A half-point cut by the Fed a sure bet
February 29, 2008
After the Federal Reserve chairman finished his testimony in Capitol Hill, one thing was quite clear and obvious from whatever he said. A cut in the interest rates by at least half a percent is an almost sure bet. Although Bernanke did not exactly mention what course the Fed would be following next, the Fed head left the place only after giving everyone the strong impression that the central bank most probably will make another cut in the interest rates. From the gist of things, the cut is going to be by around half a point.
The policy makers of the Federal Reserve are planned to meet once more on the 18th of March to discuss their future course of action. As of now the futures registered on the Chicago Board of Trade point towards the investors believing completely on a half-point cut. Ti also shows that there is 32 percent chance that the Federal Reserve would cut the interest rates by somewhere around three-quarters of a percentage point.
Some of the leading economists are of the opinion that a 50 point slash would be a reasonable compromise considering the present economic scenario. However if the cut is going to be by more than that, the Federal Reserve would be in the line of fire for triggering a nation wide inflation.
Ben Bernanke had spent 2 whole days on the Capitol Hill testifying in the House as well as the Senate as a part of his semi annual hearing on the central bank’s monetary policies. During his testimony he had portrayed the three main problems the Fed is facing at the moment: the nation’s economy which is almost at the verge of a recession, completely unpredictable and unstable markets and the ever rising fears of inflation.
But throughout his testimony the main focus of his speech was on the health of the U.S. economy. Bernanke throughout the 2 day testimony was focusing on the downside risks to the economy that exists in the nation currently. Some of the main reason for the economy doing badly, according to him, is because of a housing sector that is doing very badly at the moment and because of the reduced consumer confidence in the country.
The remarks he made along with the various other economic reports that came out on the 27thand 28th of February indicates strongly towards the possibilities of Fed decreasing the rates. Even before Bernanke had finished with his testimony the leading investors in the country were talking about a half-point cut with almost utmost certainty. After the testimony was over the chances of Fed implementing a half-point cut is said to be at almost 94 percent.
If the Fed actually does implement the rate slash, it would mean the Fed fund rates would come to almost 2.5 percent. The Fed fund rates affect the prices on a number of consumer loans together with credit cards as well as mortgages.
Budget deficit to become a record high this time
February 13, 2008
The federal budget deficit this time is all set to create a record high for all times. The treasury department projected a total deficit for this year at around $140 billion which is almost an all time high. The treasury on Tuesday said during the monthly review of the government’s finances said that the budget was running a bit high in the month of January. The total amount the budget has netted so far in the year is $87.7 billion which is almost double of what the amount was in the same period last year in 2007. The current budget year had started only as late as October 1st last year.
To top it all the Bush administration recently submitted its final budget request to the congress and this projected that the shortfall this time came to a total of $410 billion which is just very short of the all time high of $413 billion which was in the year 2004.
Till now the amount the Federal Reserve has spent has been 8.3 percent ahead of the previous year’s pace at around $949.1 billion. This is way ahead of this year’s increase in revenues which is just 3.2 percent and has totaled almost $861.4 billion in this year’s budget.
In 2007 however the budget deficit was just $162billion which was the lowest in the last five years. The economic stimulus plan that was passed last week is expected to increase the current budget to an even higher figure. But the ever slowing economy is predicted to put the brakes on the recent growth of the tax revenues. All this is definitely enough to create enough hassles about this year’s budget.
When it is widely believed that the economic stimulus plan would greatly help in keeping the economy out of the recession the impact it is going to create on the budget is going to be enormous. Even if the bill fails to keep a recession away, it is definitely going to help to keep the downturn shorter and milder than it would otherwise have been. The rebates on tax that would be available to the people as a result of the provisions that are there in the economic stimulus plan are going to tax the treasury a lot. The bill has been estimated to be around $168 billion by the end if it is implemented completely. The rebate cheques which are the most important part of this plan is supposed to reach the people by the end of May and it has been schemed in such a way that all the tax paying citizens of the country receive a reduction in the amount of the tax that they pay. The bill also has provisions which are there to help the people who are facing problems due to the turbulences in the housing market. How much the budget deficit is going to swell up has to be watched and seen.
US Trade Deficit Narrows
September 11, 2007
The US trade deficit has fallen to its lowest point in over four months off the back of record food and manufacturing exports, according to official figures released today.
In the figures released by the US Commerce Department, the trade deficit was said to have decreased from $59.4 billion in June to $59.2 billion in July - reflecting a 0.3% decrease over the course of the month.
The trade deficit reflects the difference between exports and imports in an economy, where imports are greater than exports. Generally speaking, it is more desirable for economic growth to operate as near to a trade surplus as possible, showing a step in the right direction for the US economy.
