The Federal Open Market Committee met last week (they decide whether the central bank of the United States should push rates higher or move them lower). It left rates unchanged, but indicated a willingness to lower rates in support of economic expansion. That was music to the ears of some investors and the Standard & Poor’s 500 Index rose to a record high, reported Sue Chang and Mark DeCambre of MarketWatch.
The Fed’s song was the same as the one already playing across the world. Central bankers in Europe and Japan had signaled they were willing to encourage economic growth by easing rates lower and using other tools available, reported Leika Kihara and Daniel Leussink of Reuters. Their attitude helped push world stock markets higher.
Last week, the U.S. bond market gained value, too, as interest rates moved lower. Falling interest rates suggested bond investors were hearing a different tune. When investors are willing to accept lower yields, it suggests they’re worried about what may happen and are seeking safety. In some parts of Europe, investors are accepting negative yields — taking small losses to own government bonds they perceive to be safe — because they are pessimistic about the future.
There is plenty to be concerned about, including ongoing trade issues and conflict in the Middle East. Only time will tell how recent events will affect the U.S. and world economies.
The China Trade: Since 2010 the United States and China have had the world’s largest economies by GDP. The U.S. is the world’s largest importer, while China is the world’s biggest exporter. Although most Americans know that the U.S. runs a trade deficit with China, surveys show that relatively few know just how big the trade deficit is or how fast it has been growing. A recent report by the U.S. Census Bureau shows every year from 2009 to 2018 the U.S. has imported far more goods from China than it has exported to China. The trade deficit has grown in 9 of those 10 years and has almost doubled in that time, from $227B to $420B.
Hopefully we are getting closer to turning this trade-tide.