Mnuchin extends debt limit measure

Treasury seeks to stave off default with two months extension

WASHINGTON, July 29, (RTRS): US Treasury Secretary Steven Mnuchin on Friday said he would extend for two more months one of the extraordinary cash management measures that the Treasury is using to stave off a debtlimit default.

Mnuchin said in a letter to House of Representative Speaker Paul Ryan that he would continue to withhold investments from the Civil Service Retirement and Disability Fund, until Sept 29.

The Treasury’s previous “debt issuance suspension period” for the federal employee pension fund was due to expire on Friday.

Mnuchin had to take the step because Congress has not passed an extension or increase in the federal debt limit, and the Treasury needs to withhold funds from the pension fund in order to preserve its borrowing capacity. It has taken several similar measures since the last extension of the debt limit expired in March at just under $20 trillion.

Mnuchin urged lawmakers this week to act on the borrowing limit before their August recess, but his request fell on deaf ears. The House of Representatives is on recess until Sept 5.

Mnuchin and fiscal watchdog groups have estimated that the Treasury will fully exhaust its remaining borrowing capacity in October, raising the risk that the United States cannot meet all of its payment obligations with incoming tax revenue.

The Treasury is required by law to make the pension fund whole, including interest, when the debt limit is increased.

In testimony before the House Financial Services Committee on Thursday, Mnuchin said that Congress’ budgeting process, including the role the debt limit plays, “needs to be looked at.”

Wage growth, however, decelerated despite an unemployment rate that averaged 4.4 percent in the second quarter. Inflation also retreated, appearing to weaken the case for the Federal Reserve to raise interest rates again this year.

“Although growth is solid, the lack of wage pressure buys the Fed plenty of time, and works with a very ‘gradual’ tightening cycle,” said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank in New York. “There is more here for the Fed doves than the hawks.”

Prices of US Treasuries rose after the data but pared gains as oil prices hit two-month highs. The dollar fell against a basket of currencies and stocks on Wall Street were trading lower following recent hefty gains.

Economists expect the Fed to announce a plan to start reducing its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities in September.

The US central bank left rates unchanged on Wednesday and said it expected to start winding down its portfolio “relatively soon.” The Fed has raised rates twice this year.

The rise in second-quarter GDP was in line with economists’ expectations. Output was previously reported to have increased at a 1.4 percent pace in the first quarter.

The economy grew 1.9 percent in the first half of 2017, making it unlikely that GDP would top 2.5 percent for the full year. President Donald Trump has set an ambitious 3.0 percent growth target for 2017.

While the Trump administration has vowed to cut corporate and individual taxes as part of its business-friendly agenda, Republicans’ struggles in Congress to pass a healthcare restructuring have left analysts skeptical on the prospects of fiscal stimulus. So far, the impasse in Washington has not hurt either business and consumer confidence.

In this file photo, job applications and information for the Gap Factory Store sit on a table during a job fair at Dolphin Mall in Miami. The US economy acquired an exclusive label, on July 28: Recession-free for eight full years. Unemployment has fallen dramatically, from a peak of 10 percent in October 2009 to 4.4. But the long-term unemployed, those out of work for six months or more – make up an unusually large share of today’s jobless: 24

percent, versus 4 percent eight years deep into the 1961-1969 expansion and 12 percent in 1991-2001. (AP)

Resurgence

A resurgence in consumer spending accounted for the bulk of the pickup in economic growth in the second quarter. Consumer spending, which makes up more than two-thirds of the US economy, grew at a 2.8 percent rate. That was an acceleration from the 1.9 percent pace logged in the first quarter.

But with wage growth remaining sluggish despite the labor market being near full employment, there are concerns that consumer spending could slow in the third quarter.

In a separate report on Friday, the Labor Department said wages and salaries increased 0.5. percent in the April-June period after accelerating 0.8 percent in the first quarter.

They rose 2.3 percent on a yearon-year basis. There were, however, strong wage gains in the information, finance and natural resources sectors.

“A tightening labor market ought to put upward pressure on wage rates, but employers are likely to resist increases as long as they can, given the state of productivity,” said John Ryding, chief economist at RDQ Economics in New York.

Inflation was subdued in the second quarter. The Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) price index excluding food and energy, increased at a 0.9 percent rate.

That was the slowest rise in more than two years and followed a 1.8 percent rate of increase in the first quarter.

The gross domestic purchases price index, another measure of inflation pressures in the economy, increased at a 0.8 percent rate after advancing 2.6 percent in the prior quarter.