Economy

WASHINGTON (Reuters) – The Congressional Budget Office estimated on Tuesday a U.S. federal deficit of $1.834 trillion for fiscal 2024, the highest in the post-COVID era, as debt interest costs jumped sharply and outlays rose for Social Security, Medicare and health insurance tax credits.The estimate, which precedes the U.S. Treasury Department’s year-end budget report later this month, shows a deficit up 11% from the $1.7 trillion fiscal 2023 gap but slightly lower than the $1.9 trillion deficit estimated in June by CBO. WHY IT’S IMPORTANTU.S. Vice President Kamala Harris is arguing that she would be more fiscally responsible as president than Republican rival Donald Trump, pledging to fully offset new spending with tax increases elsewhere. A fiscal think-tank, the Committee for a Responsible Federal Budget, estimated on Monday that Trump’s plans would pile up $7.5 trillion in new debt, more than twice the $3.5 trillion from Harris’ proposals.But after significant U.S. deficit declines in 2021 and 2022 as the economy recovered and COVID-19 rescue spending faded, deficits have grown significantly during the past two years, and CBO estimates that “baseline” deficits, which assume no changes to current laws, will grow $22 trillion over the next 10 years.BY THE NUMBERS:CBO estimated that total revenues rose 11% to $4.918 trillion, powered by higher individual income taxes and corporate income taxes as economic growth remained strong. The non-partisan budget referee agency estimated that outlays for the fiscal year ended Sept. 30 totaled $6.752 trillion, up 11% from fiscal 2023.The biggest growth in outlays comes from interest on the public debt, which rose 34% to $950 billion, while spending on Medicare, Social Security and the military also increased.The year-on-year deficit comparisons were affected by the fiscal 2023 reversal of $330 billion in costs associated with President Joe Biden’s student loan forgiveness plan that was struck down by the Supreme Court. Without the reversal, last year’s deficit would have exceeded $2 trillion.KEY QUOTESome Republicans seized on the estimates to claim that Biden and Harris were fiscally irresponsible.”President Biden and Vice President Harris have ignored resounding messages from Iowans and Americans nationwide, as well as alarms from global credit ratings companies. By consistently choosing a spendthrift agenda over fiscal sanity, this administration has hamstrung our economy for generations to come,” Republican Senator Chuck Grassley said in a statement. More

Reeves will present the Labour Party’s first budget on Oct. 30 since it swept to power at an election in July, promising to get Britain’s economy growing more quickly through careful fiscal management and state spending on infrastructure that encouraged more private-sector investment.The Guardian reported, citing unnamed allies of Reeves, that she was likely to exclude the losses incurred by the state from the Bank of England’s past asset-purchase programs from the way debt was calculated. Reeves would also exclude any extra borrowing used to set up new public institutions, the report said.The Treasury did not respond directly to whether the debt definition would be changed or how. They referred back to Reeves’ past comments that the benefits of public investment should be accounted for alongside the costs. Full details would be set out at the budget statement, the department said.   Last month, she suggested she would give the government more leeway to borrow, but has not set out details of how she would do that. Economists see a range of options, and the Treasury has not indicated a preference.   The possibility of higher borrowing has attracted the attention of financial markets given Britain’s already-high debt levels and dire warnings from Reeves about the health of the public finances her government inherited.($1 = 0.7634 pound) More

Hurricane Milton’s once-in-a-century potential could cause damage of more than $50 billion, with the potential to leave behind devastation approaching $175 billion or more in a worst-case scenario.
“A 1-in-100 year event is estimated by some to result in $175 [billion] in losses for landfall in the Tampa region, and $70 [billion] in losses in the [Fort] Myers region,” Jefferies analysts said.

Heavy traffic begins to back up on Interstate 275 South as residents evacuate St. Petersburg, Florida, ahead of Hurricane Milton, U.S., October 7, 2024. 
Octavio Jones | Reuters

Hurricane Milton’s once-in-a-century potential could cause damage of more than $50 billion, with the potential to leave behind devastation approaching $175 billion or more in a worst-case scenario, according to leading Wall Street analysts.
That would be on top of the carnage already left behind by Hurricane Helene, posing a potential record-breaking path of wreckage.

