Recent economic and political issues in the United States are shaking up global markets and politics. This article analyzes the major issues, from the plunge in consumer sentiment to changes in Fed policy to China’s semiconductor issues, and provides key points for readers to pay attention to.
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[Korean Today] Inside view of New York Stock Exchange © Reporter Hyun Seung-min |
1. Economic uncertainty as seen through the decline in consumer confidence index
The U.S. consumer confidence index fell for the first time in three months in December, raising concerns about the economic outlook. The index came in at 104.7, well below market expectations of 113.2, according to the Conference Board.
The decline is attributed primarily to political uncertainty and tariff concerns. Forty-six percent of respondents expect tariffs to increase the cost of living, while 21 percent expect tariffs to create jobs in the U.S. This may encourage consumers to rush to buy durable goods in the short term, but could have negative implications for long-term economic stability.
The decline in consumer confidence could have a direct impact on the shopping season and investment sentiment. Experts say that “the uncertainty in the economic outlook is increasing the possibility of a Fed policy shift,” and this will also be a key variable for market participants.
2. Changes and policy directions of the Federal Open Market Committee (FOMC)
In 2024, the FOMC’s voting membership will be reshuffled, heralding a major shift in the policymaking process. The balance between hawks and doves will be rebalanced, making it more difficult to reach consensus.
With the replacement of existing members such as Cleveland and San Francisco, and the Boston and Chicago Fed presidents gaining voting power, the opposing views on rate cuts and hikes are becoming more apparent. Musallem and Schmid are taking the position that rate cuts should be approached cautiously, while Goolsbee believes that the current level of rates above neutral is appropriate.
These differences of opinion within the Fed add uncertainty to markets and make it difficult for investors to predict the direction of policy.
3. US investigation into China’s semiconductor industry
The Biden administration is launching an investigation into China’s legacy semiconductor industry, with the aim of ensuring national security and supply chain stability. Legacy chips are different from cutting-edge semiconductors, but they are widely used in essential industries such as automobiles, aerospace, and medical devices.
The investigation is based on suspicions that China is providing excessive subsidies to the semiconductor industry, thereby encouraging unfair competition. The U.S. government is considering raising the 25% tariff to 50% in this regard.
The US, which suffered from a shortage of semiconductors during the COVID-19 pandemic, is taking these measures to prevent future supply chain disruptions, which could open a new phase in the trade war between the US and China.
4. Dollar-Yen Exchange Rate Outlook and Possibility of Japanese Government Intervention
Recently, the possibility that the dollar-yen exchange rate will rise to 160-165 yen has been raised, drawing attention from market participants. This is due to the difference between the Fed’s tightening policy and the Bank of Japan’s (BOJ) easing policy.
Hedge funds are taking advantage of this gap to build aggressive investment positions, which is likely to make the foreign exchange market even more volatile. The Japanese government is considering market intervention to prevent excessive exchange rate appreciation from having an impact on the economy, so investors are keeping a close eye on the movements of Japanese authorities.
These exchange rate changes will have a direct impact not only on global currency markets but also on trade.
5. Trump’s Hardline Diplomatic Strategy
Former President Donald Trump has been pursuing a hard-line diplomatic strategy, mentioning the Panama Canal and the Greenland purchase. Trump has claimed that the Panama Canal tolls are too high for American ships, and if they are not corrected, he will demand the return of ownership.
He also reiterated his intention to purchase Danish Greenland, saying it was “essential to American national security and global freedom.” These remarks have caused a stir in international diplomacy, heightening tensions between the United States and the country in question.
Trump’s approach will likely be a key variable in determining the future direction of American diplomacy.
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