A new twist for Sack?
Brian Sack’s decision to stay on at the Federal Reserve Bank of New York as an adviser could stoke speculation that further monetary easing is around the corner at the US central bank.
Mr Sack – who is stepping down as planned as head of the markets group – played a key role in the previous rounds of “quantitative easing”, managing and executing the expansion of Fed’s balance sheet. So keeping him around would certainly be helpful. Read more
A few more weeks for a budget deal?
Politics in Washington are notoriously unpredictable – but for anyone gaming whether or not the US will face a government shutdown on March 18 – here are a few good reasons why it won’t happen.
The most likely scenario at this point appears to be another short-term extension of the budget – somewhere between two and four weeks – that would give all sides a bit more time to negotiate.
Republicans in the House of Representatives are currently putting together a bill along those lines – and the Obama administration may well be open to accepting it. The White House has already suggested $6.5bn in cuts that could be applied towards that short-term extension without causing too much political furore. Read more
Fighting over US budget baselines
A war of words and numbers has broken out in Washington over the geekiest of subjects: which budget baseline should be used to calculate the level of spending cuts being negotiated by the White House and congressional leaders.
On Thursday afternoon, Gene Sperling, director of the National Economic Council, announced that the Obama administration was putting on the table an additional $6.5bn in spending cuts to woo Republicans into a deal before March 18, the new deadline for a government shutdown. At least everyone agrees on those basic facts.
Here’s where things get tricky. Mr Sperling said that with those cuts, the White House was meeting Republicans “halfway” compared to their own spending targets – a clear sign of the administration’s willingness to negotiate. Read more
Bernanke talks fiscal policy with Congress
In Ben Bernanke’s testimony before the Senate banking committee today, there was plenty of talk about US fiscal and budgetary policy.
It’s the hot topic on Capitol Hill, with Congress moving this week towards a deal to cut spending by $4bn and avert a government shutdown – at least for two weeks.
Needless to say, in the question-and-answer session, lawmakers from both parties were desperately trying to get the Federal Reserve chairman’s approval for their positions.
Republicans are advocating for aggressive cuts in discretionary spending, while Democrats, in the words of Harry Reid, the Senate majority leader, want to apply a ”scalpel” rather than a “meat axe” to the US budget. Read more
Moody’s and the US debt ceiling
The US is little more than $200bn away – or about 2 months – away from reaching its congressionally mandated national debt limit of $14,300bn.
The need to increase it to avoid a potentially disastrous US default is the next fiscal battleground in Washington, after the lawmakers stop squabbling over a government shutdown.
Republicans want to use the opportunity to push for more spending cuts, while Democrats say this is not the place to negotiate.
On Thursday, Moody’s Investors Service offered its analysis of the likelihood that a major crisis will ensue, threatening America’s triple-A credit rating much earlier than even the most ardent fiscal hawks would imagine. Read more
The cost of a US shutdown: $8bn a week
Goldman Sachs has waded into the raging political war over US fiscal policy, with a note explaining the economic ramifications of the battles on government spending, a possible shutdown of federal operations, and even the furore over collective bargaining rights in Wisconsin and some other midwestern states.
On the budget itself, Goldman economist Alec Phillips says the Republican plan approved by the House of Representatives last Saturday – with $61bn in spending cuts between now and September, would lead to a drag on US GDP growth of 1.5 to 2 percentage points in Q2 and Q3, before it tails off.
Mr Phillips also points out that the more likely scenario – a compromise with $25bn in spending cuts – would lead to a 1 percentage point hit to GDP growth in Q2, fading thereafter, with “negligible” impact on growth by the end of the year. Read more
US budget fight reaches critical phase
The biggest open question for US fiscal policy in the long run is whether the political system can forge a consensus to rein in the long-term debt through some combination of spending cuts and tax increases.
But in the short-term, at least for the next ten days, it is whether the US government is facing its first shutdown since the mid 1990s.
On March 4, the “continuing resolution” funding the government for the current fiscal year, which runs through September, will expire.
Unless a deal is approved by the Republican House, the Democratic Senate, and the White House, all non-essential federal operations will have to close, which could, if the standoff is lengthy, have significant consequences for the US economy. Read more
Obama’s deficit pledge deconstructed
President Barack Obama certainly made America’s fiscal health a pillar of his “state of the union” address, calling it a key element of his plans to secure US global competitiveness. “A critical step in winning the future is to make sure we aren’t buried under a mountain of debt,” Mr Obama said. “We have to confront the fact that our government spends more than it takes in.”
Mr Obama did indeed dedicate plenty of space to deficit reduction in his speech – but there were no major surprises in terms of specific proposals for budget cuts, and there was no push for a comprehensive deficit reduction plan along the lines of last year’s Bowles-Simpson debt commission, which proposed cutting politically explosive areas such as social security, Medicare, and individual tax breaks.
Instead, this is what Mr Obama proposed, which fiscal hawks may find underwhelming, but others may argue is perfectly consistent with a strategy designed to continue stimulating the economy now and begin to move in the direction of fiscal retrenchment at a later date. Read more
Fiscal policy and Obama’s speech
President Barack Obama delivers his “state of the union” address to Congress on Tuesday night: it’s one of the biggest political events of the year in the US, in that it sets the tone for the legislative agenda and the big policy debates for the rest of the year.
Fiscal policy is expected to be at the heart of Mr Obama’s speech in 2011. From what we know at this stage, he will use the opportunity to call for new investments to boost America’s competitiveness in global economy.
At the same time, he will make an appeal for the US political system to start considering serious deficit reduction proposals to rein in the country’s debt burden, which is expected to balloon in the coming decades if no action is taken.
One big question heading into the ”state of the union” is what the balance will be between new spending proposals – from infrastructure, to clean energy technology to education - and deficit reduction initatives. Read more
Sperling looking to clinch NEC job
Gene Sperling, the adviser to treasury secretary Tim Geithner, appears increasingly likely to be appointed director of the US National Economic Council on Friday.
In recent days, his candidacy has risen in standing as the prospects for Roger Altman, chairman of Evercore, the investment bank, and Rick Levin, president of Yale University, appear to be waning. The White House still hasn’t confirmed that a decision has been made however. Read more
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Chris Giles has been the economics editor of the Financial Times since 2004. Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. RSS
Michael Steen, Frankfurt bureau chief, covers the ECB and the eurozone's economies. He joined the Financial Times in 2007 as Amsterdam correspondent and later worked as a front page news editor in London. Before joining the FT, he spent nine years as a correspondent at Reuters, mostly in foreign postings that included a previous stint in Frankfurt, as well as Moscow, Kiev and central Asia. He read German and Russian at Cambridge.RSS
Robin Harding is the FT's US economics editor, based in Washington. Prior to this, he was based in Tokyo, covering the Bank of Japan and Japan's technology sector, and in London as an economics leader writer. Robin studied economics at Cambridge and has a masters in economics from Hitotsubashi University, where he was a Monbusho scholar. Before joining the FT, Robin worked in asset management and banking. RSS
Ralph Atkins, capital markets editor, has been writing for the Financial Times for more than 20 years following an economics degree from Cambridge. From 2004 to 2012, Ralph was Frankfurt bureau chief, watching the European Central Bank and eurozone economies. He has also worked in Bonn, Berlin, Jerusalem and Brussels. RSS
Claire Jones is Money Supply economics team writer, based in London. Before joining the Financial Times, she was the editor of the Central Banking journal and CentralBanking.com. Claire studied philosophy and economics at the London School of Economics. RSS
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