Showing posts with label Economy. Show all posts
Showing posts with label Economy. Show all posts

Wednesday, January 31, 2024

Fed Declines to Cut Rates at Latest Meeting, May Cut in Future

The Federal Reserve kept interest rates unchanged after their latest meeting Wednesday, but future cuts may in store as inflation declines and concerns over an economic slowdown grow.

In the latest statement from the Fed, they expressed that rate cuts were not warranted currently as inflation remains elevated, but they dropped a reference to ‘additional policy firming,’ possibly signaling the cuts could come in the future and that additional rate increases are unlikely unless higher inflations returns.

The latest economic growth numbers remain strong, with job growth continuing, even amid notable layoffs at large companies this January.

 

Monday, May 29, 2023

Biden, McCarthy Reach Debt Ceiling Deal

President Joe Biden and House Speaker Kevin McCarthy reached a deal this past weekend to the raise the debt ceiling by $4 trillion, which would avoid a default on certain federal government obligations, something projected to occur by June 5. The deal caps weeks of negotiation, with Republicans seeking to cap spending levels and roll back increased IRS funding and Democrats seeking to preserve their many of the programs passed in the last congress, most notably certain green energy subsidies.

The debt ceiling deal caps 2024 and 2025 discretionary spending levels based upon 2023 levels, with a 1% increase allowed for 2025. Republicans win’s also included imposing new work requirements on childless, able-bodied Supplemental Nutrition Assistance Program (SNAP) recipients, as well as also adjust the formula states use to calculate aid as part of the Temporary Assistance for Needy Families (TANF) program.

The deal also will cut $1.9 billion in additional IRS appropriation this year, and a further $20 billion is now set to be reallocated in 2024 and 2025. Democrats, who passed an additional $80 billion in IRS funding as part of the Inflation Reduction Act (IRA) in 2022, claim the additional funding passed last year will lead to a net revenue gain by auditing primarily high earners. Republicans in contrast say the additional funding will primarily increase audits on lower- and middle-earners.

The deal will also force the Biden Administration to resume collecting student loan repayments this summer. It does not prevent Biden’s proposal to cancel $10,000 in student loan debt, which is currently in litigation before the Supreme Court.

 

Sunday, April 30, 2023

Regulators Reportedly to Take Control of First Republic

First Republic Bank, the large regional bank known for its customer service and high net worth clientele, is reportedly set to be taken over by federal regulators and brought into receivership in the near future. The rumored move comes after over $100 billion in deposits have flowed out of the bank, spurred by depositors unsure about the bank’s stability.

First Republic has faced similar issues as the recently collapsed Silicon Valley Bank, whose unrealized losses on long-term bond holdings combined with deposit outflows led to its collapse. First Republic’s financial instability has led to the collapse of its stock price, which has fallen in three months from $141.01 to $3.51 at Friday’s close. In the case of First Republic’s failure, shareholders would be the last to receive any proceeds from sold assets.

Both JP Morgan Chase and PNC Bank are reportedly interested in buying First Republic. Both banks were part of an earlier consortium of large banks who deposited $30 billion to try to shore up the bank’s finances. 

 

House Passes Debt Ceiling Bill

The House passed the Republican debt ceiling package Wednesday on a near party line vote, with four GOP defections and all Democrats voting against. The bill would raise the debt ceiling by $1.5 billion while reducing discretionary spending by 9%.

President Biden and Senate Democrats have said the bill is dead on arrival. House Speaker Kevin McCarthy hopes the bill will bring Biden and Senate leadership to start negotiations. Biden ally Sen. Chris Coons (D-DE) has called Republican attempts to use the debt ceiling limit to force spending cuts as ‘hostage negotiations’ and has called for such discussions to be part of regular appropriations talks. 

 

Sunday, July 31, 2022

Manchin and Schumer Announce Reconciliation Deal

Sen. Joe Manchin (D-WV) and Senate Majority Leader Chuck Schumer (D-NY) announced Wednesday that they had reached an agreement to revive a slimmed down version of the ‘Build Back Better Act’ that Manchin had rejected in December 2021. Perhaps most surprisingly, the revived deal includes climate change expenditures and tax increases that Manchin had claimed he had ruled out earlier this month following months of negotiations between him and Schumer. Any revised deal had been expected only to include an extension of Obamacare health care plan subsidies and a drug pricing negotiation package aimed at reducing the cost of prescription drugs.

