inflation goal. The committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”

Link: US Debt Clock

Attribution: Bank release.

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US gdp excluding federal debt spirals down

Daily Reckoning managing editor Brian Maher ran a hard-hitting column on US debt & gdp overnight. One graph in it represents, to me, scary accuracy. It shows the line of gdp minus federal debt rising until 2008, then plummeting.

I’ve followed the Daily Reckoning and owner Bill Bonner’s related website for several years for their frequently contrary views and for their unremitting questioning of mainstream thinking.

After posting a criticism from a reader alleging the website is “consistently ignorant”, Mr Maher proceeded to dismantle the belief that the US economy is doing well. Consistently, the Daily Reckoning has criticised the post-global financial crisis spiral in US public debt, which has doubled in the last decade to $US21.144 trillion.

The US Debt Clock website shows total US debt closing in on $US70 trillion (as I wrote this sentence it had less than $US23 billion to go and the clock was ticking very fast).

Mr Maher put the US ratio of debt to gdp at 105%. According to that clock, it’s now 106.2%.

He quoted research by economics professors Carmen Reinhart & Kenneth Rogoff that showed annual economic growth falls 2%/year when the debt:gdp ratio reaches 60%.

The official gdp figure doesn’t distinguish between money the government raises through taxes and what it raises by borrowing. Mr Maher cited US financial advisory firm Baker & Co’s argument that the money the government borrows must eventually be repaid, so it’s not income but artificial stimulus.

From another side, New Yorker columnist John Cassidy laid into the Reinhart-Rogoff research in 2013: “In one of life’s little ironies, last Friday’s disappointing gdp figures, which reflected a sharp fall in government spending, appeared on the same day that the economists Carmen Reinhart & Kenneth Rogoff published an op-ed in the Times [New York Times] defending their famous (now infamous) research that conservative politicians around the world had seized upon to justify penny-pinching policies.”

This one is a typical US argument: start at an extreme and work yourself into a frenzy. I haven’t read all the material so I can’t say which frenzy I prefer. However, on New Zealand’s experience post-1987, in particular, belt-tightening without going to the extreme of austerity seemed a superior policy to tough-love austerity or the opposite, feeding money into the system to keep consumption running.

That debt-creation policy is the one the US has followed since 2008, and now it has a Federal Reserve trying to ease the pedal back, but against presidential & other pressure to hold interest rates down and to increase the federal deficit.

Links:
Daily Reckoning, 19 April 2018: America’s “actual” gdp: The shocking truth
Daily Reckoning
US Debt Clock
Professors Carmen Reinhart & Kenneth Rogoff, working paper January 2010, revised December 2011: Growth in a time of debt
Reinhart & Rogoff book published 2009, This time is different
John Cassidy in The New Yorker, 26 April 2013: The Reinhart & Rogoff controversy: a summing up

Attribution: Daily Reckoning, US Debt Clock, Reinhart & Rogoff, New Yorker.

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Fed raises funds rate

The US Federal Reserve raised its funds rate target overnight to a range of 1.5-1.75%.

The Federal Open Market Committee said the raise was “in view of realised & expected labour market conditions & inflation” – though its expectation is that inflation will stay low.

This is how the Federal Reserve, under new chair Jerome Powell, saw the state of the US economy:

“Information received since the committee met in January indicates that the labour market has continued to strengthen and that economic activity has been rising at a moderate rate. Job gains have been strong in recent months, and the unemployment rate has stayed low. Recent data suggest that growth rates of household spending & business fixed investment have moderated from their strong fourth-quarter readings.

“On a 12-month basis, both overall inflation & inflation for items other than food & energy have continued to run below 2%. Market-based measures of inflation compensation have increased in recent months but remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

“Consistent with its statutory mandate, the committee seeks to foster maximum employment & price stability. The economic outlook has strengthened in recent months. The committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labour market conditions will remain strong.

“Inflation on a 12-month basis is expected to move up in coming months and to stabilise around the committee’s 2% objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the committee is monitoring inflation developments closely.

“In view of realised & expected labour market conditions & inflation, the committee decided to raise the target range for the federal funds rate to 1.5-1.75%. The stance of monetary policy remains accommodative, thereby supporting strong labour market conditions and a sustained return to 2% inflation.

