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The Fed rescued the US economy in 2019, but Trump wants more help in 2020 – CNN



“Would be sooo great if the Fed would further lower interest rates and quantitative ease,” Trump tweeted on Tuesday, less than a week after the US central bank signaled it would be hitting the pause button on any more rate cuts going forward. “The Dollar is very strong against other currencies and there is almost no inflation. This is the time to do it. Exports would zoom!”
The President campaigned on promises of 3% growth, and is presiding over somewhat less than that, with a final report issued Friday showing respectable 2.1% growth for the third quarter. But the economy is getting rave reviews, with 76% of respondents in a new CNN poll conducted by SSRS rating economic conditions in the US today as very or somewhat good, significantly more than those who said so at this time last year (67%). This is the highest share to say the economy is good since February 2001, when 80% said so.
CNN Poll: US economy receives its best ranking in nearly 20 years
That’s in part thanks to the Fed’s success in keeping the US economy running smoothly over the last year, with unemployment hovering near 50-year record lows and the stock market hitting record highs.
Nevertheless, there are worrying signs. Business investment has fallen the last two quarters, the first decline in three years, according to the Bureau of Economic Analysis. Manufacturing layoffs have ticked up since the summer, and on Friday US Steel announced plans to close a mill near Detroit and cut 1,500 workers.
In response, the commander-in-chief has pushed unusual economic ideas, including publicly pressuring the Fed to cut rates to zero and even at times, suggesting rates should fall into negative territory. The Fed, however, has shown no signs of taking Trump’s suggestions.
At the Fed’s final meeting of the year, Powell and his colleagues signaled they would be sitting on the sidelines for some time. Powell said the three rates cuts this year were key decisions that helped to support the economy, which was showing signs of potentially tipping into recession over the summer.
“The Fed is basically saying, ‘Things are cool. We don’t really want to change things. We’re going to sit this one out for the foreseeable future,'” said Robert Frick, corporate economist with Navy Federal Credit Union. “That means they’ve done their job.”
Powell has himself argued it would take a lot for the Fed to move in either direction next year.
“We took strong measures,” said Powell at his press conference last week, referring to the cuts. “And we do believe that monetary policy operates with a long and variable lags and that it will take some time before the full effects of those actions are seen in the economy. So that’s one reason to hold back and wait.”
All of that could change if the President sparks a new trade war with Europe by imposing auto tariffs next year or if the economy starts to wobble from other shocks, including Boeing’s decision to shut down production of its 737 Max planes.
While the US economy has been a bright spot around the world, other countries have continued to struggle since the Great Recession a decade ago. It’s one of the reasons that inflation and wage growth have remained muted in the US.
“Things have changed radically over the last year,” said Frick. “I can remember when GDP was under 2% and analysts said, ‘There’s a recession around the corner.’ Now that our expectations — and indeed reality — has been taking down to a 2% growth level, we’re OK between 1.5% and 2%. We can go on for years at that rate.”
That may not be enough for Trump.
Trump has threatened to fire Powell on multiple occasions for not doing enough to juice the economy, a radical break with precedent walling off the central bank from political pressure. And while Powell, a sober former investment banker, has repeatedly insisted he was relying on data and not politics to make his decisions, the global economic turbulence stemming from Trump’s own trade wars prompted him to reverse his plans to raise rates this year and instead steadily drive them back down.
Even the President’s closest advisers acknowledge that appears to be over.
Stephen Moore, a conservative economic commentator who Trump considered for a Fed slot earlier this year, met with the President earlier this week at the White House to discuss the US economy and says Trump is still unhappy with the Fed and hankering for more cuts that he’s unlikely to get.
“Trump wants at least a couple more rate cuts from the Fed, and he’s not going to get it, that’s for sure,” said Moore, a former CNN contributor.
David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, said Trump’s public criticism may have made members of the central bank’s Federal Open Market Committee hesitate more than they would have before cutting rates this year to counter economic pressures from the President’s turbulent trade war with China.
“It made it harder, and perhaps some people on the FOMC were reluctant to cut rates because among other things they didn’t want to appear to be succumbing to the President’s pressure,” said Wessel. “But bottom line, other than making things uncomfortable, I’m not sure it made a hell of a difference. And a bit of the irony is the President got what he wanted, but he seems unable to declare victory.”