The deal now includes a minimum tax rate on corporations of 15% of their book profit, preventing them from using depreciation expenses to reduce their tax rate below 15%. It also eliminates the carried interest loophole.

Perhaps the most controversial part of the bill is the $80 billion given to the IRS over the next 10 years, the bulk of which will be used for increased audits in an attempt to raise revenue for the federal government. Proponents of the plan, such as Sen. Ron Wyden (D-OR), claim the increased audits will catch high income tax cheats and will pay for themself. Opponents, including most Republicans, claims the IRS will target ordinary taxpayers to raise the revenue, especially the self-employed. The bill’s language does not currently limit the IRS’s increased enforcement budget to only audits on high income/high net worth individuals or corporations.

This plan will need the support of all 50 Democratic senators to pass the Senate. Moderate Democrat Kyrsten Sinema of Arizona has not yet announced her position.

 

US Enters Recession after Two Consecutive Quarters of Negative GDP Growth

The US economy officially entered recession in the second quarter of 2022, after official estimates showed the GDP, a measure of total economic output, declining at 0.9% rate in Q2. It follows a decline of 1.6% in the first quarter of the year.

The Biden administration downplayed the decline and refused to say that the US was in recession, touting the low unemployment rate (3.6%) and strong consumer spending. While two consecutive quarters of economic decline is the typical definition of a recession, the National Bureau of Economic Research also makes their own call whether the US economy is in recession.

 

Thursday, June 30, 2022

Democrats Attempt Last Push for Build Back Better Revival

Democrats are working to pass a slimmed down version of the Build Back Better bill that failed to pass last year, with Senate Majority Leader Chuck Schumer (D-NY) negotiating with Sen. Joe Manchin (D-WV), whose opposition sunk the bill last time, to agree to a smaller package focused on tax increases, deficit reduction, and climate spending, among other proposals.

Manchin and Schumer are reportedly close to a deal to allow the federal government to negotiate drug prices and limit price increases to the inflation rate. Such a proposal will need to be approved by the Senate parliamentarian to include in the reconciliation bill, which will allow Democrats to pass the bill by a simple majority and without any Republican support.

Any package will need the support of all Democrats in the Senate, including moderate Sen. Kyrsten Sinema of Arizona, who has signaled her opposition in the past to raising certain taxes.

Senate Minority Leader (R-KY) sent a tweet Thursday saying that Republicans will not help move forward a bill aimed at competing with China so long as Democrats are pursuing the reconciliation package.

 

Tuesday, May 31, 2022

Markets Close Out Month of Losses with Modest Gains in Final Week

 Today marked the end of a wild month for stocks, and while major indices closed roughly flat from May 1 to My 31, this month saw wild fluctuations in stock prices and investors attempted to price in growing uncertainty as interest rates rise and threats of a recession loom.

The S&P 500 had sustained 7 consecutive weeks of losses prior to last week, the largest such streak since 2001. The Dow Jones Industrial Average (DJIA) suffered an eight-week losing streak, the longest since 1923. These losses came as the Federal Reserve has tightened monetary policy in an attempt to rein in inflation. Central banks, like the Fed, pursue tighter monetary policy by raising interest rates, which reduce available credit, reducing money supply and reducing the size of the overall economy. In theory, this reduces the rate of price increases and should bring inflation to a stable, low level.

However, with the markets used to the easy money policies since the 2008 financial crash, a tight monetary policy brings uncertainty. Strained supply chains, sticky labor costs, and concerns of the availability of fuel and food have investors concerned about a possible recession and economic turmoil.

While the Russian invasion of Ukraine aggravated much of this turmoil, especially related to food supply given both country’s critical role in supplying food to the world, supply chains have come under enormous strain following the lifting of the coronavirus restrictions, which had reduced supply but also reduced demand. The removal of restrictions helped boost demand, especially given the amount of stimulus provided by governments throughout the pandemic, but supply has not caught up with the demand, creating an inability to fulfill consumer desires.

 

Saturday, April 30, 2022

White House Reportedly Weighing Student Loan Debt Relief

President Joe Biden is reportedly weighing forgiving up to $10,000 of federal student loans. This comes as he struggles to regain footing among younger voters. Biden has previously resisted pressure to eliminate debt even while he extended repayment relief multiple times during his term.

