Economy

The Biden administration rang up a budget topping $1.8 trillion in fiscal 2024, up more than 8% from the previous year and the third highest on record.
Interest expense for the year totaled $1.16 trillion, the first time that figure has topped the trillion-dollar level.

The U.S. Treasury building in Washington, D.C., on Aug. 15, 2023.
Nathan Howard | Bloomberg | Getty Images

The Biden administration rang up a budget deficit topping $1.8 trillion in fiscal 2024, up more than 8% from the previous year and the third highest on record, the Treasury Department said Friday.
Even with a modest surplus in September, the shortfall totaled $1.833 trillion, $138 billion higher than a year ago. The only years the U.S. has seen a great deficit were 2020 and 2021 when the government poured trillions into spending associated with the Covid-19 pandemic.

The deficit came despite record receipts of $4.9 trillion, which fell well short of outlays of $6.75 trillion.
Government debt has swelled to $35.7 trillion, an increase of $2.3 trillion from the end of fiscal 2023.
One aggravating factor for the debt and deficit picture has been high interest rates from the Federal Reserve’s series of hikes to fight inflation.
Interest expense for the year totaled $1.16 trillion, the first time that figure has topped the trillion-dollar level. Net of interest earned on the government’s investments, the total was a record $882 billion, the third-largest outlay in the budget, outstripping all other items except Social Security and health care.
The average interest rate on all the government debt was 3.32% for 2024, up from 2.97% the previous year, a Treasury official said.

The government did run a surplus in September of $64.3 billion, the product in part of calendar effects that pushed benefit payments into August, which saw a $380 billion deficit, the biggest month of the year.
As a share of the total U.S. economy, the deficit is running above 6%, unusual historically during an expansion and well above the 3.7% historical average over the past 50 years, according to the Congressional Budget Office.
The CBO expects deficits to continue to rise, hitting $2.8 trillion by 2034. On the debt side, the office expects it to rise from the current level near 100% of GDP to 122% in 2034.

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(Reuters) -Atlanta Federal Reserve Bank President Raphael Bostic on Friday made the case for patient reductions in the central bank’s policy rate to somewhere between 3% and 3.5% by the end of next year, a pace that would get inflation down to its 2% target by then and keep the U.S. economy out of recession.     “I’m not in a rush to get to neutral,” Bostic told the Mississippi Council on Economic Education Forum on American Enterprise in Jackson, Mississippi. “We must get inflation back to our 2% target; I don’t want us to get to a place where inflation stalls out because we haven’t been restrictive for long enough, so I’m going to be patient.” At the same time, he said, he envisions further cuts to the Fed’s target for short-term borrowing costs, now in the 4.75%-5.00% range. “If the economy continues to evolve as it does — if inflation continues to fall, labor markets remain robust, and we still see positive production — we will be able to continue on the path back to neutral,” he said.A neutral Fed policy rate — where borrowing costs neither stimulate nor restrict economic growth — is probably in the 3% to 3.5% range, he said. Inflation, currently at 2.2% by the Fed’s preferred measure, will likely get to the Fed’s 2% target toward the end of 2025, and “that should be sort of the timetable for when we should get to neutral,” he said.Financial markets are currently pricing in two quarter-point interest rate cuts before the end of the year and further reductions next year, likely bringing the policy rate to a 3.25%-3.5% range by September 2025.The Fed reduced its policy rate by a bigger-than-expected half-of-a-percentage point last month to keep borrowing costs from cooling the labor market too sharply. Since then, readings on the job market have come in stronger than expected, with monthly job growth accelerating and the unemployment rate ticking down to 4.1%.Bostic has said he expects only a single quarter-point cut over the last two Fed meetings of the year.”A recession has never been in my outlook,” Bostic said. “I’ve always felt that there was enough momentum in this economy to absorb the restrictiveness of our policy and drive inflation back down to its 2% target. I’m grateful that that’s been playing out so well. But the job is not done.”   More

“In light of the stronger-than-expected Q3 GDP growth reading and recently announced policy push, we now see q/q GDP growth accelerating to 6.5% (SAAR) in Q4,” UBS said in a note on Friday after upgrading its outlook on China economic growth.UBS now expects China gross domestic product, or GDP, to grow at 4.8% in 2024, up from a prior forecast of 4.6%, citing better-than-expected third-quarter economic data and a slew of new policy measures announced since late September.China reported Q3 real GDP growth of 4.6% year-on-year, slightly better than the 4.4% consensus estimate, underpinned by improved September performance in fixed asset investment and retail sales.The more sanguine outlook on China is also supported by Beijing’s willingness to continue roll out policy measures aimed at reducing government arrears, easing constraints on local government spending, and lowering mortgage rates, which UBS estimates could reduce household interest burden by RMB 150B a year.”[T]he additional fiscal resources will likely create a stronger positive fiscal impulse in Q4 than we had assumed in our earlier forecast,” UBS added.But beyond China, the outcome of the U.S. election, may offset even a large fiscal bazooka from Beijing, particular if pro-tariff Republican presidential candidate Donald  Trump is victorious. In the event of a sharp U.S. tariff hike, China’s growth could fall below 4% “even with bigger policy stimulus,” UBS said.  More

