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No one supports tighter monetary policy anymore, the budget deficit is growing and growing, and President Trump has something to say about cryptocurrencies. Good morning. Jeff Sparshott here to take you through key developments in the global economy. Send us your questions, comments and suggestions by replying to this email.
The Good Place
Federal Reserve Chairman Jerome Powell completed two days of testimony on Capitol Hill this week. The WSJ’s Nick Timiraos says this is what we learned:
- Mr. Powell is ready to cut interest rates. He largely downplayed positive news while highlighting worries about global growth and trade uncertainty, alongside soft inflation.
- Congress supports Mr. Powell. Democrats encouraged him to stand firm against President Trump’s sustained criticism and Republicans did not join Mr. Trump in pressing any critique.
- Fed officials are worried about getting stuck with near-zero rates. The model they don’t want to follow: Japan.
- Soft wage gains indicate to the Fed there’s more room for the labor market to improve.
- Support for tighter money has evaporated. The Fed’s potential rate cut received little pushback.
“The bottom line is, the economy is in a very good place, and we want to use our tools to keep it there,” Mr. Powell said.
WHAT TO WATCH TODAY
The U.S. producer-price index for June is expected to be unchanged from the prior month. (8:30 a.m. ET)
The Chicago Fed’s Charles Evans speaks on the economy and monetary policy at 10 a.m. ET.
The Baker-Hughes rig count is out at 1 p.m. ET.
President Trump visits Derco Aerospace in Milwaukee, Wisc., to gin up support for the U.S.-Mexico-Canada trade agreement. (2:15 p.m. ET)
So I Got That Going For Me, Which Is Nice
President Trump’s repeated attacks on the Federal Reserve haven’t significantly damaged perceptions of the central bank’s independence, according to economists surveyed by The Wall Street Journal. Slightly more than half of the economists surveyed said the president’s criticism has had little or no effect on the central bank’s perceived ability to make policy decisions independent of political pressure. Another 42% said the Fed’s independence has been only modestly undermined, David Harrison reports.
It’s not just the Fed. European Central Bank officials signaled at their June policy meeting that they will consider injecting fresh stimulus into the eurozone economy through interest-rate cuts or the relaunch of a €2.6 trillion ($2.9 trillion) bond-buying program. The aggressive message, which emerged from minutes of the June 5-6 meeting published on Thursday, puts the world’s two biggest central banks on the cusp of injecting fresh stimulus into their economies, Tom Fairless reports.
Inflation Perks Up
U.S. inflation picked up in June. The consumer-price index excluding volatile food and energy categories posted its largest monthly rise since January 2018. From a year earlier, core prices were up 2.1%. What does that mean for the Fed’s apparent plan to lower interest rates later this month? Not much, at least not yet.
Piling On the Debt
The U.S. budget deficit grew 23% in the first nine months of the fiscal year as spending outpaced revenue growth. A strong economy typically leads to narrower deficits, as rising household income and corporate profits help boost tax collections, while spending on safety-net programs tends to decline. Instead, annual deficits are on track to exceed $1 trillion over the next few years, due in part to the 2017 tax law, which constrained federal revenue collection, and a 2018 budget deal that busted 2011’s spending caps, Kate Davidson reports.
Trump Bashes Bitcoin, Libra
President Trump doesn’t much like bitcoin or Facebook’s proposed digital currency. “I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity….” President Trump tweeted Friday. “….Similarly, Facebook Libra’s ‘virtual currency’ will have little standing or dependability.”
Concerns extend to the Fed. “I think we agree that Libra raises a lot of serious concerns, and those would include around privacy, money laundering, consumer protection, financial stability,” Fed Chairman Jerome Powell said.
Counterpoint: “If bitcoin wasn’t important, no one would be talking about it,” said Anthony Pompliano, a founding partner at asset-management firm Morgan Creek Digital.
What Else We’re Following
Amazon is retraining a third of its workforce. The online retailer plans to spend $700 million to retrain 100,000 workers by 2025, as technology threatens to upend the way many of its employees do their jobs. Hourly workers in fulfillment centers can retrain for IT support roles, while nontechnical corporate workers can spend several years retraining as software engineers without going back to college.
An economist and an astronomer want to change the way we keep time. Everyone, they argue, should abandon local time zones and set all clocks to Coordinated Universal Time. If that were to happen, the world’s timepieces would show the same hour at the same time, no matter where in the sky the sun was positioned.
Factory output across the eurozone rose sharply in May, a sign that the currency area’s manufacturing sector may be leveling off after a long slowdown. The European Union’s statistics agency Friday said industrial production was 0.9% higher than in April. Industrial production is volatile from one month to the next, and a larger rise in output in January proved to be a false dawn. But the May pickup suggests the eurozone is likely to avoid a recession over coming months.
China’s imports and exports fell last month, adding to the headwinds facing the Chinese economy. Exports sank 1.3% in June from a year earlier and imports dropped 7.3%. “The decline also adds to broader evidence that China’s economy lost momentum last month,” Capital Economics’s Julian Evans-Pritchard said.
WHAT ELSE WE’RE READING
What’s the biggest threat to the record U.S. economic expansion? “President Donald Trump has tried to gin up growth, by cutting taxes and attacking the Fed. Most Democrats are keen to let rip on government spending. More extreme policies hover in the wings. On the left, modern monetary theory (a kind of money printing) and massive state intervention are popular. One of Mr Trump’s new nominees to the Fed board supports a gold standard. The greatest threat to America’s long and placid expansion is that a new era of wild policy may be just beginning,” the Economist writes.
More than a third of college students could be skipping meals because they don’t have money for food. “Nationally, about 13% of Americans are food-insecure, but some surveys have estimated that the percent of college students in the same situation is roughly three times that. This population is particularly vulnerable to going hungry, as many are spending all available funds on costs associated with school, and holding down a full-time job—let alone a lucrative one—can be incredibly difficult,” the Atlantic’s Adam Harris writes.
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