Despite higher fuel costs as a result of the rising cost of crude oil, strong car and food exports have moved the deficit closer to positive territory, as a move towards economic recovery after troubled times over the last few months.
Furthermore, with oil prices set to decrease after oil production and supply increases later this year, the US trade deficit could shrink even further before 2007 is over.
High exports were the main factor in shrinking the trade gap, up 2.7% on the month for the fifth consecutive increase to $137.7 billion. Analysts have suggested that the continued weak dollar is having a positive effect on international exports, which dragged the deficit closer to positive figures.
Total US imports over the month of July were up at a record $196.9 billion, in spite of the overall closing of the gap.
The news was well received on global stock markets today, which were already buoyant after the news of OPEC’s shock decision to increase oil output as of November of this year, which looks set to enhance economic growth and lower manufacturing costs globally.
US Trade Deficit Shrinks
August 14, 2007
The trade deficit in the US economy has declined over the course of June according to official figures released today.
The trade deficit, which reflects the degree to which imports outweigh experts to the economy, has narrowed over June to the lowest deficit in four months.
Figures released today reflect a fall of over one and a half percent in the deficit between total imports and total exports in the US economy.
Strong exports in agriculture and car manufacturing are largely responsible for closing the gap on imports fuelled largely by crude oil and cheap manufacturing imports from the Far East, particularly China.
The deficit was announced to have fallen to $58.1 billion in June from $59.2 billion in May - a 1.7% fall in the gap.
Analysts had forecast a slight increase in the deficit over the course of the month, with the continuing high price of oil imports favoured to overtake any growth in output.
However, the growth in manufacturing and agriculture seems to have accelerated beyond even ambitious expectations to take the US economy closer to the black and a trade surplus.
Exports and imports through June were both recorded as record highs, whilst the high-profile deficit with China increased to the highest level this year, growing by 5.7% from the previous month.
The US have criticised Chinese measures to artificially weaken the yuan, which only serves to make Chinese imports more attractive to US markets.
Meanwhile exports across goods and services sectors were up to $134.5 billion over June, helping to drive down the gap which has led to a devaluation in the US currency.
Despite the narrowing trade deficit, the US Labor Department has intimated that the cost of production has increased by 0.6% over the month, driven largely by increasing fuel prices.
Greenspan cites US budget deficit as part of recession risk
February 26, 2007
In a satellite presentation to a business conference in Hong Kong, former US Federal Reserve chairman Alan Greenspan said that while it is difficult to predict conditions that far out, he cannot rule out a recession in the US economy by the end of 2007. While he said he has not seen any ripples in other sectors from the contraction on the US housing market, the facts that the economy has been expanding since 2001 and profit margins are beginning to stabilize are signs that the economic cycle is ending.
Mr. Greenspan admitted that most analysts do not agree that a recession is in the cards, especially after the US economy grew at a rate of 3.5 percent in the fourth quarter of 2006. However, a survey issued Monday by the National Association for Business Economics says that analysts predict that the economy will grow by 2.7 percent in 2007. That would be slowest rise since 2002.
One concern cited by Mr. Greenspan was the US budget deficit. This continues to be a concern, he said, despite the fact that it was at its lowest level in four years in 2006. Mr. Greenspan made his remarks to the Very GC Global Business Insights 2007 Conference.
Bernanke says US economy will grow moderately
February 14, 2007
US Federal Reserve chairman Ben Bernanke said in testimony before Congress on Wedensday that the nation’s economy should continue to grow moderately even though the housing market could still falter more than currently expected, hurting growth overall. He said that he expects inflation to continue to moderate but that there is still some risk and would not rule out further interest rate increases.
Mr. Bernanke specifically said that it would be “some time” before the Fed will be confident that inflation is moderating as expected, and that if it does not that the Fed is prepared to deal with it by raising interest rates further. Still, he said that the current rate, at 5.25 percent, is “likely” to both sustain economic growth and allow core inflation to decline.
Addressing the fears of some Democrats that the gap between rich and poor in the United States, which has widened recently, Mr. Bernanke said that the key to reversing this trend lies in providing education and job skills training. He also addressed the record US trade deficit, saying that protectionism is not the solution. He also said that China must do more to make its currency more flexible.
Following Mr. Bernanke’s comments, the US dollar weakened on global currency markets but the price of treasury bonds and the New York equities markets both saw advances.
