Will Trump's Economy Overheat as Tax Cuts Kick In?: Eco Week
(Bloomberg) -- How hot is too hot?
That’s a question investors are increasingly asking as the U.S. economy readies for a fresh injection of fiscal stimulus thanks to President Donald Trump’s tax cuts. The risk is the stimulus combines with still-easy monetary policy to spark an inflationary outbreak.
The theme leads our weekly analysis of what’s happening in the world economy:
Taking the Temperature
To see what the future may hold for whole of the U.S., Bloomberg reporters hit the road to visit cities where joblessness is already lower than the national average of 4.1 percent.
The good news for the Federal Reserve’s plan to raise interest rates slowly so as to give growth a chance is that employers have found ways to cope with stretched labor markets and still make money. Some have even raised pay.
Goldman Sachs and JPMorgan go as far as to speculate unemployment could fall beneath 3 percent for the first time since the 1950’s.
Change in China
The People’s Bank of China is set to get a new governor on Monday for the first time in 15 years. The successor to Zhou Xiaochaun will certainly be busy given the government this week handed the central bank the power to rewrite the rules for the financial sector it’s seeking to restrain.
Trump is listening to overtures from governments around the world keen to be exempted from his tariffs on steel and aluminium.
The risk of recrimination and retaliation is still in the air, however, and an analysis by Bloomberg Economics suggests that could take a toll on the world economy.
A full blown trade war could wipe $470 billion off global gross domestic product, they reckon. That’s under a scenario where the U.S. implements a 10 percent levy on imports and the rest of the world retaliates.
According to economists Jamie Murray and Tom Orlik, that’s an extreme scenario, “but it’s no longer an impossible one.”
As for the U.S., a survey of economies suggests the tariffs will reduce employment and growth slightly.
Canadian Prime Minister Justin Trudeau told us he’s working to save Nafta.
The Fed is poised to raise interest rates next week, but Saudi Arabia beat it to the punch. Reserve Bank of Australia Deputy Governor Guy Debelle reckons global investors are underpricing the uncertainty over the future path of interest rates, warning markets are likely to see higher volatility.
Serbia also shifted unexpectedly -- but the other way -- cutting rates to a record low after inflation slowed and the dinar strengthened.
As for Nigeria, politics forced it to delay setting rates again.
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- Germany Ready to Sacrifice Weidmann as a Pawn in EU Chess Match
- Central Banks Urged to Study Digital Currency Risks and Rewards
- The Rich Aren’t Happy About New Zealand Foreign Bolthole Ban
- Millennial Job-Matching May Help Solve U.S. Labor-Market Puzzle
- The Secret to Australia Avoiding Recession: Mass Immigration
- Japan’s Aso Is Said to Skip G-20 Amid Calls for Resignation
- World Sticks to Cash as Sweden Heads Alone Into Cashless Future
- Putin is Sure of Victory, But Little Else
- Not Bad But Not Good: Japanese Workers Get Another Small Raise
Chart of the Week
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