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Here is Trump economy: Slower growth, higher prices and a bigger national debt



If Donald Trump is re-elected president of the United States in November, Americans can expect higher inflation, slower economic growth and a larger national debt, according to economists.

Trump’s economic agenda for a second term in office includes raising tariffs on imports, cutting taxes and deporting millions of undocumented migrants.

“Inflation will be the main impact” of a second Trump presidency, Bernard Yaros, lead US economist at Oxford Economics, told Al Jazeera.

“That’s ultimately the biggest risk. If Trump is president, tariffs are going up for sure. The question is how high do they go and how widespread are they,” Yaros said.

Trump has proposed imposing a 10 percent across-the-board tariff on all imported goods and levies of 60 percent or higher on Chinese imports.

During Trump’s first term in office from 2017 to 2021, his administration introduced tariff increases that at their peak affected about 10 percent of imports, mostly goods from China, Moody’s Analytics said in a report released in June.

Those levies nonetheless inflicted “measurable economic damage”, particularly to the agriculture, manufacturing and transportation sectors, according to the report.

“A tariff increase covering nearly all goods imports, as Trump recently proposed, goes far beyond any previous action,” Moody’s Analytics said in its report.

Businesses typically pass higher tariffs on to their customers, raising prices for consumers. They could also affect businesses’ decisions about how and where to invest.

“There are three main tenets of Trump’s campaign, and they all point in the same inflationary direction,” Matt Colyar, assistant director at Moody’s Analytics, told Al Jazeera.

“We didn’t even think of including retaliatory tariffs in our modelling because who knows how widespread and what form the tit-for-tat model could involve,” Colyar added.

‘Recession becomes a serious threat’

When the US opened its borders after the COVID-19 pandemic, the inflow of immigrants helped to ease labour shortages in a range of industries such as construction, manufacturing, leisure and hospitality.

The recovery of the labour market in turn helped to bring down inflation from its mid-2022 peak of 9.1 percent.

Trump has not only proposed the mass deportation of 15 million to 20 million undocumented migrants but also restricting the inflow of visa-holding migrant workers too.

That, along with a wave of retiring Baby Boomers – an estimated 10,000 of whom are exiting the workforce every day – would put pressure on wages as it did during the pandemic, a trend that only recently started to ease.

“We can assume he will throw enough sand into the gears of the immigration process so you have meaningfully less immigration, which is inflationary,” Yaros said.

Since labour costs and inflation are two important measures that the US Federal Reserve weighs when setting its benchmark interest rate, the central bank could announce further rate hikes, or at least wait longer to cut rates.

That would make recession a “serious threat once again”, according to Moody’s.

Adding to those inflationary concerns are Trump’s proposals to extend his 2017 tax cuts and further lower the corporate tax rate from 21 percent to 20 percent.

While Trump’s proposed tariff hikes would offset some lost revenue, they would not make up the shortfall entirely.

According to Moody’s, the US government would generate $1.7 trillion in revenue from Trump’s tariffs while his tax cuts would cost $3.4 trillion.

Yaros said government spending is also likely to rise as Republicans seek bigger defence budgets and Democrats push for greater social expenditures, further stoking inflation.

If President Joe Biden is re-elected, economists expect no philosophical change in his approach to import taxes. They think he will continue to use targeted tariff increases, much like the recently announced 100 percent tariffs on Chinese electric vehicles and solar panels, to help US companies compete with government-supported Chinese firms.

With Trump’s tax cuts set to expire in 2025, a second Biden term would see some of those cuts extended, but not all, Colyar said. Primarily, the tax cuts to higher earners like those making more than $400,000 a year would expire.

Although Biden has said he would hike corporate taxes from 21 percent to 28 percent, given the divided Congress, it is unlikely he would be able to push that through.

The contrasting economic visions of the two presidential candidates have created unwelcome uncertainty for businesses, Colyar said.

“Firms and investors are having a hard time staying on top of [their plans] given the two different ways the US elections could go,” Colyar said.

“In my entire tenure, geopolitical risk has never been such an important consideration as it is today,” he added.



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China Stainless Steel Mogul Fights to Avoid a Second Collapse



Chinese metal tycoon Dai Guofang’s first steel empire was brought down by a government campaign to rein in market exuberance, tax evasion accusations and a spell behind bars. Two decades on, he’s once again fighting for survival.

