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Sharp contraction in the US trade deficit as imports decline. By Reuters

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© Reuters. FILE PHOTO: Shipping containers are unloaded from ships at a container terminal at the Long Beach-Port Los Angeles complex, amid the coronavirus (COVID-19) pandemic, in Los Angeles, California, US, April 7, 2021. Photo: Lucy Nicholso – Reuters

WASHINGTON (Reuters) – The United States’ trade deficit shrank by the most in nearly 14 years in November as slowing domestic demand amid higher borrowing costs slashed imports.

On Thursday, the Commerce Department said the trade deficit fell 21.0% to $61.5 billion, the lowest level since September 2020. The percentage drop in the trade gap was the largest since February 2009.

Imports tumbled 6.4% to $313.4 billion, with merchandise falling 7.5% to $254.9 billion. Imports of consumer goods recorded their lowest level since December 2020.

The Fed last year raised its policy rate by 425 basis points from near zero to a range of 4.25%-4.50%, the highest level since late 2007. Last month, it expected at least an additional 75 basis points of increases in borrowing costs from before the end of 2023. Higher rates boosted the dollar, which gained 5.4% against the currencies of the United States’ main trading partners last year.

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The strength of the dollar makes goods manufactured in the United States less competitive in global markets. Global central banks’ tightening of monetary policy also eroded demand.

Exports fell 2.0% to $251.9 billion, with shipments of goods falling 3.0% to $170.8 billion. But exports of cars, spare parts and engines were the highest since August 2019.

A smaller trade deficit of 2.86 percentage points contributed to the economy’s annual growth pace of 3.2 percent in the third quarter. Growth estimates for the fourth quarter are at 3.9%.

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Pakistan’s Finance Minister Meets IMF in Geneva as Bailout Stalls By Reuters

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© Reuters. FILE PHOTO: The logo of the International Monetary Fund is seen outside the headquarters building in Washington, US, on September 4, 2018. REUTERS/Yuri Gribas/File Photo

Written by Gibran Nayyar Bashimam

ISLAMABAD (Reuters) – An International Monetary Fund (IMF) delegation will meet Pakistan’s finance minister on the sidelines of a conference in Geneva starting on January 9, as Pakistan struggles to restart its bailout programme, an International Monetary Fund spokesman said on Sunday.

The lender has yet to agree to release $1.1 billion that was due to be disbursed in November last year, leaving Pakistan with only enough foreign exchange reserves to cover one month’s imports.

“The IMF delegation is expected to meet Finance Minister (Isaac) Dar on the sidelines of the Geneva conference to discuss outstanding issues and the path forward,” an IMF spokesman said in a message to Reuters.

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The conference in Geneva, co-hosted by Prime Minister Shahbaz Sharif and UN Secretary-General Antonio Guterres, will seek to galvanize international support for the country in the wake of last year’s devastating floods.

The floods killed at least 1,700 people and caused billions of dollars in damage to critical infrastructure.

The plan setting out a timeline and funding for the rebuilding effort has been a sticking point in talks to articulate a ninth review that would unlock $1.1 billion in IMF money and unlock other international financing as well.

Dar recently criticized the International Monetary Fund, saying publicly that the bank was acting “abnormally” in its dealings with Pakistan, which entered its $7 billion bailout program in 2019.

An IMF spokeswoman also said that its managing director, Kristalina Georgieva, had a “constructive conversation” with Sharif regarding the Geneva conference and supported Pakistan’s efforts to rebuild.

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White House Says It Doesn’t Want to “Round Congress” on Debt Ceiling By Reuters

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© Reuters. White House Press Secretary Karen Jean-Pierre holds the daily news conference at the White House in Washington, December 7, 2022. REUTERS/Jonathan Ernst

WASHINGTON (Reuters) – The White House said on Sunday that it does not plan to circumvent Congress in order to raise the U.S. debt ceiling, a regular flashpoint in times of divided government.

“We are not considering any measures that would circumvent Congress,” White House press secretary Karen Jean-Pierre told reporters, calling on lawmakers to raise the cap without preconditions.

The Republicans, who recently assumed control of the US House of Representatives, have promised to fight without question over any move to increase the cap. They say they plan to extract concessions to prevent the US government from defaulting.

Jean-Pierre told reporters aboard Air Force One that the White House under Democratic President Joe Biden will not make any concessions on the debt ceiling.

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“Attempts to use the debt ceiling as leverage will not work,” she said. There will be no hostage-taking.”

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Romer says the Fed faces a “difficult” call to avoid exaggerating interest rates

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© Reuters. The Federal Reserve building is seen before the Federal Reserve signals plans to raise interest rates in March as it focuses on fighting inflation in Washington, US, January 26, 2022. REUTERS/Joshua Roberts

Written by Howard Schneider

NEW ORLEANS (Reuters) – The Federal Reserve’s efforts to shock the economy back to the low inflation rates in its early days, making it difficult for the US central bank to avoid hitting interest rates higher than needed, a senior US economic advisor said. The Obama White House said after a new review of Fed policy since World War II.

The Fed raised its target policy rate by more than 4 percentage points in the past year, and “we are now entering the window where the effects may start to be noticed,” Christina Romer, professor of economics at the University of California, Berkeley, and chair of the White House Council of Economic Advisers (CEA) from 2009 to 2010, in front of a national gathering of economists late Saturday.

“Because of the delays involved, policymakers will face a very difficult decision about when to stop or reverse interest rate increases,” Romer said in a keynote address to the American Economic Association’s annual meeting in New Orleans.

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“Policy makers will need to go back before the problem is fully resolved if they want to bring down inflation without causing more pain than necessary,” she said.

Federal Reserve officials have acknowledged how difficult it is to judge how high and how long to raise interest rates, and have scaled back the pace of increases in borrowing costs to try to avoid missteps.

Minutes of the Fed’s last policy meeting in December showed central banks grappling with risks, while economists see a high probability that an interest rate hike could lead to a US recession next year.

Policy shock

Roemer, the outgoing president of the AEA, is an expert on the causes and recovery of the Great Depression of the 1930s and has argued as CEA president for the fiscal response to the 2007-2009 recession to be far greater than was approved. She teamed up with Berkeley economist David Romer, her husband, to extract transcripts of a Fed meeting and minutes from the 1940s to review US central bank policy.

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They identified 10 cases when the Fed purposely tried to change the course of economic growth, in all but one of the cases to try to reduce inflation, which it felt was too high.

Since the transcripts are only available up to 2016, they relied on the minutes alone of recent years and concluded that the current tightening cycle is the eleventh monetary policy “shock”.

These events contrast with other Fed decisions on interest rates that aim to stay in sync with the business cycle or respond to external economic events, such as the housing market crash and the onset of a recession in 2007. Isolating the shocks, she said, allows for a clearer view of how reserve rate increases will affect Federal on economic production and employment, and in what time frame.

It found that as interest rates rose, overall output began to slow about six months after the policy shock began, and after nine quarters it was 4.5% lower than it would otherwise have been. The unemployment rate begins to rise after about five months and rises by an average of 1.6 percentage points after 27 months, with the effect fading after five years.

The Fed began raising rates last March, but accelerated the rate hikes in June to one similar to the rapid tightening former Fed Chairman Paul Volcker used in the late 1970s and early 1980s. The central bank’s policy rate now stands in a range of 4.25%-4.50% and officials are widely expected to raise it by another quarter percentage point on Jan-Feb 31. One meeting, with an eye on driving it above 5% in the coming months.

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