“While too early to make insured loss estimates, a major hurricane impact in one of Florida’s most heavily populated regions could result in mid-double-digit billion dollar loss,” Jefferies equity analyst Yaron Kinar and others said in a note. “A 1-in-100 year event is estimated by some to result in $175 [billion] in losses for landfall in the Tampa region, and $70 [billion] in losses in the [Fort] Myers region.”
The extent of the potential is hard to pin down and will depend on timing and location, with a landfall closer to Fort Myers being less costly.
For a historical comparison, analysts need only to look back two years, when Hurricane Ian hit near the Fort Myers area as a Category 4 storm and left behind more than $50 billion in losses. Ian was considered a 1-in-20-year event.

“Should Milton’s path through the more developed Tampa region hold, potential losses could be greater,” Kinar said.
Milton is currently at Category 4 as well, though it could weaken by the time its full force is felt.

Wells Fargo noted that the “market seems to be factoring in a loss of over $50 billion (greater than Ian) at this point.” The firm set a wide range for potential damage, from $10 billion to $100 billion.
The region already has been rocked — Helene barreled through the region 12 days ago, and left behind devastation that Moody’s on Tuesday estimated at some $11 billion. In addition to the property damage, Moody’s figures that the National Flood Insurance Program likely will see losses approaching $2 billion.
The firm’s analysts have not yet estimated potential damage from Milton.

Kiki Keen and his father Clinton Keen walk among the debris of their family’s beach house, following Hurricane Helene in Horseshoe Beach, Florida, U.S., September 28, 2024. 
Marco Bello | Reuters

“Hurricane Helene is by far the most impactful event of the current 2024 hurricane season thus far, though this may quickly change with Major Hurricane Milton due to impact Florida in the coming days,” said Mohsen Rahnama, chief risk modeling officer at Moody’s.
Moody’s also noted that many in the worst-affected regions of where Helene hit do not have flood insurance, “meaning most of the damage will be uninsured, and economic property losses will far outweigh insured losses,” said Firas Saleh, the firm’s director of U.S. inland flood models.
Milton weakened a bit Tuesday but was still carrying winds of 145 mph. It is expected to hit Tampa on Wednesday morning and bring 10- to 15-foot storm surges to Tampa Bay.
While the danger and damage to the region are expected to be enormous, the storm does not pose the same danger to adjoining states that Helene pummeled.

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NEW YORK (Reuters) – A look at the day ahead in Asian markets. Wall Street got back on track Tuesday, encouraged that the Fed seems confident enough in the U.S. growth picture to ease up on the easing, but investors have been reticent ahead of the release of minutes from the September FOMC where officials took the most dovish possible policy turn to ensure the US jobs machine keeps humming.By the time New York opened, markets weren’t looking too impressed with China’s economic jawboning after its return from Golden Week holiday. The yuan took a spill although it had brushed itself off a bit by the time Tuesday trading wrapped up. Beijing said it was “fully confident” of achieving its full-year growth target but refrained from introducing stronger fiscal steps, disappointing investors who had banked on more support from policymakers to get the economy back on track.While China shares initially rallied to two-year highs after the holiday they lost steam after the state planner did not provide details to sustain market optimism. Hong Kong shares slumped as investors also walked back some of the stimulus excitement.London-based hedge fund giant Winton has lost more than 8% on its China strategy, since Sept. 20, wiping out all gains for this year, according to two investors and a performance record. On Wednesday, the record from September’s Fed meeting will reveal the discussion about what looked at the time like a deteriorating labor market, until the eye-popping September payrolls report on Friday put those concerns to rest and unchained animal spirits for two of three subsequent U.S. trading sessions.Traders were 88% confident that November’s FOMC would bring a 25-basis point cut, hedged by a 12% probability that the Fed would hold rates steady. Fed funds futures still lean toward 50 bps of easing through year end. U.S. markets were also still focused on the growing risk of a Middle East conflagration as Israel continued to step up its military incursion into Lebanon to combat Hezbollah, while continuing its war with Hamas in Gaza.That did not stop the S&P 500 from rebounding 1%, while the Nasdaq advanced almost 1.5% as the risk-off impulse dissipated. Forex trading in U.S. time zones was subdued, with traders keeping powder dry for the release of September CPI on Thursday, the most important indicator of the week, even as Fed confidence that inflation is nearing their 2% target seems to have turned its policy discussion more squarely on employment. The dollar eked out a 0.05% gain vs. the yen and showed a 0.67% rise against the yuan late Tuesday. The 10-year Treasury yield held above 4% for a second day.Here are key developments that could provide more direction to markets on Wednesday:- Taiwan CPI (Sept)- Reserve Bank of India meeting- Reserve Bank of New Zealand meeting- Minutes of Federal Open Market Committee meeting (Sept) More

