Economy

The brokerage said that recent inflation data showed disinflation still remained sluggish, and that inflation was expected to peter out further in the remainder of 2024. Core personal consumption expenditures inflation- the Fed’s preferred inflation gauge- is expected to slow to a 0.16% average pace in the final two months of 2024, GS said in a note. But the brokerage warned that tariffs are likely to “delay a return to 2% inflation in 2025.”“We expect tariff increases on imports from China and autos that raise the effective tariff rate by 3-4 percentage points (pp), which we estimate would raise core PCE inflation by about 0.3-0.4pp next year, leaving it at 2.4% in December 2025,” GS analysts wrote in a note.Still, they said that inflation from tariffs was likely to be a one-time increase, and would not deter a trend of falling inflation. Excluding the impact of tariffs, GS expects core consumer price index inflation to fall to an annual pace of 2.4% in December 2025 from 3.2% in December 2024, amid easing housing and transportation costs. The brokerage noted that sequential measures of underlying inflation had eased in recent months, and that high inflation prints seen earlier this year appeared to be more of residual seasonal factors than a reacceleration in inflation. Concerns over higher U.S. import tariffs grew in recent weeks after President-elect Donald Trump threatened to impose higher duties on several countries, including the BRICS bloc, Canada, and Mexico. Trump had also pledged a 10% tariff on all imports to the U.S., and 60% in additional tariffs on imports from China. The President-elect is expected to dole out increase corporate tax breaks and expansionary policies in the coming years, potentially underpinning inflation and interest rates in the long term. More

SEOUL (Reuters) -South Korea’s finance ministry said on Wednesday it is ready to deploy “unlimited” liquidity into financial markets if needed after President Yoon Suk Yeol lifted a martial law declaration he imposed overnight that pushed the won to multi-year lows. The announcement came after Finance Minister Choi Sang-mok and Bank of Korea Governor Rhee Chang-yong held emergency meetings overnight, and ahead of the BOK’s extraordinary meeting session abruptly scheduled for 9 a.m. local time (0000 GMT) on Wednesday.”All financial, FX markets as well as stock markets will operate normally,” the government said in a statement.”We will inject unlimited liquidity into stocks, bonds, short-term money market as well as forex market for the time being until they are fully normalised.”The country’s financial regulator is ready to deploy 10 trillion won ($7.07 billion) in a stock market stabilisation fund any time, the Yonhap news agency said.South Korea’s won trimmed losses early on Wednesday, coming off the two-year low of 1,443.40 hit overnight after Yoon lifted his shock martial law declaration, honouring a parliamentary vote against the measure.South Korea’s parliament, with 190 of its 300 members present, unanimously passed a motion on Wednesday requiring the martial law be lifted.Korean shares fell nearly 2% at open but also pared losses. Chipmaker Samsung Electronics (KS:005930) fell 1.31%, while battery maker LG Energy Solution slid 2.64%.The KOSPI index and won are among Asia’s worst performing assets this year.Overnight, U.S.-listed South Korean stocks fell, while exchange-traded products in New York including iShares MSCI South Korea ETF and Franklin FTSE South Korea ETF lost about 1% each.”Martial law itself has been lifted but this incident creates more uncertainty in the political landscape and the economy,” ING economists wrote.The political turmoil comes as Yoon and the opposition-controlled parliament clash over the budget and other measures.The opposition Democratic Party last week cut 4.1 trillion won from the total budget proposal of 677.4 trillion won ($470.7 billion) the Yoon’s government submitted, putting the parliament in a deadlock over control of the 2025 annual budget. The parliamentary speaker on Monday stopped the revised budget from going to a final vote. A successful budget intervention by the opposition would deal a major blow to Yoon’s minority government and risk shrinking fiscal spending at a time when export growth is cooling. “The negative impact to the economy and financial market could be short-lived as uncertainties on political and economic environment could be quickly mitigated on the back of proactive policy response,” Citi economist Kim Jin-wook said in a report. More

Reduced power cuts and expectations of lower interest rates have improved South Africa’s financial stability following successful elections in June, the country’s central bank said in November.The coalition government of national unity (GNU), formed in June after the African National Congress lost its parliamentary majority for the first time in 30 years, boosted business confidence.”The ratings affirmation highlights that despite nascent improvements, South Africa’s economy is likely to remain subdued,” Moody’s said in its report. It also anticipates the energy sector to increasingly drive private sector investments.The agency expects the country’s economic growth to remain on the slow lane and government debt burden to be stable with balanced risks.Moody’s anticipates that the new government will likely pursue structural reforms to alleviate existing growth bottlenecks, and continue fiscal consolidation efforts to mitigate spending pressures from social demand, interest payments and state-owned enterprises.In November, S&P revised South Africa’s outlook to positive on better reforms by the new government. More

