Trump’s trade war is poised for a Pyrrhic victory
The flip side of the Trump administration’s drive to reduce the U.S. foreign trade deficit is that it will leave the rest of the world with fewer dollars to finance its budget deficit. President Trump could cut spending drastically or persuade the Federal Reserve to buy more bonds, but neither seems likely. More probably, he will do nothing as domestic rates rise and the dollar strengthens – widening the trade deficit again.
Global Outlook 2018: Dangerous waters ahead for the world economy
All around, the wind seems to have filled the sails of the world economy. From consumer spending to investment to stock market indices, the sailing seems smooth. But some dangerous currents, including debt-fueled liquidity and low productivity, are converging below the surface. Without an effort by the captains of the world economy to right the ship, it could be pulled under.
Jerome Powell: what kind of Fed leader will he be?
By choosing to elevate the uncontroversial Jerome Powell to chairman of the U.S. Federal Reserve, President Donald Trump has scored a rare bipartisan success. Mr. Powell lacks formal training in economics, though, and while he can be expected to sail smoothly on his predecessor’s course, it is hard to foresee if he can make an effective Fed leader in more challenging circumstances.
Janet Yellen considers her last act
Janet Yellen has done what was needed to leave behind fond memories of her term as Fed chief. She waited until the U.S. economy showed vigorous signs of recovery before announcing a soft-landing solution from the excessive liquidity inherited from Ben Bernanke. In part, this was a conscious choice to do what markets expected. But it may have been governed more by a long-term pessimism about the outlook for the economy.
The Swiss franc 2.0
The Swiss economy is doing remarkably well. Though it is growing only slowly, its companies are competitive, unemployment is virtually absent, inflation is close to zero and public debt is under control. One would therefore expect the Swiss National Bank to abstain from taking an active role in monetary policy or manipulating interest rates and exchange rates. Yet, last June the SNB announced that it intends to play an active role, and that it will expand its money supply to enhance growth and avoid deflation. These explanations are not convincing – the key is somewhere else: bruised Swiss manufacturers.
The danger of Trump’s tax plans
U.S. President Donald Trump’s proposed tax breaks for the middle class are either negligible or unsustainable, and probably both. Americans should expect a continuing public deficit and a rise in public debt. This will not be an immediate problem for the economy, but it will create growing structural imbalances. Putting the budget in order should be President Trump’s priority. The question is whether he has the vision and leadership qualities to do it.
The Federal Reserve’s exit from quantitative easing
The question is not whether but when the U.S. Federal Reserve will start to shrink its bloated balance sheet. Just as quantitative easing was a departure from conventional monetary policy, its withdrawal will be a massive economic experiment. Unintended consequences are to be expected.
Fed seeks cover in ‘natural’ interest rate
Last summer, commentators began predicting that U.S. monetary policy would no longer aim to avoid deflation and boost growth, but to keep market interest rates close to what economists call the 'natural' rate. The reasoning behind this argument – publicly voiced by Fed Vice Chairman Stanley Fischer, among others – is puzzling. That may be deliberate, as the Fed has plenty of reasons to want a free hand in coming months.
Strange bedfellows: Donald Trump and the Fed
President Donald Trump’s incoming administration is about to give the United States Federal Reserve just what it’s been asking for – a significant fiscal stimulus. The problem is what happens next, when inflation expectations, interest rates and the dollar all go up. Tempers will flare in Washington, and the international repercussions could be much worse.
What is r* and why does the Fed care?
The U.S. Federal Reserve is thinking hard about whether it needs to scale back estimates of the economy's long-term growth potential. That could confound expectations by some market observers that monetary policy will soon begin getting back to normal.