Activists and politicians who have been advocating loan forgiveness, such as Sen. Elizabeth Warren (D-MA), have pushed for Biden to forgive up to $50,000 in debt. The White House has so far ruled out that amount.

The administration is also considering limiting relief to borrowers below a certain income threshold.

 

Economy Contracts in Q1 as Fed Attempts to Rein in Inflation

The US economy contracted in the first quarter for the first time since the coronavirus pandemic began.

Gross Domestic Product (GDP) fell by 1.4% annualized in Q1, which fell far below the consensus view that the economy would actually grow around 1% at an annual rate for the quarter. The major driver of the decline was an increase in the trade deficit, with imports surging from Q4 2021, while exports dropped from the same period. Imports are subtracted in GDP calculations, while exports are added. Inventories also decreased in Q1 after a buildup of inventories in the previous quarter.

While an economic contraction is not an ideal scenario, a deeper look reveals some more encouraging metrics. Consumer spending rose in Q1, with private demand rising 3.7%. This occurred even in the midst of accelerating inflation brought on existing economic conditions as well as the economic turmoil caused by the Russian invasion of Ukraine and the resulting financial sanctions.

While the Federal Reserve is often reluctant to raise interest rates amid a slowing economy, the latest numbers are unlikely to halt the Fed from raising interest rates this year in an attempt to tamp down on rising prices. Financial markets have experienced volatility the past few weeks as they price in the expected increases, which, by raising the cost of borrowing money, will slow down the economy, in turn reducing price increases. Besides reducing inflation, the Fed will also attempt to avoid a recession, which is defined as two consecutive quarters of economic contraction, though given the rates of inflation seen over the past year, this will remain a difficult balancing act.

 

Wednesday, March 30, 2022

Manchin Reportedly Working to Revive Spending Package

Sen. Joe Manchin (D-WV) has given signals that he may be willing to negotiate on a slimmed down version of the previous Build Back Better bill, which he effectively killed in December 2021 after he announced his opposition to it on Fox News Sunday. This bill would likely focus on controlling drug prices, energy policy, and tax increases.

Any legislation he puts forth will still need the support of the 49 other Democratic senators (barring any GOP defections), including fellow moderate Kyrsten Sinema from Arizona. Sinema has been in the past been hesitant to support some of the tax increases proposed last year.

Monday, May 31, 2021

Rising Prices Raise Inflation Concerns

The Federal Reserve reported that the personal consumption expenditure index (PCE), which measures the prices of consumer goods minus food and energy, rose at a 3.1% annualized rate in April, an increase from 1.9% in March. This was higher than the expected 2.9% increase.

If one were to include food and energy prices, inflation rose to 3.6% in April, up from 2.4% in Match.

The Federal Reserve has tried to allay fears of rising inflation, blaming it on supply-chain bottlenecks and the large fiscal stimulus, which they believe are temporary factors. In addition, the inflation is starting from a relatively low base line, as price increases were low during the coronavirus lockdown and related economic downturn.

The Biden administration, which has proposed trillions in additional spending, has signaled they believe that they can continue the large amounts of fiscal stimulus without drastically raising inflation. Republicans have countered that the additional money pumped into the economy could lead to even higher prices.

The US is not alone in facing inflation risk. Germany reported a 2.4% inflation rate for May. Spain also experienced the same inflation rate for May.

Markets overall have responded negatively to the news of increased inflation. While US markets have stabilized in the past few days, increased volatility in equity markets worldwide have continued. Cryptocurrency markets have also seen sharp declines from their previous highs, though other factors besides inflation worries are likely at play.

 

Monday, December 31, 2018

No End in Sight for Federal Government Shutdown


The government shutdown resulting from disagreement over the funding of a border wall continues into 2019 with no end in sight.

The shutdown began on December 22 after President Trump and Democrats failed to find agreement on funding the president’s signature campaign promise, a border wall across much, if not all, the US-Mexican border. Trump had asked Senate Minority Leader Chuck Schumer (D-NY) and incoming House Speaker Nancy Pelosi (D-CA) for $5 billion in funding for such a wall, which they have refused to support. With Trump in opposition to any spending bill that funds the government without wall funding, Republicans have been unwilling to support any spending bill without it. While Republicans hold the House until January 3, 2019, Senate Democrats have blocked measures that include wall funding as such bills need 60 votes to pass. Republicans hold a 51-49 majority in the Senate. While Republicans will gain net two seats in the coming Congress in the Senate, there will be still enough Democrats to block funding. In addition, the incoming Democratic majority in the House will also not be supportive of Trump’s requested funding.