(Reuters) -Hurricanes Milton and Helene are putting new pressure on the federal government’s emergency response agency FEMA, which is already short of money, hit by a politics-fueled disinformation campaign and burdened by its past failures in handling massive storms.Hurricane Milton was expanding on Tuesday as it chugged past Mexico’s Yucatan Peninsula en route to Florida’s densely populated Tampa Bay area, still reeling from the devastating Hurricane Helene less than two weeks ago.WHAT IS FEMA?The Federal Emergency Management Agency is the U.S. government agency whose mission is to help people before, during and after disasters, including hurricanes, tornados, earthquakes and floods.Its reputation was battered by its poor handling of Hurricane Katrina in 2005 and the agency has struggled to recover.FEMA has a workforce of 20,000 people that can swell to more than 50,000 active members during major disasters, according to its website. It has 10 regional offices and the capacity to coordinate resources from across the federal government.Officially created in 1979, it became part of the Department of Homeland Security in 2004.FEMA STAFFINGFEMA says it is currently supporting 111 major disasters and 16 emergency declarations. According to its daily operations briefing, only 9% of its disaster-response workforce is available for Milton.FEMA Administrator Deanne Criswell said on Tuesday the agency was prepared to meet the needs of people in Milton’s path. FEMA has staffing options, including reassigning people from its longer-term recovery offices, to support immediate needs, she said.The agency can also tap into DHS “surge capacity” that allows it to utilize people from agencies within the department, Criswell said. “We have these layers of staffing models because we know that we are going to have to face multiple events at once, just like this,” she told CNN.FEMA FUNDINGHomeland Security Secretary Alejandro Mayorkas told reporters on Oct. 2 that FEMA did not have enough funding for the remainder of the hurricane season, which lasts from June to November. A group of senators from U.S. states in the paths of the hurricanes sent a letter to Senate leaders last week noting the need for additional money for FEMA by the end of this year. Speaker Mike Johnson would not commit to bringing the Republican-controlled House of Representatives back to augment emergency-relief funding before the Nov. 5 election.FEMA is providing aid to hurricane victims from a disaster-relief fund that received $20.3 billion from Congress for the current fiscal year. However, at the request of the Biden administration, the agency is allowed to spend that money faster than anticipated because of the severity of recent disasters. DISINFORMATION CAMPAIGNIn addition to real-life disasters, the agency has battled a slew of false rumors about how its funds have been used. Former President Donald Trump and his Republican allies have said President Joe Biden and Vice President Kamala Harris, the Democratic candidate for president, had used federal emergency money to help people who were in the country illegally. U.S. Representative Marjorie Taylor Greene went as far as to say officials control the weather.FEMA has been the target of so many falsehoods it has set up a rumor response page on its website to tamp them down. One entry addresses the diversion concerns:”Rumor: Funding for FEMA disaster response was diverted to support international efforts or border-related issues.”Fact: This is false. No money is being diverted from disaster-response needs. FEMA’s disaster-response efforts and individual assistance is funded through the Disaster Relief Fund, which is a dedicated fund for disaster efforts. Disaster Relief Fund money has not been diverted to other, non-disaster related efforts.”FEMA FAILURESThe U.S. disaster agency has been much-maligned over emergency responses to hurricanes that fell short, including in Puerto Rico in 2017 when it was hit by Hurricane Maria. Residents accused then-President Trump of being slow to dispatch aid after Maria and clumsy in his public remarks once it was clear the U.S. territory had been devastated.     In 2005, Hurricane Katrina battered New Orleans and flooded parts of the city as residents crowded into ill-prepared shelters. Katrina devastated the Gulf of Mexico coast and caused more than 1,800 deaths. It also shattered the reputation of FEMA, which was sharply criticized for its response. More

