A very relevant column on the new stages of the trade war

This column, “The Case Is Only Growing for an Economic Forever War”, by Shawn Donnan, was posted on the Bloomberg website.

“President Donald Trump’s trade war with China has become a bigger, broader economic forever war. It’s hard to look ahead and see any outcome that undermines that emerging reality. A “phase one” deal may be in what U.S. officials say is its messy end stages. But that deal, if it comes, will be partial and more ceasefire than game changer. It also doesn’t mean a larger peace is nigh. Moreover, there are three live truths that are becoming inescapable:” Continue reading here

Are US firms of today larger than US firms of yesterday ?

Philippon and Gutiérrez answer a clear no

Politicians and activists are warning that mega-companies like Facebook, Wal-mart, and Amazon are returning America to the Gilded Age. They point to record breaking profits and mergers the size of small countries.

On the other hand, many  economists and antitrust lawyers aren’t panicking. They say innovation and better management are driving these so-called superstar firms to unprecedented levels of efficiency. Their size and dominance is just a side effect.

However, both may be missing the bigger picture. 

Read this interesting analysis by Philippon and Gutiérrez

The Fed’s message in 8 points

The Federal Reserve message is clear:

1- Macro data remain robust and expected inflation is low

2-Risks on the economic prospects are on the upside

3 – The Fed will adjust its rate if necessary but nothing is on the agenda

4 – The dots’ graph doesn’t give information as it shows one drop in 2020 and one hike in 2021

5 – Powell introductory statement indicates a bias on the downside for the Fed’s rate in the future.

6 – Long term rates dropped on this perception even if nothing has been said on the agenda. The 10y is now below 2% and the 30y below the fed funds rate for the first time in this cycle

7 – In the past, when all rates are below the Fed’s rate it’s a signal of recession. The drop in the Fed’s rate will come but will not be sufficient to avoid a recession.

8 – The reason is that low long term interest rates reflect low expectations on the future. They can’t reverse spontaneously. Economic phenomena are persistent

The Fed is in no hurry to adjust its monetary policy

In its monetary policy statement, the Fed says there is no reason to lower interest rates rapidly. Activity data are still robust and inflation remains moderate. Therefore, as long as there is no sudden inflection, there is no reason for the central bank to rush to adjust its monetary policy. (This is what I mentioned here)

The dots’ graph, reflecting the FOMC members’ expectations, considers that the fed funds rate will be stable in 2019, decline once in 2020 before going back up again. in 2021 at the current level.

The US central bank, which does not want to hurry given the economic situation still strong, does not want to give signals on what it will do. This is the end of the Fed’s forward guidance. It does not commit to anything, thus confirming its desire not to tie hands with commitments that may not be in line with changing circumstances.