Fellow
Shortrunners,
On Tuesday, in a silently historical move, the FOMC left interest rates unchanged. The decision itself wasn't historic, but the announcement was. In a change of policy, the Board has decided, to immediately announce the voting results, thus revealing dissenting members and their preferred choices. The move has attracted close to no media coverage, mainly because most people don't recognize the significance. Greenspan has been known for transparency and this move only further advances his efforts. Among other things, it should provide fed watchers another piece of useful information to better anticipate Fed policy, for better or worse.
But as I hinted last week, the open market committee meeting was not to be the only important development. The following is a work by Shortrunner Richard Carew detailing the international activity transpiring this week with regard to the Steel Tariff and the WTO:
The politics of tariffs are tricky business, made evident from the developments of the past week. Bush's 30% tariff levied on foreign steel met sharp resistance around the world. The tariff, deemed "politically unavoidable" by many pundits, met sharp rebuke from leading trade partners and appears to be having significant negative impacts on America's status as the leader in global liberalization and integration.
Support for the tariff appears to be failing even within Bush's cabinet. In statement before the Women's Entrepreneurship in the 21st Century Summit, Treasury secretary Paul O'Neill was highly critical of the tariffs, which sharply contradicts an administration that has stayed fairly loyal in public comments to the President's policy. O'Neill's views were echoed by a wide range of analysts and politicians from the left and right and included such notables as Robert McTeer, current Dallas Fed President. Left wing critics challenged the measures as politically targeted to appease industries in the highly contested political states of Pennsylvania and West Virginia and unfair to poor nations, while the right wing feared the repercussions of the tariffs on the credibility of the U.S. as a leader in free trade liberalization and the response of trading partners.
The response from the European Union came to press this week. The EU filed a complaint with the World Trade Organization and is set to impose retaliatory tariffs on American goods if the WTO finds in its favor. The European Union decided to place its retaliatory tariffs on goods produced in Florida, Wisconsin, Pennsylvania, and West Virginia, all politically important states in the last presidential election. Ironically, this tactic is similar to Bill Clinton's strategy in the recently settled trade dispute over European banana import policy. Clinton's retaliatory tariffs on French wine and cheeses were targeted at pressuring French politicians who are seen as the dominant protectionists.
It remains to be seen if the pressure will cause the Bush administration to reconsider its policy, or whether they will be willing to expend the political capital necessary to resist the mounting pressure. From past experience, this administration seems unlikely to cave to foreign pressure on the tariffs, such as protests in front of the U.S. Embassy in Brazil, but if domestic pressure continues to mount the administration may be forced to reconsider its protectionist policies.
Sincerely,
Daniel Hicks
with work by Richard Carew
Economic Releases
The data section
provides charts and data for the most important economic indicators.
Trade Balance: -$28.5 Billion
- The US trade balance for January deteriorated to -$28.5 billion as the US economy continued to pick up in comparison to its major trading partners. We should expect to see this trend continue as the global economy has yet to show the kind of strong recovery signs that we have seen in the US.
NAHB Housing Market Index: 60
- The NAHB Housing Market Index came in at 60, a sign that housing activity in the United States picked up during March. Continued low interest rates and a rebounding economy are likely causes for the strong figure.
- Initial residential housing starts totaled 1.77 million for February. The figure represents a gain of almost 3% rise over the previous month. The housing start numbers for February and for January for that matter parallel the strong growth of the NAHB index and suggest an economy that is pulling itself out of its slump.
Treasury Budget: -$76.1 Billion
- During February the Federal Government ran a deficit of $76.1 Billion as outlays exceeded revenues. Most budget figures are compared to year ago months (rather than sequentially to account for seasonal factors) and doing so for February shows a shift from a surplus of about $25 billion to this year's deficit.
Consumer Price Index: 0.2%
- Consumer prices rose 0.2% from January to February. The overall pace of inflation is clearly falling. The core index, which excludes food and energy, rose 0.3% as we saw strong downward prices in energy. This has to be due in part to falling global demand both for seasonal and economic reasons.
Jobless Claims: 371,000
- Initial jobless claims fell slightly last week to 371,000. Overall jobless claims data is not showing a large amount of labor market fluctuation. Hopefully increased economic activity will help pull the economy from its current sluggish performance in the labor markets
Index of Leading Indicators: 0.0%
- The Conference Board's Index of Leading Indicators, a predictor o future economic activity showed no change during February. The weaker than expected performance is consistent with the current stream of thought that suggests that any recovery will be subdued at best. Leading indicators by their very nature are useful tools, but are also by no means perfect predictors of economic activity.
ECRI Weekly Leading Index: 122.3
- The ECRI WLI, a second and less well known leading indicator rose to 122.3 last week. The WLI, although less recognized and thus less influential than the Index of Leading Indicators, is a useful indicator because it is timely, published on a weekly basis compared to the Conference Board's monthly releases.
Classroom
Check out the new classroom section and watch for it to grow and change in the coming weeks as we implement drastic reconstruction to the section. Comment and suggestions as to the best method for this kind of a section would be extremely helpful.
Articles / Book Reviews
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The US-EU Banana Dispute
- Richard Carew
Recipe for
Disaster: The Rise and Fall of Currency Boards in Argentina
- Richard Carew
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