NEW YORK – Facebook (NASDAQ:META) owner Meta said on Friday it was releasing a batch of new AI models from its research division, including a “Self-Taught Evaluator” that may offer a path toward less human involvement in the AI development process.The release follows Meta’s introduction of the tool in an August paper, which detailed how it relies upon the same “chain of thought” technique used by OpenAI’s recently released o1 models to get it to make reliable judgments about models’ responses. That technique involves breaking down complex problems into smaller logical steps and appears to improve the accuracy of responses on challenging problems in subjects like science, coding and math.Meta’s researchers used entirely AI-generated data to train the evaluator model, eliminating human input at that stage as well.The ability to use AI to evaluate AI reliably offers a glimpse at a possible pathway toward building autonomous AI agents that can learn from their own mistakes, two of the Meta researchers behind the project told Reuters.Many in the AI field envision such agents as digital assistants intelligent enough to carry out a vast array of tasks without human intervention.Self-improving models could cut out the need for an often expensive and inefficient process used today called Reinforcement Learning from Human Feedback, which requires input from human annotators who must have specialized expertise to label data accurately and verify that answers to complex math and writing queries are correct.”We hope, as AI becomes more and more super-human, that it will get better and better at checking its work, so that it will actually be better than the average human,” said Jason Weston, one of the researchers.”The idea of being self-taught and able to self-evaluate is basically crucial to the idea of getting to this sort of super-human level of AI,” he said.Other companies including Google (NASDAQ:GOOGL) and Anthropic have also published research on the concept of RLAIF, or Reinforcement Learning from AI Feedback. Unlike Meta, however, those companies tend not to release their models for public use.Other AI tools released by Meta on Friday included an update to the company’s image-identification Segment Anything model, a tool that speeds up LLM response generation times and datasets that can be used to aid the discovery of new inorganic materials. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.A rise in fuel duty would rekindle inflation and be “catastrophic” for British businesses, motoring groups have warned, as Rachel Reeves weighs lifting a 13-year freeze on the tax to help bridge a £40bn funding gap.People briefed on the chancellor’s thinking said she is expected to announce the end of the “temporary” 5p cut in fuel duty from next year. The measure was introduced in 2022 after energy prices rose following Russia’s full-scale invasion of Ukraine, and has been continued by every chancellor since. Reeves has also been urged by Treasury officials to end the 13-year freeze on fuel duty, although she will weigh the fiscal gain of the move against its impact on the “working people” she has vowed to protect.Tax rises are set to form the centrepiece of her response to close a shortfall of funding needed to protect key government departments from real-terms spending cuts, as the chancellor prepares for the Budget on October 30. Fuel duty, which at present is 52.95p per litre for petrol and diesel, is supposed to rise every year in line with inflation but has in effect been frozen since 2011 as successive chancellors curry favour with motorists.The Campaign for Better Transport has estimated that ending the 5p cut and reinstating annual inflation-linked rises would add £4.2bn in revenue for the Treasury.On Friday, the Road Haulage Association called on Reeves to maintain the current freeze, arguing that businesses would not be able to take on additional costs with profit margins already squeezed. “Firms are under pressure as it is and such a rise in fuel duty would be catastrophic for many, in particular Britain’s small and medium enterprises,” said Richard Smith, managing director of the RHA.Edmund King, president of the AA motoring organisation, said an increase in fuel duty would be ill-timed, citing the continuing global uncertainty over energy prices due to the conflicts in the Middle East and Ukraine. “Hiking fuel duty could backfire on working people and fuel inflation,” said King. “Everything from the price of food in supermarkets to the delivery of social care within our communities is impacted by pump prices, and an unnecessary hike in fuel duty could make things worse.”In March, then-chancellor Jeremy Hunt decided to maintain the 5p cut on fuel duty and freeze the charge for another year in an effort to ease cost of living pressures. The measure was initially welcomed by motoring groups, with the government claiming it would save car drivers about £50 this year. But the automotive industry has criticised the extension of the discount as it makes it harder for carmakers to meet electric vehicle sales quotas that come into force this year. Petrol prices have come down since rising in the wake of Russia’s full-scale invasion of Ukraine, with the average price of a litre of petrol now about 135p compared with 146p in January 2022, according to the RAC. The motoring group also said drivers were not actually benefiting from the cut, claiming retailers had failed to pass on the lower petrol and diesel prices in order to boost their margins.  More

