Key Takeaways
- Federal Reserve Vice Chair Michael Barr highlighted the U.S. economy's resilience but noted a "two-speed" dynamic, with upper-income households performing well while lower-income households struggle. He also emphasized AI's likely profound long-term economic effects, though its short-term impact may be overstated.
- A Republican bill to end the ongoing U.S. government shutdown failed to secure enough votes in the Senate, prolonging the impasse and delaying critical programs, including financial aid for farmers.
- Former President Donald Trump indicated plans to discuss soybean purchases with Chinese President Xi Jinping, as China's halt on U.S. soybean imports continues to hurt American farmers.
- The U.S. and Saudi Arabia are advancing a chips agreement, a development that comes amid ongoing U.S. concerns about China's access to advanced semiconductor technology.
- The U.S. 30-year bond sale saw a higher yield rate of 4.734%, up from the previous 4.651%, reflecting shifts in market sentiment.
Federal Reserve Vice Chair Michael Barr offered a nuanced view of the U.S. economy on Thursday, observing significant resilience but also a stark divide. Barr suggested there are "two economies right now," with upper-income households demonstrating strong performance while lower-income households face ongoing struggles. He also addressed the burgeoning influence of artificial intelligence, stating that while AI is poised to have "profound effects on the economy in the medium-term and long-term," its impact in the short-term is "probably not as big as people think." Barr further noted that AI's role in the labor market is likely to be largely complementary. Separately, Federal Reserve Governor Neel Kashkari expressed his agreement with Barr's remarks.
Regarding inflation, Barr stated that he does not believe the U.S. is experiencing a generalized spillover of tariffs into services inflation. He attributed some components of services inflation to higher stock prices. This assessment comes as tariffs have been a point of focus for the Federal Reserve, with previous discussions highlighting the potential for tariffs to disrupt supply chains and create upward pressure on inflation.
Government Shutdown Continues Amidst Political Stalemate
The ongoing U.S. government shutdown showed no signs of abating as a Republican bill aimed at ending the funding lapse failed to garner sufficient votes in the Senate. The measure, which had passed the House, received 54 votes, falling short of the 60 required to advance. This political deadlock has significant implications, including delaying the rollout of crucial programs for farmers. U.S. Agriculture Secretary Brooke Rollins stated that once the shutdown concludes, her department will be able to implement programs designed to assist farmers.
A key point of contention in the shutdown standoff remains the extension of Affordable Care Act (ACA) subsidies. Senate Republicans are reportedly considering a future vote on extending these subsidies, a move that Democrats have been pushing for. The expiration of these tax credits could lead to significant premium spikes and coverage losses for millions of Americans.
Trade Tensions with China and Saudi Chips Deal
Former President Donald Trump signaled his intent to address trade imbalances with China, specifically stating he wants to discuss soybeans with Chinese President Xi Jinping. China has reportedly halted massive purchases of U.S. soybeans as a negotiating tactic, significantly impacting American farmers. Trump also suggested the U.S. might need to "stop importing massive amounts from China" and mentioned that Howard Lutnick (CF, BGCP) and Stephen Bessent would "sort out" issues related to China's export controls. China, for its part, has recently outlined new curbs on exports of rare earth minerals and related technologies, intensifying the trade dispute over critical materials.
In other international economic news, the United States and Saudi Arabia are moving forward with a chips agreement. This development follows reports of a preliminary deal for the United Arab Emirates to import advanced Nvidia (NVDA) AI chips, though some U.S. officials have expressed national security concerns regarding potential Chinese access to this cutting-edge technology.
Bond Market Update
The U.S. 30-year bond sale concluded with a high yield rate of 4.734%, an increase from the previous 4.651%. The bid-cover ratio remained steady at 2.38. Direct accepted bids accounted for 26.9% (down from 28.0%), while indirect accepted bids rose to 64.5% (from 62.0%). The "When Issued" (WI) rate was 4.730%.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.