Economy

The federal government wound up its fiscal year in September.
Wrapping up a year in which some thought the shortfall could exceed $2 trillion, the U.S. ended up with an imbalance of $1.695 trillion, up about $320 billion.
The budget report comes the same week Biden asked Congress to allocate $105 billion for “national security priorities.”

Janet Yellen, U.S. Secretary of the Treasury, participates in a global infrastructure and investment forum in New York on Sept. 21, 2023.
Pool | Via Reuters

The federal government wound up its fiscal year in September with a deficit just shy of $1.7 trillion, the U.S. Department of the Treasury announced Friday.
Wrapping up a year in which some thought the shortfall could exceed $2 trillion, the U.S. ended up with an imbalance of $1.695 trillion, up about $320 billion, or 23.2%, from fiscal 2022.

The huge deficit came as revenue fell $457 billion from a year ago and expenses decreased by just $137 billion. Outlays for the year totaled $6.134 trillion.
The budget shortfall adds to the staggering U.S. debt total, which stood at $33.6 trillion earlier this week. The deficit level was eased somewhat when the Supreme Court voided President Joe Biden’s effort to erase billions in student loan debt.
That number has swelled by more than $10 trillion since the first quarter of 2020, when the Covid-19 pandemic hit and pushed the government into a spending spree aimed at making up for the damage done to the economy.
Of the government outlays last year, some $659 billion went for net interest on the accumulated debt, up from $475 billion in fiscal 2022.
Treasury Secretary Janet Yellen said the administration is “committed to addressing challenges to our long-term fiscal outlook” and pointed out several measures she said are going to bring down the deficit over the next decade.

“The U.S. economy remains resilient despite global headwinds,” Yellen said. “Previous expectations that the U.S. would fall into recession over the course of 2023 have not borne out.”
Financing the debt has gotten significantly more expensive over the past year as the Federal Reserve has jacked up benchmark interest rates in an effort to combat inflation. The central bank has raised its key lending rate by 5.25 percentage points, and Treasury yields have responded in kind. The 10-year Treasury note has been flirting with a 5% yield. It was less than 1% through 2020.
The budget report comes the same week Biden asked Congress to allocate $105 billion for “national security priorities,” including $61 billion for Ukraine, along with humanitarian assistance in Israel and Gaza.Don’t miss these CNBC PRO stories: More

Ford (NYSE:F) made its offer over two weeks ago.Here is a look at the top talking points, and how negotiations have progressed more than a month after the strike began, according to UAW President Shawn Fain and the companies: Ford General Motors Stellantis Wages Top offer of Offered about Offered about 23% hike 23% increase. 23% increase. Wage Cut timeline Within the Cut timeline progression to get to top life of the to get to top wage rate to contract, all wage rate to three years senior four years. from eight. employees reach max wage rate. Temporary Wages raised Wages Wages raised workers’ wages to $21/hour. increased to to $20/hour. $21/hour. Cost-of-living- Agreed to Reinstatement Agreed to adjustments reinstate of COLA for reinstate (COLA) cost-of-living senior team cost-of-living allowance. members allowance. starting Year 1 Plant closures The UAW can No agreement The UAW can strike over regarding the strike over plant issue. plant shutdowns. shutdowns. Workers get income protection. Retirement No agreement Company No agreement benefits to restore contributions to restore pre-2007 increased by pre-2007 defined 25% (from 6.4% defined benefit to 8.0% of benefit pension plans. wages) for pension plans. active in-progression team members, regardless of employee contribution. Battery Plants No agreement. Agreed to No agreement. allow workers at joint-venture battery plants to be covered by union contracts. Source: Fain’s statement, company statements More

