More data like this and the Fed's hands will be tied......

More data like this and the Fed's hands will be tied......

 "Sharp rise in US trade deficit fuels growth concerns" , The Financial Times, p.8

 The argument that weak Q1 data in the US is merely a reflection of a harsh winter and port strikes, and therefore should not form an integral part of the Fed's thinking with regard to the timing of interest rate rises, has taken a bit of a battering of late. Now comes news that  March's trade deficit has risen to the highest level since the financial crisis in 2008. Exports rose by less than 1% while imports rose 7.7%. These figures have led to suggestions that the already poor Q1 growth figures will be revised downwards and any upward move in rates in the near future would be entirely inappropriate. The hawks would have it that the strong import numbers reflect increased consumer demand and therefore point to a strong recovery in the second quarter, but it seems likely that the Fed will need to see some prolonged confirmation of this before taking any action.

Trade deficits are interesting because a popular view is that within reason, and as long as they remain "manageable", they do not in themselves represent too much of a problem and may indeed be inevitable, in the short-term at least. The case for arguing that the trade deficit is in danger of going past the manageable stage is growing stronger by the day, (take note, UK). Trade issues are a particularly sensitive political issue just now as President Obama strives to secure a number of important trade pacts across the Pacific. By no means all are in favour of his efforts, and critics argue that the deals would benefit the US's partners to the detriment of the US itself. The last thing the President needs right now would be an even stronger dollar.