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Real Time Economics: | Will the Economy Get Another Fiscal Boost?
Real Time Economics
Government spending is a big unknown for U.S. economic growth, the
White House is sticking by its picks for the Fed, and more Brexit drama
is on the way. 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
The Great Unknown
One of the big unknowns for U.S. economic growth: federal spending.
Lawmakers agreed to cap spending in 2011 as part of a bruising fight
over raising the debt limit. Since, they've struck three separate
deals—the latest boosted funding nearly $300 billion above the caps. But
if Congress doesn’t reach another deal by October, the spending limits
known as the sequester would kick back in, reducing discretionary
spending by $125 billion, or 10%, from 2019 levels, Kate Davidson
Federal spending has had an important impact on growth in this expansion.
In quarters when
discretionary spending was contracting, mostly between 2011 and 2014,
the economy grew at a 2% rate. When it was expanding, including during
the past two years, the economy advanced at a 2.5% rate. The
Congressional Budget Office estimates year-over-year economic growth
would slow to 1.7% in 2020 if the automatic spending cuts kick in, down
from a projected 2.3% in 2019 and 3% in 2018.
What to Watch Today
U.S. factory orders for February are expected to fall by 0.5% from the prior month. (10 a.m. ET)
Don't Give Up the Fight
The Trump administration isn't giving up
on Herman Cain without a fight. The former restaurant executive and
onetime GOP presidential candidate warned of renewed scrutiny of
sexual-harassment allegations against him. The White House has his back,
Dave Michaels and Paul Kiernan report. “We’ve seen a lot of charges
here. They don’t necessarily pan out,” Mr. Kudlow said on CNN,
suggesting the sexual-harassment allegations wouldn’t necessarily disqualify Mr. Cain.
Reshaping the Fed
President Trump had a chance to remake the
Fed soon after he took office. Instead, he shuffled the deck with
economists and technocrats, replacing Chairwoman Janet Yellen with
Jerome Powell, Vice Chairman Stanley Fischer with Richard Clarida, de
facto regulatory guru Daniel Tarullo with Randal Quarles and filling the
long-vacant community banker's spot with Kansas bank commissioner
Michelle Bowman. It seems like Mr. Trump has some regrets. Mr. Cain and
former campaign adviser Stephen Moore, his latest picks, are decidedly
more partisan. Both have echoed the president’s complaints about the
central bank and its interest-rate policies.
There are two vacant seats on the Fed's seven-person board of governors. “President
Trump has every right to
put people on the Federal Reserve Board with a different point of view.
He wants people on the Fed who share his philosophy,” Mr. Kudlow said.
Loud and Clear
Just in case you doubted his dissatisfaction, Mr. Trump on Friday repeated his call for the Fed to cut interest rates
and said it should restart buying assets to stimulate growth. “In terms
of quantitative tightening it should absolutely now be quantitative
easing,” he said.
What to Watch: Stocks
This week's test for the stock market: corporate profits.
With earnings season kicking off in earnest, investors say they plan to
scrutinize corporate executives’ comments to gauge whether declining
profits are a momentary blip or further evidence of a late-cycle
economic slowdown. Walgreens Boots Alliance last week became the latest
big company to cut its full-year profit forecast, joining corporate
powers such as Apple, FedEx and 3M, Michael Wursthorn reports.
So far, investors appear to be looking past the expected profit crunch
a more accommodative Fed. The central bank earlier this year decided to
put interest-rate increases on hold, helping to stoke investors’ demand
for riskier assets. The S&P 500 is up more than 15% since
January—its best start to a year since 1998.
What to Watch: Bonds
Wall Street firms are lowering their forecasts for U.S. government bond yields,
the latest sign of investors’ mounting worries about slowing economic
growth. HSBC now predicts the yield on the benchmark 10-year Treasury
note will end the year at 2.1%, down from an earlier forecast of 2.5%.
UBS lowered its forecast to 2.8% from 3.2%, Goldman Sachs to 2.8% from
3% and JPMorgan Chase to 2.75% from 2.9%, Daniel Kruger reports. Tepid
reports on the economy “have left investors relatively skeptical about
the notion that growth will rebound later this year,” JPMorgan analysts
wrote. The 10-year Treasury serves as a benchmark for other loans,
including mortgages. Theoretically, lower yields should
To Leave or Not to Leave
Britain’s two main political parties are pushing to reach a new Brexit deal this week. The ruling Conservative Party and the principal opposition Labour Party are resuming talks ahead
of a European Union summit that will consider again postponing the
country’s departure from the bloc, Stephen Fidler reports. “The choice
that lies ahead of us is either leaving the European Union with a deal,
or not leaving at all,” Prime Minister Theresa May said.
are set to meet in Brussels late
Wednesday to discuss another extension. Brexit was originally scheduled
for March 29. It has already been pushed pack once, to April 12.
German trade slowed along with the rest of
the world in February. The Federal Statistical Office said that total
exports of goods dropped 1.3% in February from the month before; imports
of goods fell by 1.6%. The latest data underscore the pressures facing
Europe’s largest economy amid international trade tensions and a
slowdown in China, Tom Fairless reports.