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ORLANDO, Florida (Reuters) – FOMO and TINA are two English-language acronyms that have become common parlance in financial markets. Together, they help explain the relentless rise of U.S. equities – a trend that now should probably be raising red flags.    Investors’ “fear of missing out” (FOMO) on a two-year bull run has helped the S&P 500 hit 47 record highs this year. And this momentum shows few signs of waning because if investors want equity exposure, “there is no alternative” (TINA) to the United States, at least not if the relative strength of U.S. economic data and corporate profits is your guide.     In many ways, the latter trend is feeding the former, and the symbiotic relationship between the two only seems to be getting stronger.IT’S ALL RELATIVEThe S&P 500 and Nasdaq are both up more than 20% this year, compared to 16% for Japan’s Nikkei, 14% for Chinese blue chips and Asian stocks ex-Japan, 10% for euro zone stocks, and 8% for Britain’s FTSE 100.Wall Street’s outperformance has, of course, been flattered by a handful of Big Tech names: the FAANG index is up a whopping 34% this year. But the equal-weighted S&P 500’s year-to-date gains of 15% are still better than investors are getting almost anywhere else.While these lopsided returns might suggest U.S. equities are “overbought”, the underlying fundamentals suggest otherwise. The Atlanta Fed’s GDPNow model is currently projecting third quarter annualized growth of 3.4%, the highest since the model’s initial estimate in July. Corporate America also boasts a very positive outlook. While earnings growth is only expected to be around 5% in the third quarter, this figure is expected to bounce back well into double figures in the coming quarters and settle around 15% for 2025 overall, according to LSEG I/B/E/S estimates.    Little wonder Goldman Sachs’ equity strategists reckon the S&P 500 is on course to reach 6000 points by the end of the year. It could even reach 6270 if markets see a replication of historical October-December election year patterns, they add. Meanwhile, Germany – the largest economy in Europe and fourth largest in the world – is flirting with its second consecutive annual contraction, something the advanced manufacturing hub hasn’t seen in over 20 years. China – the world’s second-largest economy – is in the midst of a major property crisis and flirting with deflation. This has prompted an unprecedented policy response from Beijing that many experts still don’t think will be enough to get the economy firing on all cylinders. Then there’s Japan, which appears to be so concerned about stalling its economy and spooking investors that it’s hesitant to raise interest rates by more than a few basis points.    Foreign investors have clearly taken notice: their share of the entire U.S. equity market is now a record 18%, Goldman Sachs figures show.BLOATED AND EXPENSIVE    Is the U.S. stock market morphing into a mirror image of the U.S. bond market? Parallels are emerging: they are both the most liquid markets in their respective asset classes; they offer investors the ‘safest’ securities; and they dwarf all rivals by a considerable distance.    Indeed, Wall Street has been a veritable money machine for investors this year, especially the mega caps sitting on huge cash piles and boasting credit ratings comparable to those of the federal government.     It’s therefore unsurprising that the U.S. share of the global equity market cap has climbed to a record high 72%. Who wouldn’t want a slice of that pie?This level of concentration cannot last forever, so investors should be wary of buying U.S. equities at current levels, right?    Maybe, but maybe not.       True, U.S. stocks are the most expensive in the developed world by some distance, based on long-term valuations measured by Robert Shiller’s cyclically adjusted price-to-earnings (CAPE), and are more expensive than they have been relative to global stocks for more than two decades.But, worryingly for U.S. bears, investors are unlikely to dramatically reallocate any time soon. “Institutional investors are getting forced into the market right now given ‘FOMU’: fear of materially underperforming benchmark equity indices,” Goldman’s Scott Rubner wrote this week, providing investors with yet another acronym. And bull markets that celebrate their second birthday have historically tended to last multiple years thereafter, Ryan Detrick at Carson Group has found.    So U.S. bears might be correct that equity markets will eventually mean revert, but these investors risk underperforming and losing clients long before that happens.(The opinions expressed here are those of the author, a columnist for Reuters.) (By Jamie McGeever; Editing by Christina Fincher) More

(Reuters) – American Express (NYSE:AXP) reported third-quarter profit above Wall Street estimates on Friday, benefiting from disciplined expense management that helped cushion a blow from softer fee growth.Shares of AmEx fell 2% before the opening bell even as the credit card giant raised its profit forecast for 2024.The company’s affluent customers have allowed it to maintain relatively smaller provisions for credit losses compared with peers that serve a broader spectrum of customers, including those with lower income.It has also showed restraint in managing rewards and other expenses, allowing it to outdo profit expectations even when revenue growth decelerates.”(This quarter is) another proof point of management’s ability to flex expenses to hit earnings per share (EPS) targets when top line is softer,” said Citi analyst Keith Horowitz.AmEx’s total expenses were $12.08 billion in the quarter, lower than expectations of $12.74 billion, according to estimates compiled by LSEG.Revenue rose 8% to $16.64 billion but fell short of the $16.67 billion estimate. Discount revenue – the fee it earns from merchants for facilitating transactions – rose 4%, while analysts had expected 5.3% growth.”We do not need double-digit revenue growth to hit mid-teens EPS because we are disciplined with our operating expenses. Our credit is also very, very strong,” Chief Financial Officer Christophe Le Caillec told Reuters in an interview.Profit rose 2% to $2.51 billion for the three months ended Sept. 30. On a per-share basis, it earned $3.49 versus the $3.28 that analysts had forecast.The company now sees 2024 EPS between $13.75 and $14.05, higher than the earlier range of $13.30 to $13.80. “Expectations were elevated, but we believe the growth opportunities remain large and the valuation remains attractive,” William Blair analysts said in a note. More