BRASILIA (Reuters) -Brazil’s Senate on Tuesday approved President Luiz Inacio Lula da Silva’s nominee to lead the central bank, Gabriel Galipolo, who emphasized to lawmakers that the leftist leader was emphatic and clear in guaranteeing him freedom in decision-making.Regarded as a heterodox economist with direct access to Lula, Galipolo is currently the central bank’s director of monetary policy. He has sought to ease market concerns about his potential for leniency on inflation if pressured by the president.Speaking at a Senate committee hearing, where his nomination to lead the bank starting next year was approved unanimously, Galipolo reiterated commitment to pursuing a 3% inflation target and noted that policymakers were concerned about unanchored expectations for consumer prices. “It is up to the central bank to pursue this goal unequivocally by maintaining interest rates at a restrictive level for as long as necessary to achieve it,” he said.Later on Tuesday, Galipolo’s nomination was approved by the full Senate with a vote of 66 to 5.During the hearing, Galipolo acknowledged that Brazil’s annual core inflation is on par with that of more stable countries like the U.S, while noting that Latin America’s largest economy is not decelerating, which is why disinflation should be slower and more costly.Galipolo said that while current data such as inflation and labor market figures are important, the central bank’s focus is on a longer-term horizon.”There is unanchoring (of inflation) in the relevant horizon that bothers us,” he said, referring to a variable that economists view as indicative of a potential acceleration in the pace of interest rate hikes.Galipolo, along with the entire rate-setting board Copom, voted last month to kick off a tightening cycle, raising interest rates by 25 basis points to 10.75%. Before the decision, when his nomination was already public, Lula said of policymakers: “If they need to hike interest rates, then they need to hike interest rates.”The remark was viewed as a shift following ongoing calls for lower borrowing costs to support the economy and investment.Brazil’s annual inflation in mid-September reached 4.12%, while expectations of private economists surveyed weekly by the central bank are for inflation to hit 4.38% this year, 3.97% next year and 3.60% in 2026, all above the official target.MARKET SKEPTICISMGalipolo’s connection to Lula, with whom he was in Mexico last week for President Claudia Sheinbaum’s inauguration, has raised skepticism among many market participants since he was first tapped for a central bank position last year.Galipolo previously served as the Finance Ministry’s executive secretary under Lula, and has been the bank’s monetary policy director since July 2023.Markets initially voiced concern about his perceived lack of technical expertise and views on issues such as the need for state intervention to prioritize social needs and the suggestion that the central bank could act across the entire yield curve.Galipolo has since overcome initial resistance to succeed current Governor Roberto Campos Neto, appointed by former right-wing President Jair Bolsonaro. Neto has faced vocal criticism from Lula since the president took office in January 2023. Jefferson Laatus, chief strategist at the Laatus group, said market worries will not cease immediately. “We will only know for sure about it in January, at the first meeting that will actually take place with him as governor,” he said.Asked about financial autonomy of the central bank, a proposal opposed by the Lula administration but supported by Campos Neto, Galipolo said the current discussion marks a “significant advance.” More

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