Mexico eyes fresh US targets to pressure Trump over steel tariffs

On Friday the Mexican government, in response to the tariffs the Trump administration placed on steel and aluminum, stated that they would place duties on new U.S. products. As one of the United States largest trading partners, Mexico believes the 25% tariff on imported steel and 10% on aluminum is hurting trade relations between the two countries and therefore need to be withdrawn. The Mexican Deputy Economy Minister, Luz Maria de la Mora, believes that the tariffs created $2.7 billion in damage and will thus be attempting to target this value by “bring[ing] in some new ones and tak[ing] some others out” of American goods, if the tariffs are not repealed. The article stated that even if the value of goods stays the same, by bringing in new products, U.S. businesses would be more likely to lobby Washington in opposition to the tariffs. As de la Mora continues to believe that United States needs to see Mexico as a partner and ally, we will have to watch whether they are able to instigate duties and swap out products in an attempt to end the tariffs imposed by the United States.  

https://www.reuters.com/article/us-usa-trade-mexico/mexico-eyes-fresh-us-targets-to-pressure-trump-over-steel-tariffs-idUSKCN1QI5LV

Bad economic news is bad for the stock market again with the Fed already on hold

Now that the Federal Reserve is on hold, this will end up having major effects in the stock market. The Federal Reserve minutes released last Wednesday indicate the Fed will stop increasing interest rates and stop shrinking its balance sheet. The slowdown of business spending, and data shows that manufacturing activities are at their slowest pace in the past 17 months. The bad economic news used to cause speculation that the Federal Reserve would stop raising interest rates, but now that this appears clear bad news is just as bad for the stock market. The data also found a 1.2 percent unexpected drop in consumer spending, which should have been high due to the holiday season. If this negative data continues in the future, there could be increased fears of a recession. The Fed watches how the trade war with China unfolds, which contributes to why they are holding off on the rate hikes. The slowdown in manufacturing and consumer spending  will have a negative effect on GDP and inflation, overall slowing down our economy. The government shut down only made things worse for our economy, by not letting the government sources release economic data on schedule but hopefully scheduled data releases will return to normal after this shutdown is over.

Source: https://www.cnbc.com/2019/02/21/bad-bunch-of-economic-data-is-not-good-news-for-stocks-with-the-fed-already-on-hold.html

Fed's Powell: 'Muted' inflation gives room for wages to rise

Jerome Powell, the current Federal Reserve Chairman, recently commented on the general rise in U.S. productivity/decrease in unemployment in 2018 that resulted in wage growth sans inflation. This relationship lends itself to the Fed’s current course of action in halting interest rate increases for the time being. Based on this information, Vice Chairman Richard Clarida also suggested that any current models in use that predict an inflation height should be discounted, and the Fed should wait until June to make any rate alterations. The article also details the ways in which labor force participation and increased opportunities are key to further improvement.

It’s interesting to hear that inflation remains below its expected level and that investors are predicting that the Fed’s next move will include a reduction in interest rates. The push to fill even more jobs and further increase wages is certainly an encouraging thought during this markedly uncertain time.

https://www.reuters.com/article/us-usa-fed-powell/feds-powell-muted-inflation-gives-room-for-wages-to-rise-idUSKCN1QI39Y

'US Appeals Court Rejects DOJ AT&T - Time Warner Anti Trust Challenge'

"Appeals court unanimously affirms trial judge ruling last year that allowed merger." - In Brent Kendall's article in the WSJ, the AT&T - Time Warner merger is back on track again. The merger is estimated to be around $80MM, and the overturned decision is one of the biggest losses for the DOJ's anti trust division in nearly a "generation." For some brief background, in November 2017, the Department of Justice filed a lawsuit and challenged the case that claimed the "vertical merger" combined two companies that didn't compete "head - to - head." Spectators wonder if this ruling by the appeals court will affect the probability that the government will intervene in the proposed T-Mobile - Sprint horizontal merger that is currently under review.

Relating to class, this is an interesting and relevant example of the role of the government in the market economy. Under the notion of competitive markets, mergers often times lead to higher government scrutiny in order to avoid monopolies and protect the interests of the consumers and prevent price gouging. Interestingly, this merger is supposed to yield significant consumer benefits for a 'prolonged period of time', as stated by AT&T's counsel. Perhaps synergies between the two companies will lower transaction costs and improve efficiency to benefit consumers. Depending on the administration, I am curious to see how this decision by the appeals court implicates further regulation and government intervention in the M&A space in years to come.

Link:https://www.wsj.com/articles/u-s-appeals-court-rejects-justice-department-antitrust-challenge-to-at-t-time-warner-deal-11551194524

US Consumer Cofidence Rebounds in February

After a rally in the stock market and an end to the government shutdown, consumers are starting to feel more confident. According to CNBC, consumer confidence index has risen to 131.4 from 121.7 in January.

There were many worries after the shutdown ended with a lot of volatility in the stock market, which reflected high interest rates. There was also a lot of tension with the issues surrounding trade talks with China. But the stock market has seemed to have rebounded towards the end of February and in turn has increased the overall consumer confidence. This is a very good sign with a lot of tension between the Fed and President Trump starting to arise within the media. It will be interesting to see if the consumer confidence continues to increase or if it will decrease with the pending decisions coming from the Fed.