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WASHINGTON (Reuters) -The chance for persistent inflation to keep interest rates higher and potential losses in the commercial real estate market are among the top concerns of respondents to a Federal Reserve survey on financial stability, the U.S. central bank said on Friday.The latest version of the central bank’s semiannual report found that three-quarters of survey respondents cited those two issues as prominent near-term risks. Concerns over bank stability following the failure of three large firms this spring were cited by roughly half, similar to levels seen in the May version of the report.Economic weakness in China had grown in the Fed’s semiannual survey, cited by 44% of those surveyed as a top risk, compared to just 12% in May. But the war between Russia and Ukraine slipped to the 11th-most cited concern by respondents, after it was cited as the top financial stability concern one year ago.The Fed noted that its survey of looming risks was closed in early October, before war broke out between Israel and the Palestinian enclave of Gaza.Overall, the Fed identified several vulnerabilities within the financial system, including historically high asset valuations, including in equities and real estate. Specifically, the Fed found that commercial real estate valuations remain elevated, even as prices have declined amid high office vacancies.The Fed cautioned that if the economy were to slow unexpectedly, generally high leverage levels could strain or even sink some businesses. It specifically noted a correction in office property valuations alongside a mild recession could lead to “significant losses for a range of financial institutions with sizable exposures, including some regional and community banks and insurance companies.”While the overall banking system remained sound, the Fed said some banks were still grappling with “sizable” declines in the fair value of some assets as interest rates rapidly increased. Large levels of unrealized losses were a major contributor to the stresses faced by banks, including Silicon Valley Bank, that failed this spring.The Fed said banks overall have large levels of liquidity, and deposit outflows and volatility have abated since the spring. However, some firms are still facing funding pressures, as some depositors have left and banks have had to pay more to retain depositors or acquire other funding.The Fed also found home prices increased from already high levels seen in May, although it noted that credit conditions for borrowers is “considerably tighter” than what was seen leading up to the subprime mortgage crisis of 2007-2009.In fact, banks reported to the Fed that lending standards were now on the tighter end of historical norms for all loan categories.The report found that household and business debt burdens remained moderate, despite the uptick in interest rates. It warned, however, that borrowers with low credit scores were beginning to show some signs of stress in various types of consumer debt, such as credit cards and auto loans. More

BUENOS AIRES (Reuters) – Argentina may be about to leap into the political unknown.The South American country, the region’s No.2 economy after Brazil, will vote in presidential elections on Sunday with a radical outsider, libertarian Javier Milei, in pole position to win, though he will likely face a second round run-off.The wild-haired, chainsaw-wielding economist – who has risen from relative obscurity over the last year – came top in an August open primary and leads all opinion polls ahead of economy minister Sergio Massa and conservative Patricia Bullrich.Milei, 52, is a poster child of Argentine voters’ anger at inflation that may hit 200% this year, rising poverty levels and a sliding peso currency that erases the real-world value of people’s salaries and savings. Many blame the political elite and have latched on to Milei’s burn-it-all-down rhetoric.”I’m not interested in politics but Milei is a clean slate. He may be crazy, but at least he says what he thinks,” said Sebastián Pizzo, 33, a restaurant employee in Buenos Aires.The vote marks a major crossroads for Argentina, one of the world’s top grains exporters, the no. 4 producer of electric battery metal lithium, and a growing shale oil and gas play that has been luring investment and interest from Asia to Europe.The country is also the largest – by far – debtor to the International Monetary Fund (IMF) with an outstanding $44 billion loan program, as well as huge international debts with bondholders and a large currency swap line with China.Whoever wins will have a huge impact on the country’s standing in the world. Milei has criticized China, pledged to “burn down” the central bank, privatize public sector entities, and dollarize the economy. He is anti-abortion and anti-feminist.Milei is the candidate to beat, but the election remains a three-way race, and with polls having proven unreliable for the August primary (failing to spot Milei’s sharp ascent), no-one should be ruling out another surprise.”The truth is that all scenarios are possible,” said Mariel Fornoni, director at consultancy Management & Fit.Pollsters generally agree the most likely result is that Milei comes first, but faces a second-round head-to-head with Massa on Nov. 19. A candidate needs 45% of the vote or 40% with a 10-point lead over second place to win outright on Sunday.Political analyst Carlos Fara said Milei’s rise appeared to mark the end of the domination of the country’s two main political factions, the left-leaning Peronists currently in power and the main conservative opposition bloc.”We may be at the end of one historical cycle and the beginning of the next,” he said.’WE WAKE UP ANGRY’Argentines will start voting at 8:00 a.m. on Sunday (1100 GMT) with first results expected at 9:00 p.m. (00:00 GMT).Whoever wins will face a bleak economic outlook: the central bank’s coffers are practically empty, a recession is looming, two-fifths of the population live in poverty and most expect a sharp currency devaluation that could fan inflation further.”We are tired now. We wake up angry, we can’t feed our children the daily bread and milk they ask for,” said 57-year-old homemaker Mariel Segovia in Tapiales near Buenos Aires. “We don’t know where the money is going to come from.”Bullrich backers, including business leaders, cite her moderate views and stability, while others say the country should go with Massa and the Peronists to safeguard the subsidies that have kept utilities and transport costs low.”I am retired and I have grandchildren and children at the public university. Massa is the only one who defends the values of the Argentine people,” said retiree Adriana Schedfin, 63.Mabel Baez, 69, said she would vote for Bullrich as a strong female candidate who has pushed a law-and-order platform that harks back to her time as security minister. “She is going to defend us,” Baez said.The election will likely split the vote between the top three runners, with a further two candidates polling at under 5%. That will impact the make-up of Congress, which is being partially renewed and will likely end up fragmented.No coalition is expected have a majority in either chamber, forcing the next president to negotiate across political divides. Frontrunner Milei would have a relatively small number of seats in Congress and little regional government support.Many voters, however, appeared resigned to a Milei win – a reflection of how the former television pundit has managed to take hold of the political narrative, leveraging memes and videos online that have resonated with younger voters.”I’m going to vote for Massa, but Milei is going to win,” said Stella Buk, 65, who has a book stall at the Parque Centenario fair. “At this point I don’t see any other way. Here now all the poor people are right-wing.” More