WASHINGTON (Reuters) -Republicans in the U.S. Congress are discussing a two-step plan to push ahead on President-elect Donald Trump’s agenda when they take control of both chambers next year, potentially starting with border security, energy and defense before turning to tax cuts.Incoming Senate Majority Leader John Thune, whose Republicans will hold a 53-47 majority, laid out a plan in a closed-door party meeting on Tuesday that included a call from Trump himself. It aims to use a parliamentary maneuver to bypass the chamber’s “filibuster” rule that requires 60 senators to agree to advance most legislation.According to the Senate plan, the first bill would focus on Trump’s agenda for border security, energy deregulation and defense spending, while the second would extend tax cuts from the 2017 Tax Cuts and Jobs Act passed during the first Trump presidency, which are due to expire next year.Thune told reporters that the plan amounted to “options, all of which our members are considering.”To enact Trump’s agenda, the Senate will have to work closely with the president-elect and the House of Representatives, which is expected to have a razor-thin Republican majority.”We were always planning to do reconciliation in two packages. So we’re discussing right now how to allocate the various provisions, and we’re making those decisions over the next couple of days,” said House Speaker Mike Johnson, who joined Senate Republicans at their meeting. “There are different ideas on what to put in the first package and what in the second, and we’re trying to build consensus around those ideas,” Johnson told reporters. The speaker also said that he believes Congress in coming weeks will pursue a continuing resolution, or CR, that would fund federal agencies into March. Current funding is set to expire on Dec. 20. Before moving a first reconciliation bill, the House and Senate will need to agree on a budget resolution to unlock the “reconciliation” tool they plan to use to bypass the filibuster. Aides said senators hope to do that by the end of January and then move quickly to complete the first bill by March 31.”We have the trifecta for two years. About 18 months is all we’re really going to have to really get things done,” Republican Senator Mike Rounds told reporters.Democrats also leaned heavily on reconciliation to pass legislation when they held control of both chambers during the first two years of President Joe Biden’s term.Republican Senator Rand Paul, a fiscal hawk, raised concerns about the plan’s cost.”This is not a fiscally conservative notion,” Paul said. “So at this point, I’m not for it, unless there are significant spending cuts attached.” Extending Trump’s tax cuts for individuals and small businesses will add $4 trillion to the current $36 trillion in total U.S. debt over 10 years.Trump also promised voters generous new tax breaks, including ending taxes on Social Security, overtime and tip income and restoring deductions for car loan interest. The tab is likely to reach $7.75 trillion above the CBO baseline over 10 years, according to the Committee for a Responsible Federal Budget, a non-partisan fiscal watchdog group. More

BENGALURU (Reuters) – A retreating euro will remain weak in the near term, trapped between political ructions building in France and expected new U.S. tariffs early next year that are boosting the dollar’s allure, a Reuters poll of market strategists found.While there seemed almost no prospect for a rebound soon, most strategists were nonetheless convinced the euro would not fall to parity with the U.S. dollar in the coming three months, mainly because a lot of bad news is already priced in.With France’s government likely to collapse later on Wednesday after far-right and left-wing parties submitted no-confidence motions against Prime Minister Michel Barnier, the euro has almost no chance of recovering any of the nearly 6% loss it has suffered since late September.Euro zone growth concerns, along with stronger prospects for more European Central Bank interest rate cuts in coming months, pushed the single currency to a two-year low of $1.03 in late November.Interest rate futures are pricing in over 1.5 percentage point more of ECB rate reductions by end-2025, twice the amount predicted for the U.S. Federal Reserve, where expectations have been in retreat on revived domestic inflation risks.Median forecasts of nearly 70 currency strategists in a Dec. 2-3 Reuters poll on the euro, currently trading around $1.05, showed it there in three months and around 1% lower at $1.04 in six, markedly lower than $1.10 and $1.11 in a November survey.”There are distinct reasons why the euro is vulnerable, very much linked to structural and political issues facing both France and Germany. A pressing question is whether those problems will remain confined to France or if there will be an element of contagion,” said Jane Foley, Rabobank’s head of FX strategy.”Germany too seems to be on the back foot, currently dealing with stagflation – a problem it has been unable to shake off – which is not a good sign for the euro.”NO PARITY TO THE U.S. DOLLAR YETStill, only a handful of strategists predicted in their given forecasts the euro would equal or fall below the dollar within six months. The last time it did so was between September and November 2022, where it mostly traded below the greenback.Asked to rate the chances of the common currency reaching parity to the dollar over the coming three months, a near-60% majority, 24 of 42, said it was ‘low’.”In the next few months, the chances of parity are relatively low given just how extreme euro bearishness already is, especially in the relative rate-cut pricing for the Fed versus the ECB,” said Erik Nelson, macro strategist at Wells Fargo (NYSE:WFC).”While there’s a lot of things, particularly geopolitical, that could push euro below parity next year, positioning currently is already a little extreme.” The remaining 18 said the chance of parity by end-February was ‘high’ or ‘very high’.In a separate recent Reuters survey of economists who cover the euro zone and ECB policy, nearly 90%, 34 of 39, said President-elect Donald Trump’s proposed tariffs would significantly affect the euro zone economy in coming years.”If Trump was to threaten to put in place higher tariffs against the EU at the start of next year or if the ECB steps up the pace of rate cuts – perhaps a larger 50 basis point cut at some point over the next three months – that would drag euro-dollar down towards and potentially below parity,” said Lee Hardman, senior currency analyst at MUFG.A near-90% majority, 38 of 43 responding to an additional question said the U.S. dollar was more likely to trade stronger than they predicted in the coming three months than undercut those forecasts.(Other stories from the December Reuters foreign exchange poll) More

