Date: November 14, 2018
Greenspan Says U.S. May Be Seeing the First Signs of Inflation
Former Federal Reserve Chairman Alan Greenspan said a rising U.S. debt burden could derail the current expansion and warned the tight labor market could lift inflation. “I’m beginning to see the first signs of it,” Greenspan said about inflation during an interview on “The David Rubenstein Show: Peer-to-Peer Conversations” on Bloomberg Television. “We’re seeing it basically in the tightening of the labor markets first, which, as you know, have gotten very tight now. We’re beginning finally to see average wages rise, and clearly there’s no productivity behind it.” Inflation measured by the the Fed’s preferred gauge of price pressures was 2 percent — at the central bank’s target — in the 12 months through September after running mostly below that threshold since 2012. Unemployment has falling to 3.7 percent, the lowest level since 1969, and average hourly earnings are creeping up. Greenspan said a lack of productivity growth meant “you’re getting into a system now which has no outcome that’s in equilibrium other than inflation and no productivity growth.” The former Fed chief, who retired from the central bank in 2006, also warned that rising U.S. debt levels could undermine the economic expansion. “The tax cut actually did get a buoyancy, and we’re still feeling some of it, but it’s nowhere near enough to offset the actual deficit,” Greenspan said. “You can’t have a tax cut without finding the revenues elsewhere, or you run into problems.” Tax cuts and federal spending signed by President Donald Trump helped spur business confidence and lift U.S. growth to 3 percent in the year through the third quarter. But the deficit widened to a six-year high of $779 billion during Trump’s first full fiscal year, raising concern the country’s debt load of more than $21.7 trillion will grow out of control.
Italy’s Populists Defy Europe on Budget Deficit, Growth Targets
Italy’s populist government is challenging the European Commission in the reply it is due to deliver by a Tuesday deadline, sticking to its budget deficit and growth targets for next year despite protests from Brussels, according to Premier Giuseppe Conte’s office. Ministers of the ruling coalition of the anti-migration League and the anti-establishment Five Star Movement agreed to insist on a 2.4 percent deficit target, and a 1.5 percent growth forecast for next year in the letter the government will send the European Commission. Conte is holding a cabinet meeting on the reply to commission demands for a revised budget, a government official said separately. Deputy Premier Matteo Salvini asked by reporters in Rome if the budget will be changed, responded by shaking his head. Maintaining the targets, which have been contested by the commission concerned about the impact on Italy’s debt mountain, Europe’ biggest, sends the ball firmly in the commission’s court which would have to decide whether to kick start a process that could lead to billions of euros in fines. The European Union’s executive body had demanded Italy provide a fresh budget by a Tuesday deadline after rejecting a first draft last month as a challenge to budget rules. Deputy-premiers Luigi Di Maio of Five Star and Salvini of the League are, however, determined to start delivering on campaign promises to boost benefit spending, cut taxes and lower the retirement age. The clash with Brussels has roiled investors and sent borrowing costs to the highest in more than four years. The euro earlier pared its advance versus the dollar Tuesday on a Bloomberg report that the government would stick to its deficit and growth targets.
China Can Handle the Trade War Just Fine, Copper Giant Says
Global copper consumption is set to expand next year even as the U.S.-China trade war rumbles on, according to a major European miner, which expects usage to be underpinned by shifts in the mainland economy and the government’s plans to develop infrastructure across Asia. “Demand for copper shall be positive next year and in the coming years,” Marcin Chludziński, head of KGHM Polska Miedz SA, said in an email. “The trade conflict may affect demand to some extent, but on the other hand China is changing its growth model and starting to accelerate internal consumption in order to rely less on exports and more on its domestic market.” Global copper consumption is set to expand next year even as the U.S.-China trade war rumbles on, according to a major European miner, which expects usage to be underpinned by shifts in the mainland economy and the government’s plans to develop infrastructure across Asia. “Demand for copper shall be positive next year and in the coming years,” Marcin Chludziński, head of KGHM Polska Miedz SA, said in an email. “The trade conflict may affect demand to some extent, but on the other hand China is changing its growth model and starting to accelerate internal consumption in order to rely less on exports and more on its domestic market.” Copper prices have been hurt this year as investor concerns that the metal used in pipes and wires will suffer from the stand-off between Washington and Beijing have overshadowed signs of tightening fundamentals, including lower stockpiles and projections for deficits. China’s able to handle the trade tensions deftly, according to Chludziński, who also highlighted the expected demand boost from the One Belt One Road project, the massive infrastructure program that aims to boost trade and transportation throughout the region. “There is a lot of support for Chinese growth coming from the One Belt One Road initiative and infrastructural investments in the mid-western part of China,” said Chludziński, whose comments come as industry participants meet in Shanghai for Asia Copper Week. “We believe this may be a significant factor responsible for rising metals-related demand in the coming years.”