The survey also flagged risks associated with the resurgence of stress in the banking sector and China’s economic weakness. Despite the overall resilience of the banking sector, some institutions are dealing with considerable losses. These losses are attributed to rising interest rates impacting longer-maturity, fixed-rate assets, and worries over uninsured deposits.In relation to household debt, which is mainly held by individuals with strong credit histories or significant home equity, the survey noted that it remains modest relative to GDP. However, high property prices continue to persist when compared to fundamentals.The report also pointed out ongoing structural vulnerabilities in money market funds, stablecoins, and other funds. Life insurers were noted as maintaining a heavy reliance on runnable liabilities.The survey’s findings underscore the Federal Reserve’s focus on monitoring these potential risks to financial stability. As inflation continues to be a key concern among economists and policymakers worldwide, the central bank’s observations and responses will be closely watched in the coming months.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

Fed Chair Jerome Powell nodded to that potential on Thursday in remarks to the Economic Club of New York, saying he agreed “in principle” that the sharp run-up in yields could obviate the case for more rate hikes.One of the key factors he and others at the Fed point to is the return of the “term premium” as an influence in bond yields, a fundamental driver that has been largely suppressed for a decade or more through a long run of low interest rates that followed the 2007-2009 global financial crisis and then the pandemic.A bond yield can be decomposed into three elements: Expectations for what the Fed does with short-term rates; a premium for expected inflation; and a term premium. Essentially a term premium is the added compensation investors expect for the unknowns associated with holding longer-term debt, and it also wraps in factors including risk preferences, views about the economy and global financial conditions. The Fed’s efforts following the financial crisis to keep all borrowing costs low – not just those short-term ones it controls directly – all but eradicated the term premium because the central bank was so determined to keep rates from climbing and further hampering what was a slow recovery from the crisis.Through much of the first year of the tightening campaign kicked off in March 2022 Fed officials periodically bemoaned that long-term rates were not rising enough to complement their own rate hikes. Bond investors instead remained focused on expectations widely held at the time that the Fed would over-tighten, cause a recession and would quickly cut rates to shield the economy from harm.That dynamic has shifted with investors having finally recognized the Fed’s strong commitment to bring inflation back to its 2% target, and willingness to accept a slowing economy to get there. Term premiums cannot be directly observed but a number of models for them exist. A New York Fed model shows the term premium for the benchmark 10-year Treasury note has climbed by more than a percentage point since the start of the third quarter. Parked squarely in negative territory since 2021 and for much of the decade before the pandemic, it recently clawed back above the zero percent line and is near the highest level since 2015.Swiftly rising term premiums can impact other assets, such as stocks, and can act to tighten financial conditions on their own, a risk the Fed has occasionally flagged in its twice-yearly reports to Congress.”A sudden rise in term premiums to more normal levels poses a downside risk to long-maturity Treasury prices, which could in turn affect the prices of other assets,” the Fed said in its July 2017 Monetary Policy Report, a period during which term premiums were below zero. On Friday, the 10-year note yield was just below 5%, a level it has not exceeded since 2007. The price of the most current issue of that security, which debuted in mid-August near par, has fallen to around 91.5 cents on the dollar. Over the same period, the S&P 500 Index has fallen 5%.Dallas Fed President Lorie Logan – who for years ran the New York Fed’s open market operations and as such has deep familiarity with fixed income markets – spoke extensively about the shift in Treasury term premiums in remarks earlier this month. She made perhaps the most explicit case for how that change may give the Fed more flexibility as it nears the end of a campaign that has seen it lift its policy rate from near zero to the current range of 5.25% to 5.50%. “Financial conditions have tightened notably in recent months. But the reasons for the tightening matter,” she said in a speech to the National Association for Business Economics annual convention. “If long-term interest rates remain elevated because of higher term premiums, there may be less need to raise the fed funds rate.” More