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ORLANDO, Florida (Reuters) -President-elect Donald Trump’s latest threat to slap huge tariffs on countries that try to move away from the “mighty U.S. dollar” inadvertently highlights the intractable contradiction at the heart of U.S. trade and economic policy. Trump has repeatedly stated that he wants to boost U.S. competitiveness and reduce its yawning trade deficit, which he blames on other countries’ unfair economic practices. But how can he do that while simultaneously preserving the dollar’s strength and unrivaled status as the world’s reserve currency, which has for decades helped fuel American consumers’ purchasing power?His “America First” goals of expanding domestic energy production and deepening the country’s status as the world’s leading tech hub could, all else being equal, lead to an appreciating exchange rate. But this would be at odds with his other “America First” goal: boosting U.S. manufacturing.This isn’t a partisan conundrum. President Joe Biden has spent trillions of dollars over the last four years in an effort to boost U.S. manufacturing, green energy production, and other key sectors. Meanwhile, the greenback has continued to strengthen, which hasn’t made U.S. exports more attractive. Vice President Kamala Harris would be facing the same dilemma had she won last month’s presidential election. But it’s especially tricky for Trump, who has been more vocal in his criticism of countries like China, Mexico and Canada which run huge trade surpluses with the U.S., and more bombastic about his ability to fix those imbalances.A weaker dollar and lower interest rates would be two of the most obvious tools to do that. But as he made clear in his social media post on Saturday, he also wants to protect the dollar’s global hegemony and preserve its relative value. Something has to give.    ‘DIAMETRICALLY OPPOSED’The U.S. has run a trade deficit for nearly 50 years, consistently sucking in more imports than it exports. Manufacturing has been declining as a share of the economy for almost as long, notably since China was admitted into the World Trade Organization in 2001. The U.S. trade deficit last year was around 3.0% of GDP, much smaller than the record 5.7% of GDP reached in the mid-2000s, but still large. And in nominal terms, which Trump focuses on more, it is an even bigger at $773 billion. The deficit is consistent with the dollar’s status as the preeminent currency in global trade, financial market trading and international foreign exchange reserves. No other currency comes close to being as dominant, even as the dollar’s share of global FX reserves has eroded in recent years.The trade deficit is offset by a surplus in the U.S. capital account, as China and others have plowed their surpluses back into U.S. bonds and stocks. If the trade deficit were reduced, so too would the capital account surplus and attendant demand for U.S. assets from abroad. All else being equal, this would put upward pressure on bond yields and interest rates.Nodding to the symbiotic relationship between the U.S. trade deficit and capital account surplus, Michael Pettis, a senior fellow at Carnegie China, pointed out on the platform X on Saturday that the U.S. cannot simultaneously cut its trade deficit and increase the global dominance of the dollar, because these impose “diametrically opposed” conditions.Rebalancing the global economy so that the U.S. runs smaller trade deficits and has a stronger manufacturing sector, while China and other large net exporters increase domestic consumption and cut their trade surpluses, would ultimately require major global FX adjustments.And U.S. consumers might not be pleased with this outcome, having benefited enormously in recent decades as the trade deficit has sucked in cheap goods from abroad, from clothes to electrical appliances and everything in between. “You are implicitly asking U.S. consumers to accept a loss of purchasing power and a willingness to pay more for imported goods in order to give support to the manufacturing sector,” says Joe Brusuelas, principal and chief economist at RSM. That’s a tall ask. And given the role purchasing power played in the recent election, it’s likely one the president-elect won’t actually want to make.    (The opinions expressed here are those of the author, a columnist for Reuters.)(By Jamie McGeever; Editing by Paul Simao) More