Tags: fed | bullard | growth | productivity

Fed's Bullard: US Economy Will Stall Unless Productivity Increases

slower economic growth depicted by two turtles crawling on $100 bills
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Monday, 08 October 2018 10:03 AM Current | Bio | Archive

St. Louis President James Bullard said the better-than-expected growth rates in the U.S. economy are set to dissipate unless productivity picks up.

He said during an interesting lecture in Singapore: “The U.S. will likely need faster productivity growth in order to maintain current real GDP growth rates. This is a possibility if U.S. investment improves and technological diffusion begins to improve business processes at a faster pace,” Bullard said in a speech in Singapore.

During an interview he said: ““We don’t have to be projecting planned rate hikes at this point. I don’t think this is a situation where we need to get a lot higher with the policy rate in order to contain inflation, because there just isn’t that much inflation pressure in the U.S. economy.”

U.S. Treasury Yields

Last week, we had an interesting and for some investors a somewhat troubling week because of the fall in U.S. Treasury prices. Prices of U.S. Treasuries had started moving down on Wednesday after markets got ‘surprisingly’ strong U.S. economic data and Fed Officials gave so-called hawkish remarks. On Friday, a still good employment report that confirmed a strong U.S. economy with a steady rise in wages while the jobless rate fell to a 49-year low, the 10-year Treasury yield ended the week at 3.23 percent after hitting a seven-year peak at 3.248 percent and the 30-year Treasury yield ended the week at 3.40 percent touching a four-year high at 3.424 percent.

U.S. Treasuries were not the only ones whose prices moved lower, which of course pushed yields higher, also for example the S&P 500 lost about 1 percent on the week.

Emerging-market stocks tumbled 4.5 percent in the five days through Friday, their worst performance since February, while currencies and domestic bonds dropped the most since August.

Chines Markets Are Open Again

Over in China, the 7-day holiday week which is called the 'Golden Week' holiday is over and it’s back to business. Chinese stocks followed their peers in emerging markets down, capping their worst performance since 2008. The CSI 300 Index closed down 4.3 percent in Shanghai, with tech companies among the biggest drags. A gauge of large caps saw its biggest loss since January 2016. China’s currency fell as much as 0.76 percent against the dollar or about 6.92 CNY per dollar, which is its weakest since mid-August.

China’s central bank said on Sunday it would cut the amount of cash that some banks must hold as reserves by 50 basis points (bps), releasing USD $108 billion in liquidity, to accelerate the pace of debt-for-equity swaps and spur lending to smaller firms.

Foreign investors dumped 9.7 billion yuan (CNY) or about $1.4 billion worth of A shares via stock trading connections, Bloomberg calculations based on daily trading turnover showed, the second-highest net selling on record.

U.S.-Sino Tensions

U.S. Secretary of State Michael Pompeo cited “fundamental disagreement” with China’s Foreign Minister Wang Yi who had accused the U.S. today of escalating trade disputes, interfering on Taiwan and meddling in the country’s domestic affairs saying: “These actions have damaged our mutual trust, cast a shadow over China-U.S. relations, and are completely out of line with the interests of our two peoples.”

Pompeo’s answer was: “We have great concerns about actions that China has taken and I look forward to having the opportunity to discuss each of the those today because this is an incredibly important relationship.”

The exchange came as Pompeo arrived in the Chinese capital during an Asia trip focused on securing a disarmament deal with North Korea and maintaining an international pressure against Kim Jong Un. It represented perhaps the strongest sign yet that the widening list of grievances between the U.S. and China could undermine their cooperation on North Korea.

No, it doesn’t look a quick solution to the U.S.-Sino trade tensions is on the cards.

Brazil’s Presidential Elections

Brazil’s first round presidential election race has advanced relatively extreme candidates of both the left and the right into the second round. The right-wing candidate Jair Bolsonaro won over 46 percent of the vote with the left-wing candidate Fernando Haddad winning around 30 percent of the vote. This was generally the expected outcome by investors.

Investors rallied behind Bolsonaro not so much because they trust he will be able implement the best economic policies but because he is the most viable candidate to prevent the return of Haddad’s Workers’ Party and its interventionist economic policies.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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St. Louis President James Bullard said the better-than-expected growth rates in the U.S. economy are set to dissipate unless productivity picks up.
fed, bullard, growth, productivity
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2018-03-08
Monday, 08 October 2018 10:03 AM
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