“In determining the timing & size of future adjustments to the target range for the federal funds rate, the committee will assess realised & expected economic conditions relative to its objectives of maximum employment & 2% inflation. This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures & inflation expectations, and readings on financial & international developments.

“The committee will carefully monitor actual & expected inflation developments relative to its symmetric inflation goal. The committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”

Attribution: Fed release.

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US trade policy as advocated by Trump

If you think the messages from the White House are mixed, you’d be dead right. Against the background of the Trump tweets, US Trade Representative Robert Lighthizer delivered President Trump’s trade policy agenda & annual report to Congress last Wednesday, outlining how the administration “is promoting free, fair & reciprocal trade and strongly enforcing US trade laws.

“President Trump is keeping his promises to the American people on trade, from withdrawing the US from the flawed Trans-Pacific Partnership, to renegotiating NAFTA (the North American Free Trade Agreement), to strongly enforcing US trade laws.

“We are already seeing the results of President Trump’s agenda pay off for American workers, farmers, ranchers & businesses.”

Mr Lighthizer said the president’s trade policy agenda rested on 5 major pillars: 

  • Trade policy that supports national security policy
  • Strengthening the American economy
  • Negotiating trade deals that work for all Americans
  • Enforcing & defending US trade laws, and
  • Strengthening the multilateral trading system.

Donald Trump certainly has a different way of doing things, but central US policy aims haven’t changed under his leadership.

At the top of the trade policy is this: “Consistent with the national security strategy President Trump announced in December 2017, the president’s trade policy agenda recognises that economic prosperity at home is necessary for American power & influence abroad.”

Below, you can check out what President Trump is saying (in more than a tweet), and further down the page you can check his administration’s views on Chinese & Russian trade issues, illustrating why he’s taken the course he’s followed.

The view expressed in the trade policy agenda:

“Free, fair & reciprocal trade relations are a key component of the president’s strategy to promote American prosperity. Therefore, the Trump administration will work aggressively to address trade imbalances, promote fair & reciprocal trade relationships, enforce US rights under existing trade agreements, and work with like-minded countries to defend our common prosperity & security against economic aggression.

“Countries that are committed to market-based outcomes and that are willing to provide the US with reciprocal opportunities in their home markets will find a true friend & ally in the Trump administration.

“Countries that refuse to give us reciprocal treatment or who engage in other unfair trading practices will find that we know how to defend our interests.”

Strengthening the American economy

“The president’s trade agenda will build on the economic momentum provided by the Tax Cuts & Jobs Act and the administration’s efforts to reduce regulatory burdens. The Council of Economic Advisors reported in February that the US economy experienced strong & significant acceleration during President Trump’s first year in office.

“Growth in real gdp exceeded expectations, the unemployment rate fell to its lowest level in 17 years, and the economy added 2.2 million jobs. The Trump administration’s focus on fair & reciprocal trade, combined with the president’s tax cuts & regulatory relief, will lead to more efficient markets and make it easier for American workers & companies to succeed.”

Negotiating trade deals that work for all Americans

“The Trump administration will seek an extension of trade promotion authority until 2021 and aggressively use that authority to negotiate or revise trade agreements so they are fair, balanced and support American prosperity. However, the president’s trade policy agenda warns that the US Senate’s failure to confirm President Trump’s nominees to serve as deputy US trade representatives & chief agricultural negotiator ‘could significantly undermine’ efforts to move forward with trade negotiations.

“As part of its trade agenda for 2018, the Trump administration will continue renegotiating the North American Free Trade Agreement (NAFTA) to modernise & rebalance the 24-year-old trade pact, as well as negotiations to amend the Korea-US Free Trade Agreement (KORUS) in order to seek fairer, more reciprocal trade.

“The Trump administration intends to reach other agreements designed to promote fair, balanced trade and support American prosperity.

“As part of this effort, the US & the UK established a trade & investment working group in July 2017 to lay the groundwork for commercial continuity and prepare for a potential future trade agreement once the UK leaves the European Union. The administration will continue preparing for other potential bilateral agreements, including in the Indo-Pacific & African regions.”