The United States is taking unusual action to clamp down on sales of chip-making machinery to China, even as Chinese firms are racing to stockpile the equipment.They are smooth white boxes, roughly the size of large cargo vans, and they are now at the heart of the U.S.-Chinese technology conflict.As the United States tries to slow China’s progress toward technological advances that could help its military, the complex lithography machines that print intricate circuitry on computer chips have become a key choke point.The machines are central to China’s efforts to develop its own chip-making industry, but China does not yet have the technology to make them, at least in their most advanced forms. This week, U.S. officials took steps to curb China’s progress toward that goal by barring companies globally from sending additional types of chip-making machines to China, unless they obtain a special license from the U.S. government.The move could be a significant blow to China’s chip-manufacturing ambitions. It is also an unusual flexing of American regulatory power. American officials took the position that they could regulate equipment manufactured outside the United States if it contains even just one American-made part.That decision gives U.S. officials new sway over companies in the Netherlands and Japan, where some of the most advanced chip machinery is made. In particular, U.S. rules will now stop shipments of some machines that use deep ultraviolet, or DUV, technology made mainly by the Dutch firm ASML, which dominates the lithography market.Vera Kranenburg, a China researcher at the Clingendael Institute, a Dutch think tank, said that while ASML had made clear that it would follow the regulations, the company was already chafing under earlier regulations that barred it from exporting a more sophisticated lithography machine to China.“They’re of course not happy about the export controls,” she said.After being thrust into geopolitics yet again, ASML has been careful in its response, saying in a statement this week that it complies with all laws and regulations in the countries where it operates. Peter Wennink, the chief executive, said the company would not be able to ship certain tools to “just a handful” of Chinese chip factories. But “it is still sales that we had in 2023 that we’ll not have in 2024,” he added.In a statement, the Dutch foreign trade minister, Liesje Schreinemacher, said that the Netherlands shared U.S. security concerns and continuously exchanges information with the United States, but that “ultimately, every country decides for itself what export restrictions to impose.” She pointed to more permissive restrictions announced by the Dutch government in June.A spokesman for the U.S. Department of Commerce declined to comment.ASML’s technology has enabled leaps in global computing power. The increasing precision of its machines — which have tens of thousands of components and cost as much as hundreds of millions of dollars each — has allowed circuitry on chips to get progressively smaller, letting companies pack more computing power into a tiny piece of silicon.The technology has also given the United States and its allies an important source of leverage over China, as governments compete to turn technological gains into military advantages. Although Beijing is pouring money into the semiconductor industry, Chinese chip-making equipment remains many years behind the prowess of ASML and other key machine suppliers, including Applied Materials and Lam Research in the United States and Tokyo Electron and Canon in Japan.But U.S. efforts to weaponize this technological advantage against China appear to be straining alliances. In Europe, government officials increasingly agree with the United States that China poses a geopolitical and economic threat. But they are still wary of undercutting their own companies by blocking them from China, one of the world’s largest and most vibrant tech markets.Dutch technology, in particular, has been the focus of a multiyear pressure campaign from the United States. In 2019, the Trump administration persuaded the Dutch to