Publications

U.S. News

According to the Wall Street Journal, Federal Reserve officials are debating whether now is the time to implement a countercyclical capital buffer, a policy tool that allows the Fed to require banks to increase holdings of loss-absorbing capital. Fed officials in favor of the move argue that raising bank capital requirements now will provide a much-needed layer of additional resilience, while others argue that banks’ capital reserves are already sufficiently high. WSJ

Bloomberg News reports that Chinese policymakers are maintaining a cautious approach to monetary policy as they attempt to manage China’s growth slowdown, leaving options open for larger stimulus efforts in case the trade conflict with the U.S. morphs into an all-out currency war. Even with domestic monetary policy unchanged, allowing the yuan to remain weak against the dollar could absorb most of the impact of the latest U.S. tariff increase. Bloomberg

U.S. Economic Indicators

The headline Producer Price Index (“PPI”) for final demand rose 0.2% in July and was up 1.7% from July of last year. The core — which removes volatile prices of food, energy, and trade services — fell 0.1% in July and was up 1.7% from a year ago. BLS Report

U.S. News

According to the Wall Street Journal, the International Energy Agency recently downgraded its forecast for global oil demand growth for the third time in four months, citing worsening relations between the U.S. and China that could lead to further reductions in trade activity. Global demand for oil between January and May 2019 was at its weakest since 2008, while oil production by non-OPEC countries — including the U.S. — continues to surge. WSJ

The Financial Times reports that the rise of internet shopping and deep discount chains will make it difficult for U.S. retailers affected by the U.S.-China trade war to pass price increases to consumers. Retailers are instead trying to mitigate price increases and protect profit margins by renegotiating contracts with suppliers. FT

U.S. Economic Indicators

Initial jobless claims fell 8,000 to 209,000 last week. The four-week moving average rose 250 to 212,250. DOL Report

U.S. News

The Financial Times reports that Chinese exports grew 3.3% year-on-year in July, beating economists’ expectations and reflecting the fact that exports to the U.S. make up a relatively small proportion of China’s total trade. Rising Chinese exports to markets in Southeast Asia have provided a significant cushion against declining trade with the U.S. amid the ongoing trade conflict. FT

According to the Wall Street Journal, inflated bond ratings — one cause of the 2008 financial crisis — persist in the present-day bond market as ratings firms offer increasingly optimistic scores as they fight for market share. Newer challenger firms systemically rate bonds higher than major firms, suggesting that regulation intended to improve rating quality by promoting competition has largely backfired. WSJ

U.S. News

According to the Wall Street Journal, the U.S. Treasury has collected more than $63 billion in tariffs since June of last year, up from around $30 billion in annual collections before the trade conflict with China. The U.S. is now on pace to collect around $72 billion in tariffs annually, with collections projected to reach as high as $100 billion if a new 10% tariff is imposed on an additional $300 billion in Chinese goods next month. WSJ

Bloomberg reports that U.S. companies are rapidly running out of warehouse space after packing storage facilities with imported goods in an effort to avoid anticipated tariffs on Chinese imports. The dearth of additional warehouse space means that many companies will be unable to use preemptive stockpiling to mitigate the effects of the next round of tariffs scheduled for September 1. Bloomberg

U.S. Economic Indicators

The Job Openings and Labor Turnover Survey (“JOLTS”), a closely-watched measure of labor market health, indicated there were 7.3 million job openings at the end of June, essentially unchanged from May. Hires were little changed at 5.7 million, while the quits rate remained at 2.3 percent. BLS Report

U.S. News

The Wall Street Journal reports that the U.S. Treasury officially labeled China a currency manipulator after China’s central bank allowed the renminbi to weaken below seven yuan to the dollar for the first time since 2008. China has emphasized that the depreciation is due to market forces rather than intentional devaluation but is unlikely to allow the currency to decline further as it would increase capital outflows and make it harder for Chinese companies to service their dollar-denominated debt. WSJ

According to Bloomberg, a new study published by the Congressional Budget Office found that consumer price expectations were a better predictor of the overall direction of future inflation than economists’ forecasts over the past twenty years. Although experts predicted the pace of inflation more accurately, consumers better predicted the direction of inflation and future consumer sentiment. Bloomberg