2006 US trade deficit a new record
February 13, 2007
The United States’ trade deficit was up 6.5 percent in 2006 to $763.6 billion, according to a new report from the US Commerce Department. December’s trade deficit was $61.2 billion, 5.3 percent higher than November’s gap and more than had been anticipated. The December rise, $1.7 billion higher than expected, was due to higher oil prices and record imports of cars, auto parts, and consumer goods. While imports of oil cost the US $302 billion in 2006, the cost of buying foreign oil was not the whole story of the year’s trade deficit. Non-oil goods imports also set a record at $547.2 billion.
The trade gap with China was up by 15.4 percent to $232.5 billion for the year as a whole, even though the US exported goods and services worth a record $55.2 billion to China during 2006. Imports from China totaled $287.8 billion. The 2006 figures will likely only add fuel to the fire of US calls for a more flexible Chinese currency, which US legislators and manufacturers claim is being held artificially low by the Chinese government in order to gain an advantage in global markets.
In addition to the record trade deficit with China, the US also notched record in its trade deficits with Mexico and Japan in 2006. Still, even though the 2006 US trade deficit set a new record, growth of the deficit was slower last year than it was in 2005, when it grew by 17.3 percent.
May trade deficit at $63.8 billion
July 12, 2006
The US trade deficit was higher in May than it was in April, but still came in lower than had been anticipated by analysts. The increase from April to May was entirely due, according to reports, to the higher cost of crude oil, which was $4.92 per barrel higher in May than it was in April. In the absence of that rise in prices, the deficit would have been $3.9 billion lower in May than in April.
The May deficit was up 0.8 percent to $63.8 billion. It has been expected to hit $64.9 billion. Meanwhile, exports of goods and services were up 2.4 percent in May, to $118.7 billion. Exports of civilian aircraft, consumer goods, and industrial supplies and materials were up, while the export of vehicles, parts and engines were down during the month. Analysts said that the increase in exports relative to imports was a sign that the US economy is slowing down as domestic demand drops.
The May trade deficit with China was up to $17.7 billion. The growing US debt to China has been behind recent calls from Congress and the Bush administration for China to revalue its currency.
The total trade deficit for January to May of this year is at $317.9 billion, putting it on track to exceed the $716.7 billion record trade deficit in 2005.
Concerns send dollar lower
May 10, 2006
The US dollar weakened further on Wednesday ahead of the Federal Reserve’s decision on whether to raise interest rates again, this time to 5 percent, as well as in anticipation of comments that might give a hint about whether there might be a pause in the series of rate raises in June. Investors were still nervous, as well, about a US Treasury report due later in the day that some say could label China as a “currency manipulator”. Even if this does not happen, triggering Asian currencies to advance against the greenback, comments from Harvard economics professor Martin Feldstein that the dollar might need to weaken a further 30 to 40 percent in order to bring the US trade deficit down were worrying to investors.
By the middle of the day in New York the US dollar had dropped 0.3 percent to $1.2792 versus the euro. The greenback was also down by 0.5 percent against the Japanese yen to ¥110.55 and it dropped 0.1 percent to SFr1.2192 in relation to the Swiss franc. The US currency hit yet another new 28-year low of C$1.0980 versus the Canadian dollar. The only major currency that the dollar did not weaken against was sterling, which was down just a bit to $1.8650.
US dollar strengthens versus euro
April 12, 2006
The US dollar was stronger in relation to other currencies on Wednesday on new data showing that the US trade deficit had gotten smaller. After consideration of the new figures, however, investors sent the greenback slightly lower again for a mixed day overall.
The trade deficit shrunk by $2.9 billion in February to $65.7 billion, while the bilateral deficit with China dropped by $4.1 billion, from $17.9 billion to $13.8 billion. This unexpectedly large decline in the deficit with China was at least partly due to the timing of the Chinese New Year. The bilateral deficits with the European Union and Canada were also lower. The US exported goods and services worth $113 billion in February, $1.3 billion less than in January. However, imports declined even faster and were down by $4.2 billion to $178.7 billion.
At one point in the day, the dollar had risen to $1.2067 versus the euro, but when analysts concluded that the lower deficit was likely not the beginning of a trend, the dollar weakened. While it eventually settled at $1.2109 in relation to the euro, 0.2 percent higher, the greenback lost 0.1 percent against the Japanese yen, to ¥118.46.
US trade gap up in January
March 9, 2006
The United States trade deficit grew by $3.4 billion in January from its December level, bringing it to a record level of $68.5 billion as imports grew much faster than exports. The bilateral deficit with China accounted for over a third of the growth in the overall trade deficit, growing from $16.3 billion in December to $17.9 billion in January. Another contributor to the deficit’s growth was oil imports that were up $1.2 billion in the month to $22.6 billion.