Enforcing & defending US trade laws

“The Trump administration will continue to use all tools available under US law to combat unfair trade.

“In January 2018, President Trump exercised his authority under section 201 of the Trade Act of 1974 to provide safeguard relief to US manufacturers injured by imports of washing machines & solar panels. This was the first time section 201 had been used to impose tariffs in 16 years.

“The Trump administration in 2017 launched a self-initiated section 301 investigation with an in-depth probe into Chinese practices related to forced technology transfer, unfair licensing & intellectual property (IP) policies & practices. The Trump administration has successfully litigated a number of World Trade Organisation (WTO) disputes, helping force countries to abandon unfair practices and preserving the US right to enact fair laws.”

Strengthening the multilateral trading system

“The administration will work with all WTO members who share the US goal of using the organisation to create rules that will lead to more efficient markets, more trade & greater wealth for our citizens. However, the US is also concerned that the WTO is not operating as the contracting parties envisioned and, as a result, is undermining America’s ability to act in its national interest. The Trump administration will work with other like-minded countries to address these long-standing concerns.”

The allegations against China & Russia

The US Trade Representative, Robert Lighthizer, issued annual reports on 19 January containing the American view on China & Russia’s compliance with WTO rules since they joined the organisation in 2001 (China) & 2012 (Russia):

“China & Russia have failed to embrace the market-oriented economic policies championed by the World Trade Organisation and are not living up to certain key commitments they made when they joined the WTO.

“The US is committed to working with all WTO members who share our goal of using the WTO to create & enforce rules that lead to more efficient markets, reciprocal benefits & greater wealth for our citizens.

“However, as these 2 reports show, the global trading system is threatened by major economies who do not intend to open their markets to trade and participate fairly. This practice is incompatible with the market-based approach expressly envisioned by WTO members and contrary to the fundamental principles of the WTO.”

First, the Trump view on China

Selected highlights of the 2017 annual report on China’s WTO compliance:

“Today, almost 2 decades after it pledged to support the multilateral trading system of the WTO, the Chinese Government pursues a wide array of continually evolving interventionist policies & practices aimed at limiting market access for imported goods & services and foreign manufacturers & service suppliers.”

“China’s regulatory authorities do not allow US companies to make their own decisions about technology transfer and the assignment or licensing of intellectual property rights. Instead, they continue to require or pressure foreign companies to transfer technology as a condition for securing investment or other approvals.

“China is determined to maintain the state’s leading role in the economy and to continue to pursue industrial policies that promote, guide & support domestic industries while simultaneously & actively seeking to impede, disadvantage & harm their foreign counterparts, even though this approach is incompatible with the market-based approach expressly envisioned by WTO members and contrary to the fundamental principles running throughout the many WTO agreements.

“Many of the policy tools being used by the Chinese Government…are largely unprecedented, as other WTO members do not use them, and include a wide array of state intervention & support designed to promote the development of Chinese industry in large part by restricting, taking advantage of, discriminating against or otherwise creating disadvantages for foreign enterprises & their technologies, products & services.”

And the Trump view on Russia

Selected highlights of the 2017 annual report on Russia’s WTO compliance:

“So far, Russia’s actions strongly indicate that it has no intention of complying with many of the promises it made to the US & other WTO members. This trend is very troubling.

“Russia has done little in 2017 to demonstrate a commitment to the principles of the WTO or to many of the specific commitments that it made in the negotiations leading to Russia’s membership in the WTO.

“The agricultural sector continues to be one of the most challenging sectors for US exporters. In addition to the import ban on nearly all agricultural goods from the US & other WTO members, Russia continues to erect barriers to US agricultural exports.

“In 2017, notwithstanding a few tariff reductions, Russia increasingly appeared to turn away from the principles of the WTO, instead turning inward through the adoption of local content policies & practices. Russia continued to rely on arbitrary behind-the-border measures & other discriminatory practices to exclude US exports.”

Links:
US Trade Representative, 28 February 2018: Trump administration sends annual trade agenda report to Congress
US Trade Representative, 22 January 2018: President Trump approves relief for US washing machine & solar cell manufacturers
US Trade Representative, 19 January 2018: USTR releases annual reports on China’s & Russia’s WTO compliance

Attribution: White House.

 

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