Unadorned Notes: October 14-16, 2024
Economists Upbeat on U.S. Economy; U.S. Import Prices Drop Sharply; Long-term Inflation Expectations Edge Higher; Global Public Debt Surpasses $100 Trillion; China Faces Rising Deflation Pressure
Economics, Finance, and Business
Economists Upbeat on U.S. Economy: Economists surveyed by The Wall Street Journal are increasingly optimistic about the U.S. economy’s prospects. They forecast a 4.2% unemployment rate by year-end and expect the U.S. to add around 130,400 jobs per month over the next year. GDP growth predictions have been revised upwards as inflation continues to cool. Economists also foresee lower interest rates, with the federal-funds rate expected to reach 4.4% by the end of 2024. The survey, conducted in October 2024, reflects responses from 66 academic, business, and financial economists.1
U.S. Import Prices Drop Sharply: U.S. import prices fell 0.4% in September 2024, the largest decline in nine months, driven by a sharp drop in energy costs. Fuel and lubricant prices plunged 7%, with petroleum down 7.1% and natural gas dropping 14.5%. Excluding fuel, import prices rose just 0.1% for the third consecutive month. Export prices also decreased by 0.7%, marking the largest year-on-year decline since January 2024. The data supports expectations for a Federal Reserve rate cut in November 2024 as inflation pressures remain muted.2
Long-term Inflation Expectations Edge Higher: Americans’ long-term inflation expectations rose in September 2024, with inflation projected at 2.7% in three years and 2.9% in five years, according to the New York Fed. Expected credit delinquency rates also increased, reaching 14.2%, the highest level since April 2020. The report highlighted rising financial stress, particularly among households earning over $100,000. Fed officials are debating the pace of future interest rate cuts, with some advocating caution due to stronger-than-expected job market data. Despite this, Fed officials remain confident that inflation is on track to meet the 2% target.3
Global Public Debt Surpasses $100 Trillion: Global public debt is set to exceed $100 trillion in 2024, reaching 93% of global GDP, according to the IMF. Rising debt levels are driven by increased spending on defense, healthcare, and green transitions, alongside slow growth and fiscal uncertainty. The IMF warns that actual debt levels may exceed current projections, with political pressures in key economies, including the U.S. and China, amplifying borrowing needs. A severe scenario could push global debt to 115% of GDP in just three years. The IMF calls for fiscal tightening, warning that delays could lead to adverse market reactions and limited fiscal flexibility.4
Investor Optimism Hits New High: Global investor optimism surged in October 2024, marking its largest increase since June 2020, driven by Federal Reserve rate cuts and China’s stimulus measures, according to a BofA survey. Equity allocations rose significantly to a net 31% overweight, while cash allocations dropped to 3.9%, triggering a contrarian “sell signal”. Bond allocations saw a record decline to 15% underweight as expectations of a U.S. economic soft landing grew. Investors expect the upcoming U.S. election to primarily affect trade policy, followed by geopolitics and taxation. The survey polled 231 fund managers overseeing $574 billion in assets.5
China Faces Rising Deflation Pressure: China’s consumer inflation eased to 0.4% in September 2024, while producer price deflation deepened with a 2.8% year-on-year drop, both below forecasts. Weak domestic demand and declining prices are prompting expectations for further stimulus measures from Beijing. Chinese authorities have already introduced aggressive monetary support, but analysts suggest more decisive fiscal actions are needed to counter persistent deflation risks. Core inflation, excluding food and fuel, fell to 0.1%, reflecting sluggish price momentum. Structural issues, including industrial overcapacity and weak consumption, continue to weigh on China’s economic recovery.6
China Calls for Intel Review: China’s CyberSecurity Association urged a cybersecurity review of Intel’s products, citing security vulnerabilities and potential national-security threats. This call could lead to an official investigation by China’s Cyberspace Administration, following a similar probe into U.S. chip maker Micron Technology last year. Intel, which generates over a quarter of its sales in China, risks further disruption amid escalating U.S.-China technology tensions. Intel shares dropped 1.5% after the news, with the company pledging to cooperate with Chinese officials. The U.S.-China tech standoff has seen export controls and restrictions from both sides, impacting global supply chains.7
U.S. Politics and Geopolitics
Harris, Baier Clash in Interview: In a tense Fox News interview, Vice President Kamala Harris sparred with Bret Baier over immigration, transgender rights, and former President Donald Trump’s threats to “lock people up”. Harris defended the Biden administration’s immigration policies while highlighting Trump’s failure to pass bipartisan reform. She criticized Trump as unfit for office and pushed back against his attacks on her role in handling border issues. Harris also emphasized her commitment to following the law regarding gender-affirming care for inmates.8 The interview marked a key moment in Harris’s final push to reach undecided voters before Election Day.9
Trump Gains Edge in Swing States: Former President Donald Trump now leads in two of the seven key swing states, with the other five considered toss-ups, according to polling averages. Vice President Kamala Harris had been ahead in three of these states in August 2024, but her leads have since evaporated. The race remains exceptionally close, with only 0.34 percentage points separating the candidates across these critical battlegrounds. Polling errors from previous elections have left uncertainty, though both campaigns are now focused on mobilizing key voter groups. No candidate is currently favored to reach the necessary 270 electoral votes.10
Trump Softens Stance on Fed: Former President Donald Trump stated he believes the president has the right to comment on Federal Reserve interest rate decisions, though not to order changes. This marks a softer stance compared to his earlier views, where he suggested presidents should have a direct say. Trump’s position on the Fed is of significant interest, with reports indicating his allies have proposed limiting the Fed’s independence. Trump did not confirm whether he would seek to replace Fed Chair Jerome Powell if re-elected.11
Obama’s Remarks Spark Mixed Reactions: Former President Barack Obama’s speech aimed at rallying Black voters for Kamala Harris drew significant backlash on social media, with many criticizing his comments as disrespectful. Analysis by Impact Social found that 33% of posts negatively reacted to Obama’s remarks, while only 17% were positive. Some voters viewed his comments as patronizing, reminiscent of Joe Biden’s 2020 “you ain’t black” comment. Obama defended his message, emphasizing the importance of Black male voter turnout, with some supporters praising his approach. The NAACP and National Urban League stressed that Harris needs to address key policy concerns to solidify Black male support.12
Biden Strengthens U.S.-Angola Relations: President Joe Biden’s planned visit to Angola highlights efforts to counterbalance Chinese and Russian influence in Southern Africa. Angola’s strategic importance is underscored by the Lobito Corridor, a multibillion-dollar project aimed at boosting regional trade. While China remains Angola’s largest crude oil partner, the U.S. is increasing its military and economic ties. Angola’s growing role in African geopolitics offers both economic opportunities and challenges for U.S. foreign policy. Biden’s visit marks a significant step in elevating U.S.-Angola relations.13