The interest rate decision by Federal Reserve Chairman Jerome Powell and the other voting members of the Federal Reserve will be formally announced on Wednesday.
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Here are five commodity trade numbers I’d like to have if I were asked to vote today with the Federal Reserve on whether to lower interest rates a quarter for the second consecutive month.
The Fed is grappling with a conflict: A weakening labor market makes the case for lower interest rates, while rising inflation supports keeping or even raising them.
With one hand tied behind his back because of it US government shutdownthe Fed will not own it huge amounts of data which it would normally have in the month since it decided to cut interest rates for the first time this year.
This includes, of course, the US Census Bureau’s merchandise trade data, which has not been released since September 4.
In less turbulent times, this data may not be particularly interesting. But it’s certainly worth considering for Fed governors, given President Trump’s unpredictable and volatile trade war with the world. Indeed, in just four months this year, the value of tariffs collected by the Treasury Department as a percentage of total imports quadrupled.
While not the US’s largest trading partners, the countries, which account for 18.61% of US trade in the latest Census Bureau data, were set to put tariffs into effect that would first appear in the August data.
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The new tariffs have no data yet
That statistic leads to the first thing I might want to know, which is the impact of the tariffs that went into effect in August. These statistics have not been released due to the government shutdown and were therefore not part of the July data.
In other words, is there an immediate impact on tariffs that were announced but not implemented in the UK, Japan, South Korea, Thailand, Malaysia, the Philippines, India and Brazil? These eight countries accounted for 18.61% of total US trade in July.
Imports in shipments coming in under the de minimis exemption from China, on par with the national average for most of the past decade, were three times the national average in July, before the exemption ended. The rationale for ending the de minimis exemption stemmed from concerns about imports from China, including fentanyl and the precursor drugs used to make it.
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The end of deminis exemptions
The second question I would like to ask would be about the impact of the end of the de minimis exemption, whereby most imports worth less than $800 could enter the country duty-free.
This wasn’t in the July figures either, but may show up in the August figures. Now closely linked to e-commerce, the category was the 16th most valuable category in July on the back of a surge in imports before the end of de minimis.
Those low-value shipments totaled $16 billion and rose to $2.8 billion in July, before the end of the long-standing arrangement. The biggest increase was in shipments from China.
The $100 billion monthly deficit
Third, will the US monthly trade deficit exceed $100 billion for the fifth time in the first eight months of the year?
Reducing the US trade deficit is a pillar on which President Trump’s trade war stands. Using the International Economic Emergency Powers Act, Trump declared the US trade deficit a state of emergency. The United States has run an annual trade deficit for decades.
Would a sudden drop in the monthly deficit give the Fed any comfort? Conversely, would another month of more than $100 billion, another month indicating the apparent ineffectiveness of tariffs, play into the Fed’s thinking?
Or, in the absence of these key economic data, would the Fed feel pressured to hold off until the US Supreme Court rules on the constitutionality of the IEEPA tariffs?
Two lower courts have ruled that Trump has exceeded his presidential authority. More than three dozen “friends of the court” amicus briefs have been filed in accordance with these decisions. This includes groups generally friendly to Republican positions, such as the US Chamber of Commerce, the American Enterprise Institute, the Hoover Institute and the libertarian Cato Institute, or representatives of those groups.
The Supreme Court granted Trump’s request for a quick ruling. It is possible that the Supreme Court, which will make a legal decision, will have ruled before the next interest rate decision by the Fed, which is being asked to make an economic decision without useful data.
Gold imports rose in July after President Trump made it clear that gold imports from Switzerland would not be subject to a threatened 39% tariff that was swelling the US trade deficit.
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Admission abnormalities: Gold, servers and GLP-1 drugs
Fourth, will any of the three main import anomalies creating this large US trade deficit change course dramatically, helping to reduce the deficit but potentially hurting the economy and the stock market?
Those three are gold, a commodity that usually goes up during market busts, with warning signs flashing. computer servers for data farms fueling the artificial intelligence boom and causing some to worry about a failure. and pharmaceuticals driven by the rapid acceptance of GLP-1 weight loss drugs such as Ozempic, Wegovy and Mounjaro.
Quadrupling of the tariff
The fifth data point I would like to see from the August data, before I have to vote on rates, is linked to the percentage I used at the beginning of this post.
That’s revenue from tariffs as a percentage of total imports, which has fallen from 2.3 percent in the month before Trump announced a trade war with the world on what he called “Liberation Day” to just over 10 percent in June and slightly less in July. Anything back over 10% would not be a good sign.
These rates are not only the highest in decades, but almost certainly represent the fastest increase in this rate since the 1930s.
While inflation has climbed to 3%, remaining stubbornly above the Fed’s 2% target, many market watchers are either scratching their heads, wondering why inflation hasn’t risen faster or concluding that tariffs won’t.
I would be more concerned that it was going in the wrong direction or, at best, stalling.
The problem is that the August figures, while significant, will not include most of the tariffs Trump has threatened this year against the United States’ three biggest trading partners, Mexico, Canada and China, which account for nearly 40 percent of U.S. trade. The first two are largely exempt – for now – due to compliance with the first term of Trump’s USMCA free trade agreement, and the latter with two pauses on excessive tariff threats. Those threats led China, which traditionally buys the majority of U.S. soybeans, to hold off on buying soybeans in June and July ahead of the peak season.
In the absence of the US Census Bureau’s merchandise trade statistics and a host of other government statistics, all locked into a government shutdown, the Federal Reserve will announce its decision tomorrow. Much is at stake. It would be unfortunate to have to reverse in November or on the road. However, the consensus seems to be that the Fed will cut rates by another fourth point.