A one-time scrap-metal collector, he built and rebuilt a fortune as China boomed. Now with the economy cooling, Dai faces a debt crisis that threatens the future of one of the world’s top stainless steel producers, Jiangsu Delong Nickel Industry Co., along with plants held by his wife and son. Its demise would send ripples through the country’s vast manufacturing sector and the embattled global nickel market.



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Why Trump’s re-election could hit Europe’s economy by at least €150 billion



A Trump victory could trigger a 1% GDP hit to the eurozone economy, with Germany, Italy, and Finland most affected. Renewed NATO demands and potential cessation of US aid to Ukraine could further strain Europe.

The potential re-election of Donald Trump as US President poses a significant threat to the eurozone economy, with economists warning of a possible €150 billion hit, equivalent to about 1% of the region’s gross domestic product. This impact stems from anticipated negative trade repercussions and increased defence expenditures.

The recent attack in Butler, Pennsylvania, where former President Trump sustained an ear injury, has boosted his re-election odds. Prediction markets now place Trump’s chances of winning at 71%, a significant rise from earlier figures, while his opponent, Joe Biden, has experienced a sharp decline, with his chances dropping to 18% from a peak of 45% just two months ago.

Rising trade uncertainty and economic impact from tariffs

Economists James Moberly and Sven Jari Stehn from Goldman Sachs have raised alarms over the looming uncertainty in global trade policies, drawing parallels to the volatility experienced in 2018 and 2019. They argue that Trump’s aggressive trade stance could reignite these uncertainties.

“Trump has pledged to impose an across-the-board 10% tariff on all US imports including from Europe,” Goldman Sachs outlined in a recent note.

The economists predict that the surge in trade policy uncertainty, which previously reduced Euro area industrial production by 2% in 2018-19, could now result in a 1% decline in Euro area gross domestic product.

Germany to bear the brunt, followed by Italy

Germany, Europe’s industrial powerhouse, is expected to bear the brunt of this impact.

“We estimate that the negative effects of trade policy uncertainty are larger in Germany than elsewhere in the Euro area, reflecting its greater openness and reliance on industrial activity,” Goldman Sachs explained.

The report highlighted that Germany’s industrial sector is more vulnerable to trade disruptions compared to other major Eurozone economies such as France.

After Germany, Italy and Finland are projected to be the second and third most affected countries respectively, due to the relatively higher weight of manufacturing activity in their economies.

According to a Eurostat study published in February 2024, Germany (€157.7 billion), Italy (€67.3 billion), and Ireland (€51.6 billion) were the three largest European Union exporters to the United States in 2023.

Germany also maintained the largest trade surplus (€85.8 billion), followed by Italy (€42.1 billion).

Defence, security pressures and financial condition shifts

A Trump victory would also be likely to bring renewed defence and security pressures to Europe. Trump has consistently pushed for NATO members to meet their 2% GDP defence spending commitments. Currently, EU members spend about 1.75% of GDP on defence, necessitating an increase of 0.25% to meet the target.

Moreover, Trump has indicated that he might cease US military aid to Ukraine, compelling European nations to step in. The US currently allocates approximately €40bn annually (or 0.25% of EU GDP) for Ukrainian support. Consequently, meeting NATO’s 2% GDP defence spending requirement and offsetting the potential reduction in US military aid could cost the EU an additional 0.5% of GDP per year.

Additional economic shocks from Trump’s potential re-election include heightened US foreign demand due to tax cuts and the risk of tighter financial conditions driven by a stronger dollar.

However, Goldman Sachs believes that the benefits from a looser US fiscal policy would be marginal for the European economy, with by a mere 0.1% boost in economic activity.

“A Trump victory in the November election would likely come with significant financial market shifts,” Goldman Sachs wrote.

Reflecting on the aftermath of the 2016 election, long-term yields surged, equity prices soared, and the dollar appreciated significantly. Despite these movements, the Euro area Financial Conditions Index (FCI) only experienced a slight tightening, as a weaker euro counterbalanced higher interest rates and wider sovereign spreads.

In conclusion, Trump’s potential re-election could have far-reaching economic implications for Europe, exacerbating trade uncertainties and imposing new financial and defence burdens on the continent.



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