Imports into the US were up by $2.6 billion to $182.9 billion in January, while exports from the US to the rest of the world grew by only $2.8 billion to $114.4 billion. With this being the case, exports have to rise at a much higher percentage than imports to simply keep the gap from widening, but American businesses have not been able to keep up.
Some analysts don’t see the growth in the trade deficit turning around anytime in the foreseeable future, citing growing momentum in economies in Europe and Asia. Some policy makers in the US government have blamed the growing deficit on saving in the rest of the world rather than on US over consumption.
US trade gap up in January
March 9, 2006
The United States trade deficit grew by $3.4 billion in January from its December level, bringing it to a record level of $68.5 billion as imports grew much faster than exports. The bilateral deficit with China accounted for over a third of the growth in the overall trade deficit, growing from $16.3 billion in December to $17.9 billion in January. Another contributor to the deficit’s growth was oil imports that were up $1.2 billion in the month to $22.6 billion.
Imports into the US were up by $2.6 billion to $182.9 billion in January, while exports from the US to the rest of the world grew by only $2.8 billion to $114.4 billion. With this being the case, exports have to rise at a much higher percentage than imports to simply keep the gap from widening, but American businesses have not been able to keep up.
Some analysts don’t see the growth in the trade deficit turning around anytime in the foreseeable future, citing growing momentum in economies in Europe and Asia. Some policy makers in the US government have blamed the growing deficit on saving in the rest of the world rather than on US over consumption.
US dollar advances
February 6, 2006
The US dollar was up on Monday amid expectations that US interest rates will rise further in the foreseeable future. The greenback gained 0.5 percent in relation to the euro, to $1.1971. It was up 0.9 percent to $1.7467 against sterling, a one-month high. However, the dollar held steady in relation to the yen at ¥118.90.
Analysts at Goldman Sachs repeated the view that US interest rates will hit 5 percent and raised its estimate of first quarter growth of the gross domestic product to 4.5 percent, from a previous estimate of 3.5 percent GDP growth. Other estimates of interest rate hikes see the rates going even higher. Brown Brothers Harriman said that it believes interest rates will reach a level somewhere between 5 and 5.5 percent. These conditions are expected to support the dollar.
However, Citigroup feels that the dollar has gone about as high as it will go, citing rising Treasury yields, a slowing housing market in the US, and the impending announcement of a new record high US trade deficit as being dollar-negative.
Deficit drops in May but still on for record annual high
July 13, 2005
While the US trade deficit showed a dip in May, according to the US Department of Commerce, the reduction is likely a temporary one brought about by temporary drops in the price of oil.
The trade deficit fell by 2.7 percent in May to $55.3 billion. Besides the drop in oil prices for the month, the decline was helped by strong exports, which reached a new high of $106.9 billion.
Export sales of agricultural products, consumer goods, and industrial supplies all hit new record highs in the month. In addition, imports fell by 0.9 percent in May, to $162.2 billion.
A major share of the drop in imports had to do with the lower cost of oil during the month. Despite the fall in the trade deficit in May, the deficit for the year to date is at an annual rate of $681.6 billion, 10 percent higher than the record trade deficit registered in 2004.
Additionally, despite improvements elsewhere, the US trade deficit with China was at its highest level in six months, up 7.1 percent to $15.8 billion.
This circumstance will likely only increase US pressure on China to revalue its currency, which some believe is undervalued by as much as 40 percent.
Deficit not good, but dollar holds steady
April 12, 2005
The news was not good, but not nearly as bad as expected either on Tuesday when February’s U.S. trade deficit numbers was released.
The trade deficit was $61 billion in February, an all-time high. This was up from $58.3 billion in January, which had also been a record. The increase was laid mostly to increases in crude oil prices.
Some analysts, in explaining the trade data’s small effect on the dollar, said that in order for such news to weaken the dollar substantially over a long period, such news must be a great deal worse than expected.
And, in fact, after an initial fall when the data was released, the dollar sat about the same against the euro at $1.296 in early trading.
Still unknown is what the effect on the dollar will be when the most recent Federal Open Market Committee minutes are released and investors find out what the minutes have to say concerning interest rates.
Current account deficit
March 17, 2005
The Commerce Department released figures showing that the country’s current account deficit was reaching new records, reaching $665.9bn (£345.4bn) in 2004.
The deficit increased substantially in the fourth quarter, increasing by 13% to $187.9 billion, particularly due to rising oil costs.
The US current account deficit reached a record - driven by rising oil imports and consumers’ appetite for foreign goods.
As a percentage of the total economy the current account budget also set a record, rising to 5.7% from 4.8% in 2003.
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