Here is a rundown on some of the biggest economic developments this week.
1.) Former Fed Chair Paul Volcker passes away.
Paul Volcker, who’s chairmanship of the Federal Reserve played a pivotal role in Reagan’s supply-side prosperity boom, passed away at 92 this week. Tributes have poured in for Volcker — a literal and figurative economic giant — who will be remembered for his role in slaying the Carter-era inflation as well as the distinguished career in public service that followed.
On Fox Business, economist Arthur Laffer remembered Volcker for his role in the supply-side revolution and, intriguingly, his opposition to President Nixon’s decision to take the U.S. off the gold standard.
2.) Trade deals moving forward.
This week there was lots of movement on the trade front as the Trump administration reached an agreement with China to scale back some tariffs in exchange for more agricultural purchases. While this announcement amounted to more of a “truce” than a deal, at least the dispute appears to be moving closer towards a resolution. Let’s hope this progress continues.
On another trade front, the Trump administration also reached an agreement with Speaker Nancy Pelosi on USMCA. While President Trump is likely pleased to have one of his signature policy ideas enacted into law, passage will not come without cost as Pelosi effectively stripped out intellectual property protections that were arguably the most economically beneficial portion of the trade deal.
3.) Federal Reserve moves to accelerate the growth of its balance sheet to record levels.
In a worrying development, the Federal Reserve announced that it will be ramping up its repo operations to handle ongoing liquidity challenges.
Along with the daily operations the New York Fed has been conducting, there will be several additional offerings that will inject at least another $425 billion into a market that provides critical short-term funding for banks, according to an announcement.
The new programs will entail a longer-maturity term repo operation running into the end of the year that will have an offering amount of at least $50 billion.
Most troubling about the Fed’s decision is that these actions will expand its balance sheet to an all-time record.
Under President Trump, the Fed’s balance sheet initially dropped from $4.5 trillion in assets to roughly $3.75 trillion, before coming back up as the Fed loosened monetary policy. Its balance sheet stands at $4 trillion today.
With the Fed’s latest news, the balance sheet is expected to eclipse $4.5 trillion by mid-January. The ongoing bailout in the repo market remains a troubling sign for the U.S. economy, and from my perspective, it remains very likely the Federal Reserve will blow past its current January stop-point for this intervention.
That’s all for this week! We’ll keep you updated an all these stories and more in the months ahead.
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