American Economics Thread


here's the story of
Why the Federal Reserve Cut Interest Rates
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The Federal Reserve on Wednesday cut interest rates for the first time in more than a decade, even as the economic expansion in the United States reaches record length, unemployment hovers at historic lows and consumers keep spending.

Uncertainty around global growth and persistently low inflation are behind the expected move, because both pose major threats to the health of the economy at a time when the central bank has limited ammunition to fight off a downturn. It is what’s called an “insurance cut” — one that central bankers are making to keep growth chugging along.

The Fed’s main jobs are to maintain maximum employment and stable inflation. Officials have long aimed for 2 percent as the sweet spot for price gains. A little inflation is good, because it provides a buffer to keep prices from sinking during times of slow growth. Outright deflation is dangerous because it causes consumers to hoard cash, knowing that goods and services will be cheaper tomorrow.

The problem? Inflation hasn’t hit the goal sustainably since the Fed formally adopted it in 2012.

Stubbornly low inflation has also bumped up the risk that expectations for future inflation will drift lower.

That could create a self-fulfilling prophecy, because businesses expecting low inflation may set their prices accordingly.

While slow price gains might sound great, they can make it harder for employers to lift wages. Beyond that, the Fed’s policy interest rate incorporates price increases, so weak inflation leaves the Fed with less room to cut rates should the economy slump.

Policymakers want to get ahead
of a global economic slowdown.

Concerns over the trajectory of the global economy have been building. The trade war, a slowdown in China and a weakening that spans many advanced economies might all be adding to the rising anxiety.

At a time when inflation is already low and interest rates do not have much room to fall, policymakers want to get ahead of any shocks that could disturb American growth.

Manufacturing is one area where growing concerns could be bleeding into real economic activity. Indexes that track production across many advanced economies are either slowing or contracting.

While services make up a growing share of G.D.P., factory progress is a good economic warning signal: It slows down earlier than other industries when activity weakens. Fed officials have been watching the sector apprehensively.

Unemployment is often low right up until a
recession, so it is a poor guide for Fed policymakers.

While inflation, global uncertainty and hints of slowing economic activity helped push the Fed to a cut, there are good reasons that officials are not yet predicting an all-out rate-cutting cycle that returns the policy setting to near-zero. Consumers are still spending, the labor market is growing and output remains strong.

But all of those data points respond to economic weakening with a delay.

The unemployment rate does not turn decisively higher until just before, and sometimes a few months after, the beginning of a recession. As a result, central bankers seem to think this is the time to get moving — waiting and watching can come later, once the economy has a little bit of added juice to fall back on.


So much winning it is getting boring
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U.S. Goods Trade Deficit With China Reaches Five-Month High
Katia Dmitrieva,Bloomberg 13 hours ago
(Bloomberg) -- America’s merchandise trade deficit with China widened slightly in June to a five-month high, government figures showed Friday, a day after President Donald Trump threatened to ratchet up tariffs on a slew of additional imports from the Asian nation.

The gap stood at a seasonally adjusted $30.2 billion after $30.1 billion a month earlier, according to the Commerce Department. The value of American exports to China declined more than imports. The overall U.S. shortfall in goods and services trade narrowed by less than forecast, to $55.2 billion in June.

Trump escalated trade tensions with China on Thursday, announcing he would impose a 10% tariff on an additional $300 billion in Chinese imports. The new levies will be imposed beginning Sept. 1, Trump said in a tweet Thursday that broke a tentative trade cease-fire between the world’s two biggest economies. The 25% tariff already imposed on $250 billion in Chinese goods will remain in place, he said.

Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer returned from talks with Chinese counterparts in Shanghai this week without reporting much progress. The sides both said they’d meet again in early September in Washington for the next round of talks.

Negotiations have been at an impasse since May after the U.S. said the Chinese reneged on provisions of a tentative deal.

So far this year, the U.S. merchandise deficit with China has narrowed to a seasonally adjusted $179.8 billion, compared with $200.4 billion in the same six months of 2018. U.S. exports to China are down 18.1% this year, while imports have fallen 12.2%, a reflection of dwindling two-way trade.

The overall trade deficit in June showed a slightly larger decline in the value of imports than exports, capping a quarter in which the shortfall weighed on economic growth. The median estimate of economists surveyed by Bloomberg called for a deficit of $54.6 billion.

The second-quarter trade gap subtracted 0.65 percentage point from the annualized growth pace of gross domestic product during the period. Slower global economies, exacerbated by the U.S.-China trade war, explain why exports of American goods have cooled and why companies are delaying capital expansion plans.

Federal Reserve Chairman Jerome Powell this week cited trade tensions with China as one of the biggest risks to an otherwise resilient U.S. economy. Global growth concerns and uncertainty surrounding trade policy prompted U.S. central bankers to cut interest rates a quarter-point Wednesday.

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After adjusting for inflation, which renders the numbers used to calculate GDP, the goods trade deficit narrowed to $86.1 billion from $86.4 billion in the prior month.The real petroleum gap narrowed to an all-time low of $5.7 billion as inflation-adjusted petroleum exports reached a record high of $23.3 billion.Exports and imports of goods account for about three-fourths of America’s total trade; the U.S. typically runs a deficit in merchandise trade and a surplus in services.
--With assistance from Chris Middleton.

To contact the reporter on this story: Katia Dmitrieva in Washington


Junior Member
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in my opinion China has many ways to make america pay a huge price for this nonsensical trade war.
Buying iran oil they can collapse the oil price collapsing Shale industry.
They can devaluate the yuan bringing usa in a currency war that will undermine dollar role in the world.
They can cause a wall street collapse banning US tech companies from china that will put huge pressure on american banking system.

In my opinion today america is a very fragile position their economy is extremely weak. All this strategies are certainly risky but this is a war


Lieutenant General
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i think that America will be in recession before the end of the year
That drives up the chances that CEOs and CFOs could be “hesitant to spend their ample retained earnings gained over the last number of years,” said Benjamin Pace, chief investment officer and partner at Cerity Partners. “This hesitancy could slow economic growth to a trickle and even provoke recession sooner than one needs to occur based on the current strong shape of the US consumer.”

In other words, enjoy the spending spree while you can.
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Junior Member
Registered Member
it's easy to lose jobs when before the election unemployement is around 3% dear MR TRUMP. In my opinion now China has to be clever with retaliation to cause a big drop in Wall Street, many middle class americans have their savings in Crackin tech stock firms like Uber. China have to hit them and in my opinion us ecenomy will crush,

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