Source: https://www.cnbc.com/2019/02/26/consumer-sentiment-hits-131point4-in-february-vs-124-expected.html

Jerome Powell Affirms Fed’s Patient Approach to Interest-Rate Changes

This week the Fed chairman, Jerome Powell addressed congress. One topic that was discussed is the Fed's decision to  stop interest rates hikes and wait for more data. Powell stated he believed this is the correct move because of recent slow down in global growth and turbulence in financial markets. Rates are near what the Fed would consider neutral, so he thinks it is smart to wait for more data to confirm the economies strength before raising rates further. The fed will be patient with any policy changes. The overall economy appears to be healthy but it is facing headwinds from abroad, which is why it is important for the fed to be patient.

The Fed also is discussing ending the shrinking of its balance sheet through QT. They have indicated that they are close to being finished. The Feds goal is to only have treasury's left on its balance sheet.

Powell also discusses how unemployment is not as low as the Fed predicted due to higher participation rates. this is an overall good sign and signals the economy has more room to grow. However, this also means that the baby boomers are working later into their lives most likely due to them having not been able to save for retirement.

Powell also touched on the current level of debt for the US government. He believes that the Gov needs to be more fiscally responsible and better manage its debt level. The current path is unsustainable and the government needs to make changes to balance the debt. I agree with Powell here and think the country needs to work to balance the budget. This can be accomplished through raising taxes or cutting spending. I believe some combination of both is the best solution

https://www.wsj.com/articles/jerome-powell-affirms-feds-patient-approach-to-future-interest-rate-changes-11551192300

Fed's Clarida Says U.S. Economy in a Good Place

With full employment, inflation near the 2% goal and no immediate threat of it rising; the Federal Reserve Vice Chair, Richard Clarida, says the US economy is in a good place. However, there are some pending risks on our economy. The economic growth slowdown that is occurring in Asia and Europe could negatively affect our economy and is resulting in a fragile global economy. The Fed is going to continue to be patient while looking at data reports and wants to do whatever it can to support the economy. Clarida also said that he will take signals from the financial markets into consideration when determining monetary policies but he will not be tied to them. Lastly, Clarida brushed off that the US has a flat yield curve saying that there are many factors that are pushing long-run rates down, despite this being a signal for a recession.

I thought that Clarida’s optimism for the US economy was refreshing; however, I am not sure how long the economy will stay in good standings. With Asia and Europe’s economies slowing, it will certainly have a negative effect for the US and I am not sure we are fully prepared for that. It will be interesting to see how this all plays out and when we will finally go into a much overdue recession.

Link: https://www.reuters.com/article/us-usa-fed-clarida/feds-clarida-says-us-economy-in-a-good-place-idUSKCN1QE2PQ

U.S. Is a Rich Country With Symptoms of a Developing Nation

Here is an interesting opinion piece on how the US exhibits traits of a developing economy. The article reports several economic outcomes that we have not specifically addressed in class, but are important nonetheless.

Yellen says Trump has a "lack of economic understanding"

The previous chairwoman of the Federal Reserve Janet Yellen was recently interviewed by the Marketplace and questioned President Trumps basic economic understanding and overall understanding of monetary policy. Trump recently made comments about the Fed having an "exchange rate objective" which, Yellen explains, shows his lack of understanding.

During his 2016 campaign President Trump said that Yellen should be ashamed of her work as the Fed chair, but now he criticizes Jerome Powell for raising interest rates and thinks that is to blame for market slow down at the end of 2018. Janet Yellen is very nervous that President Trump will undermine the importance of the Fed and cause confidence in the Fed to drop drastically which could be very bad.

It is very interesting that President Trump is criticizing the Fed considering he considers economic growth to be one of, if not the most important part of his job. You'd think they would work together to achieve that. I hope I do not see Trump continue to undermine the Fed as they are extremely important to the economy, especially as we approach what people think will be a slow down.


https://www.cnbc.com/2019/02/25/janet-yellen-says-trump-has-a-lack-of-understanding-of-fed-policies-and-the-economy.html

Trump Delays a Tariff Deadline, Citing Progress in China Trade Talks

https://www.nytimes.com/2019/02/24/us/politics/us-china-trade-truce.html

There has not been an official agreement between China and the States as of yet, but Trump is delaying the tariff deadline. The meeting will take place elsewhere in the near future. The impact of the tariff would definitely affect many industries that require materials and manufactured goods, hence this could give some time for firms to be prepared for the price fluctuations.

However most are skeptical of the tariff being cancelled, because the agenda of China and the States are bound to clash. The communist party of China is fortifying their authorities by imposing policies that are very much socialistic. It is not only economic but towards the internet, foreign policies, etc. They have been undercutting the American workers and the restrictions towards foreign firms were strengthened recently. What Trump wants is to catch up to the Chinese economy, by adjusting the currency values. Hopefully the treatment becomes more equal towards foreign companies in China, but if Trump uses tariff as leverage, American imports and its consumers might get hurt. Also his black & white approach towards trade deficit may bring more loss than gains. Tariffs would help to tip the scale towards America, and hopefully the agreement is met with minimum amount of clashing ideas.