USA

FOMC minutes: The Fed’s balance-sheet rundown looks like ending soon

The minutes of the FOMC meeting held on 29th /30th January which were published yesterday reveal that committee members are not yet prepared to proclaim that the Fed’s rate-hike cycle is at an end. For example, a number of members of the Fed’s policymaking body have gone on record as saying that further tightening may perhaps be necessary over the course of the year, making this contingent on how the economic situation develops. The transcript shows, however, that almost all FOMC members are in agreement, in view of the growing risks, that a temporary pause in the rate-hiking cycle would be appropriate. They argue that there is currently a whole cluster of risks which, in their view, indubitably justify an interruption in the tightening cycle. Factors imposing a particular burden are the difficult Brexit negotiations, the trade dispute between the United States and China, the volatile equity-market trend and the…

US: escalation on the domestic political front but foreign trade deals might be possible?

Only the courts can stop Trump now and prevent the misappropriation of budgetary resources. With the first primaries of the presidential election starting already in one year, the polarisation and division in domestic politics will increase. The latest escalation level does not bode well either for the next deadline for raising the debt ceiling, which is on the agenda shortly. The negotiations for budget year 2019/2020 that starts on 1 October are unlikely to go any better than this time round. As far as foreign policy is concerned, Trump will on the other hand probably retain his dealmaker status. He is clearly very keen to be re-elected next autumn. Talks on the trade disputes with China are currently in full swing and it is quite possible that further punitive tariffs will not be imposed. The cooling-off period agreed on by the heads of both countries ends already at the end…

US: agreement reached on the federal budget but Trump’s political escalation shows no signs of abating

The two parties and the US president reached an agreement on the budget dispute a few days ago, just before the deadline was set to expire. Another shutdown of numerous federal authorities was thus avoided – good news from the US political front. However, just after the compromise was reached, President Trump declared a national emergency in order to access the full amount he had demanded to build a wall at the border to Mexico. Rather than leading to the anticipated easing of internal political affairs, it escalated the confrontation instead. The Democrats and a few individual federal states have already announced their intention to take political and legal action against this. Trump only declared the national emergency to bypass Congress’ budgetary authority, thus creating a precedence in US history. Although the US president holds considerable sway over foreign policy, domestic policy generally requires the approval of the Senate and…

US threats of customs tariffs hang like the sword of Damocles over German carmakers’ necks

On 25 July last year, European Commission President Juncker persuaded US President Trump not to impose punitive tariffs on automobiles. Of late, there has been growing concern about US tariffs on European cars. The US Department of Trade could classify the import of cars and automotive parts as constituting a threat to America’s national security and therefore, from the US point of view, lay the foundations for introducing customs tariffs. The German car industry has in recent years definitely performed gratifyingly. And that despite the diesel scandal and the threat of a few major German cities imposing bans on certain vehicles. However, the car industry’s fortunes have recently shown signs of braking. In 2018, orders from elsewhere in Europe sagged by over seven percent. Within Germany, things were not much better, with a decline of over four percent. Only order receipts for German cars from outside Europe continued to rise…

America finances itself

After publication of the US portfolio flow figures for November, the data for last year are now almost complete. Even if the December numbers are still lacking, it is certainly not too early for a first glance at the trend for the year as a whole. Two things catch the eye: 1. Capital inflows from abroad have clearly ebbed compared with the prior year; 2. Flows of capital being repatriated have more than doubled. In 2018, this ensured the USA a very sound net capital inflow, although this should not delude us into ignoring the fact that it is currently first and foremost American investors who are having to finance the current account deficit. The US equity market, which in the first decade of the 21st century could seemingly not put a foot wrong, saw a significant volume of foreign capital withdrawn in 2014 for the first time in its…

USA: Jobs being created, but consumer expectations dampened

In January, the number of employed persons in the United States rose far faster than expected, as is revealed in the latest labour-market report. The total came to 304,000 persons, and of that figure no less than 72,000 of the jobs were in manufacturing. In the service sector, almost all segments benefited, whereby the leisure-time, hospitality and healthcare sectors really stood out. This momentum is unlikely to persist in the coming months, or so the slightly cooler economic climate would suggest. Firstly the temporary shutdown of some federal agencies and secondly the updated estimate for the total population both left their mark on the jobless statistics, which are calculated separately on the basis of phone surveys. An unemployment rate of 4.0% is reported for January. Since the prior monthly data have not been recalculated, the ratio is not directly comparable with the previous month. Irrespective of these statistical adjustments, it…

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