Thought for the month ahead: While many Americans focus on who the Democrats might nominate for president next year, President Trump and China’s President Xi hope to conclude a trade deal. The markets are counting on it already, and they expect to avoid further tariffs on EU autos and to eventually see the lifting of all tariffs. One of the reasons President Xi has held off concluding a deal is his fear that mercurial President Trump might back out at the last minute, causing much loss of face. Of note so far, only in Washington, is that many Republican senators and congressmen are pushing the White House hard to lift all of the tariffs. That may not happen a quickly as they would like, but I do expect it to happen before next year.
Monetary Policy: The Federal Open Market Committee will conclude its two-day meeting this afternoon with a statement at 2 PM EDT and Chair Powell’s news conference at 2:30 PM. I can forward a transcript of Mr. Powell’s remarks upon request. In
Federal Deficit to hit $1 trillion. Tomorrow, the Congressional Budget Office will update its budget projections. Their Fiscal Year 2019 (ending September 30, 2019) deficit estimate will likely top $1 trillion as compared to their January estimate of $897 billion (See Table 1-1on p.7). That would be about 4.7% GDP, up from 4.2%. In my opinion, it will be a long time before the U.S. deficit declines below these levels. There’s no talk of deficit reduction on Capitol Hill. We’ll see if any emerges after the 2020 election.
China Trade Agreement: U.S. Trade Representative Bob Lighthizer and Treasury Secretary Steven Mnuchin are in Beijing to wrap up a trade agreement with China’s Vice Premier Liu He. The talks are likely to conclude in Washington next week with an announcement that China’s President Xi Jinping will visit President Trump at the White House later this month to sign the agreement.
USMCA: The U.S.-Mexico-Canada Agreement has yet to be presented to Congress because the votes are still lacking to pass it. House Speaker Nancy Pelosi (D-CA) wants additional worker protections and better enforcement language in a side agreement before she will bring it to her caucus. In a Wall Street Journal op-edlast Sunday, Senate Finance Committee Chair Chuck Grassley (R-IA) demanded the lifting of the steel and aluminum tariffs before he will forward the agreement from his committee. At this point, it looks like congressional approval is a distant hope, but that’s how all trade agreements look before they squeak through.