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Monetary policy at a turning point 7/10/2019
Although household consumption remained rather buoyant at springtime, foreign trade as well as investment may have weakened. In June, the business survey results were lacklustre, while the Federal Reserve opened the door to cutting interest rates. Already back on the campaign trail, President Trump is unlikely to soften his hard line on tariffs, although he will surely remain as unpredictable as ever. The economy is likely going to need some support.
US: much reason to celebrate? 7/5/2019
This week saw two reasons to celebrate in the US. First, it’s 4th of July week and, second, we have started the 121th month of economic expansion, the longest in US history.
Primary dealers absorb nearly 40% of the Fed’s net sales of Treasuries 7/3/2019
Since October 2017, the Federal Reserve (Fed) has no longer been rolling over all of the debt maturing in its securities portfolio. In other words, it is proceeding with net asset sales (tapering). By 26 June, its holdings of US Treasuries had declined by USD 355 billion while Agency debt securities and Agency mortgage backed securities were down by USD 249 billion. The shrinking of the Fed’s balance sheet has had a notable impact on money market rates due to the pressure it is placing on central bank liquidity. Pressures have picked up since last fall, when declining yields reduced investors’ appetite for Treasuries. As a result, there has been a big increase in the net position of primary dealers in Treasuries: inventory increased by USD 140 billion between October 2018 and June 2019. To finance these “net purchases”, primary dealers have increased their borrowing on the repo market, placing upward pressure on repo rates. *Primary dealers act as a market maker for government securities, participating in auctions, placing securities and ensuring liquidity in the secondary market for T-bills.    
Soft landings are difficult, even more so today 6/21/2019
The Fed has turned the corner and is now looking towards moving into easing mode.
A mixed landscape 6/7/2019
In the United States, the tide hasn’t turned yet for consumers: on the positive side, our barometer points to low unemployment, strong consumer confidence and dynamic household revenues and spending. Inflation is also mild, which boosts purchasing power. Even so, the horizon is not all rosy. Positioned in the forefront of the economic cycle, industrial leaders report a decline in output, which was one of the barometer’s weakest scores in April, and their expectations did not pick up in May.
About the decline in US long-term rates 6/5/2019
Interest rates on US federal government debt have declined significantly in recent months. With the yield on 10-year Treasuries at 2.1%, the Federal government’s cost of borrowing has fallen to the lowest level since September 2017. President Donald Trump is bound to be pleased. The supremacy of the dollar offers him the privilege of being able to widen the deficit almost endlessly, at a time when the appetite for US Treasuries seems to be inexhaustible. Yet the stronger demand for Treasuries is also a warning signal: it indicates that investors are seeking safe havens as they form more cautious expectations. In the United States, the decline in yields is also a faithful indicator of a deterioration in the business climate.
The import tariff boomerang 5/17/2019
Import tariffs have a negative impact on the targeted country. Retaliation will in turn have negative consequences for the country which started the tariff hikes. Even in the absence of retaliation, there will be negative consequences. Household spending will suffer from a loss of spending power due to an increase in inflation following higher import prices and/or a switch to domestically produced goods. For the same reason, aggregate corporate profits may suffer. Companies may also cut back their investment because of increased uncertainty. Empirical research confirms these outcomes.
Strong growth but questions about quality 5/3/2019
According to Jerome Powell, the fundamentals supporting the US economy remain solid. First quarter growth has been robust but underlying concerns about the quality of growth have emerged. Growth has benefitted from a drop in imports and rising inventory levels while residential investment acted as a drag. In the coming months, imports should rebound and inventories should witness a scale back. The onus will fall on consumer spending and corporate investment to neutralise the effects of these anticipated headwinds on growth.
United States, is the flattening yield curve a concern? 5/3/2019
In the United States, the flattening yield curve is neither accidental, nor insignificant. It anticipates an economic slowdown.
Strong growth, low inflation 4/26/2019
The first quarter turned out to be strong after all. The just released first estimate for first quarter GDP showed an annualised quarter over quarter increase of 3.2%, ahead of the consensus number of +2.3% and better than the previous quarter (+2.2%). Data released earlier this month had suggested that March looked good though not great.

ABOUT US Three teams of economists (OECD countries research, emerging economies and country risk, banking economics) make up BNP Paribas Economic Research Department.
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