Shutdowns lead to the suspension of numerous federal government services and the furloughing of government employees. The effects of this shutdown have been mitigated by two spending bills passed right before the main government funding resolutions expired. This money is expected to run out for many agencies, such as the Smithsonian, at the beginning of 2019.

Services deemed essential, such as those related to the military, continue to be funded.


Wednesday, January 31, 2018

Trump’s State of the Union Lays Out New Goals for White House

President Donald Trump delivered his first State of the Union as President on Tuesday, in which he laid out various proposals going forward along with touting what he views as the successes of his Presidency so far.

In the speech, Trump laid out a number of plans for the next year, most notably plans for massive infrastructure spending and immigration reform. With respect to infrastructure spending, Trump called for a $1.5 billion package which would work to build new and repair existing roads and bridges across the United States. The bill’s high cost would be paid through a combination of federal grants, state grants, and private partnerships.

In the way of immigration reform, Trump called for an end to “chain migration,” in which immigrants can work to bring their extended families to the United States. Trump’s proposal calls for such privileges to be limited to immediate family members. In addition, Trump’s plan calls for a path for citizenship, over twelve years, for the so-called “Dreamers,” who were children when their parents brought them to the US illegally. With this, Trump made clear that border security would need to be assured, most notably through his plan for a wall, at least in part.

Trump also praised the Republican tax bill passed late last year, saying it will increase the disposable income of millions of Americans and stimulate economic growth.



Sunday, December 31, 2017

Trump May Push Infrastructure Plan After Tax Bill Win

The Trump administration is signaling that it may be willing to tackle an infrastructure plan following its success in pushing forward its tax plan this month. Moves for increases in infrastructure spending, unlike the GOP attempts at tax reform, have been supported by several Democrats and may have a chance to receive bipartisan support.

Trump may announce his plans for infrastructure in his upcoming State of the Union speech in 2018.
The infrastructure plan may cost upwards of $1 trillion, but will not all come out the federal treasury. A portion will be paid by the federal government, while state and local governments, along with private companies and investors, will also contribute to the projects laid out in any plan.

Increases in infrastructure spending have long been the goal of numerous politicians, Republicans and Democrats alike, with projects including new roads, bridges, terminals, etc. However, concerns over increases to the national debt (already an issue with the recently passed tax bill) could pose an issue, especially with Republicans.


Republicans Pass Tax Law, What It Means for Americans

Republicans passed the first major overhaul to the United States tax code in over thirty years this month, with President Donald Trump saying the plan will “deliver more jobs, higher wages, and massive tax relief for American families and for American companies.”

The plan was pushed by Republican leaders after the GOP Congress wanted to deliver a major piece of legislation before the year’s end, and thus deliver Trump a legislative achievement in his first year, and to pass it while they still held a 52-48 majority in the Senate after they lost a seat as a result of the Alabama special election.

The new law reduces  the corporate tax rate from 35% to 21%, moving the rate from among the highest in the developed world to more in line with the tax rates of other countries. In addition, it shaves off the tax rate across the board while keeping the seven tax brackets. These cuts to the individual tax rates, unlike the corporate tax rate cut, is temporary and will expire in 2025.
It also caps deductions for local and state taxes at $10,000, which can lead to higher taxes for those living in highly taxed states, such as New York, California, and Illinois.

The bill was unanimously opposed by Democrats in both houses of Congress and was opposed by a number of Republicans in the House who came from highly taxed states.

The new tax cuts are projected to add more than $1 trillion to the national debt over the next decade, accounting for lost revenues stemming from the lower rates but also possible increased revenue as businesses and individuals have more money to invest, thus increasing economic activity.


Friday, June 30, 2017

Trump Open to Opening More of Atlantic, Arctic to Drilling

The White House has sent signals that it could open up more of the Atlantic and Arctic Oceans to oil exploration, which would reverse prior Obama administration policy prohibiting petroleum drilling in those areas. The Interior Department is also exploring opportunities to allow more drilling off the coast of most of the US mainland.

These steps comes as Trump aims to make the US a greater player in the world oil market, though the possible expansion in supply comes at a time when oil prices are at a low point. Additional increases in supply could translate into reduced costs in the rest of the economy, but greater losses for many oil producers.