Treasury Secretary Mnuchin Urges Stricter IMF Enforcement, FOMC Expects Rate Increase “Fairly Soon”
February 22, 2017
Treasury Secretary Steven Mnuchin urged the IMF to assert stricter enforcement in policing exchange-rate policies of its members; The National Bureau of Economic Research (NBER) recently released a paper asserting President Trump’s immigration policies would strain an already-tight U.S. labor market; Federal Reserve Open Markets Committee members anticipate raising short term interest rates “fairly soon” on an improving economy; Existing home sales soared to a 10-year high in January to reach the fastest pace since February 2007.
- Treasury Secretary Steven Mnuchin urged the International Monetary Fund (IMF) to assert stricter enforcement in policing exchange-rate policies of its members, part of the Trump administration’s broader effort to challenge the practices of America’s trading partners. Mnuchin told IMF Managing Director Christine Lagarde that he expects the fund to “provide frank and candid analysis of the exchange-rate policies of IMF member countries” after the White House has criticized countries like China for using an undervalued currency over the past two decades to boost its exports. In its original mandate, the IMF is supposed to be the world’s arbiter of exchange-rate values and policies, and Secretary Mnuchin said that the IMF has not been performing this role in his Senate confirmation hearings. The IMF claims China’s exchange rate is roughly consistent with market fundamentals. Meanwhile, Mnuchin’s comments could be interpreted as encouragement for the IMF to stand its ground in its assessment of Greece, which has been that Greece’s self-assessment of its economy has been overly optimistic. [WSJ]
- The National Bureau of Economic Research (NBER) recently released a paper asserting President Trump’s immigration policies would strain an already-tight U.S. labor market and finding that the removal of all undocumented workers would cost the economy $5 trillion over 10 years. The sum represents 3% of private-sector GDP to total an average of $500 billion per year, for which the one-year amount is equal to the state GDP of Massachusetts. Memos issued on Tuesday by the Department of Homeland Security direct that any undocumented immigrant may now be deported in implementation of the president’s executive orders. The executive actions also pledge to hire 15,000 additional border patrol and immigration agents and begin building a wall on the Mexican border. According to recent estimates, there are more than 8 million unauthorized immigrants in the U.S. workforce – 5% of total labor supply. The NBER study estimates that for every 1 million fewer workers in the economy, GDP would be reduced by 0.5% – $94 billion. [Bloomberg]
Economic Indicators & News
- Federal Reserve Open Markets Committee members anticipate raising short term interest rates “fairly soon” on an improving economy and the possibility that the Trump administration’s proposed economic agenda could push inflation up faster than expected. Some officials believe it might be appropriate to move rates at an upcoming meeting, indicating the March 14-15 meeting, as the policy makers raised the possibility of acting more aggressively than originally planned should inflation surge and the unemployment rate fall too much. The committee views the Trump administration’s plans for tax cuts and spending increases with “heightened uncertainty,” though it indicated it would likely have ample time to respond should increased inflationary pressures begin to take shape in the economy. [WSJ]
- Existing home sales soared to a 10-year high in January to reach the fastest pace since February 2007, as total sales expanded 3.3% to an annualized pace of 5.69 million units from an upwardly-revised December reading of 5.51 million units. The sales pace in February 2007 was 5.79 million units. January’s reading is 3.8% higher than a year ago and surpasses the previous cyclical high set in November 2016 of 5.60 million units. The market was led by improved consumer confidence and strong hiring, despite a rising interest rate environment. Market challenges remain, however, as median sales prices were up for a 59th consecutive month rising 7.1% over the year-ago level to $228,900. Housing inventory gained 2.4% to represent 3.6 months of supply, though the annual comparison is 7.1% lower in the 20th consecutive month of annual inventory contraction. First-time buyers represented 33% of sales, which is up from 32% in December. Distressed sales were 7% of total transactions during the month, down from 9% a year ago. Market consensus was for a sales pace of 5.580 million units last month. [NAR]