block shipments to China of ASML’s most state-of-the-art machine, which uses extreme ultraviolet technology.After months of diplomatic pressure from the Biden administration, the governments of the Netherlands and Japan agreed in January that they would also independently curb sales of some deep ultraviolet lithography machines and other types of advanced chip-making equipment to China.The United States and its allies have viewed sales of the deep ultraviolet lithography machines as less of a national security risk. The chips they produce are considerably less advanced than those built with the most cutting-edge machines, which now power the latest smartphones, supercomputers and A.I. models.But that position was tested this summer when a Chinese firm used ASML’s deep ultraviolet lithography technology along with other advanced machines to blow past a technological barrier that U.S. officials had hoped to keep China from reaching.In August, the Chinese telecom giant Huawei unexpectedly released a new smartphone containing a Chinese-made chip with transistor dimensions rated at seven nanometers, just a couple of technology generations behind the latest chips made in Taiwan. Analysts have concluded that China’s Semiconductor Manufacturing International Corporation made the chip with the use of the Dutch deep ultraviolet lithography machinery.Gregory C. Allen, a technology expert at the Center for Strategic and International Studies, a Washington think tank, said the new export control rules had been in the works long before the Huawei announcement. But, he said, the development “helped leaders throughout the U.S. government understand that there was no more time to waste and that updated controls were urgently needed.”Mr. Allen said the controls would not necessarily break China’s most advanced chip-makers immediately, since they had already stockpiled a lot of advanced machinery. But it would “dramatically restrict” their ability to manufacture the most advanced kinds of semiconductors, like seven-nanometer chips, he said.For now, ASML is still doing brisk business with China. In its earnings report this week, ASML said sales to China had surged in the third quarter to account for 46 percent of the company’s global total, far above historical levels.Analysts at TD Cowen estimated that ASML’s China sales would reach 5.5 billion euros (about $5.8 billion) this year, more than double the total last year. Next year, the new export controls could cut 10 to 15 percent off the company’s China revenues, they projected.Roger Dassen, ASML’s chief financial officer, said in the earnings call that most of the orders that ASML was completing this year had been placed in 2022 or even the year before, and were largely for machines that would make slightly older types of chips.All the shipments were “very much within the limits of export regulation,” Mr. Dassen said.For the machines that face new U.S. restrictions, the Dutch company will now be barred from supplying replacement parts and helping to service those systems. That will mean Chinese companies are likely to have manufacturing problems at some point.These hugely expensive machines rely on regular software and maintenance support to continue churning out chips, said Joanne Chiao, a semiconductor analyst at TrendForce, a market research firm.ASML is not the only equipment supplier caught up in the latest restrictions. Other kinds of advanced machines that are essential to produce the most advanced chips, like those from the U.S. companies Applied Materials and Lam Research, are detailed in the latest restrictions.Lam, in a conference call on Wednesday, said revenue from China jumped 48 percent in its first fiscal quarter as companies stocked up on machines to make both mature chips and advanced products. It had already estimated that restrictions on sales to China would hold down revenue this year by $2 billion; executives added that the expanded rules issued this week wouldn’t materially change that estimate.An Applied Materials spokesman said the company was still reviewing the new rules to gauge their potential impact.John Liu More