Current Environment - Macro Overview

  November 20, 2015

Volatility led to gains in October following two months of volatility and market turmoil as the Fed’s indecisiveness raised speculation that rates wouldn’t rise until after the beginning of the year. Economic data revealed low inflation was consistent with the Fed holding off on any rate increase.

Some economists and analysts believe that the Federal Reserve has set a flight path for a rate increase, yet the question is what economic or fiscal storms would deviate the Fed from its course.

Reminiscent of 2012, fiscal constraints stemming from political debate once again pierced the veil of government spending limits as the Treasury Department set an expiration date of its borrowing ability for November 5th. Congress quickly moved in late October and passed a 2-year budget deal, increasing spending by $80 billion through September 2017. The deal also extended the Treasury Department’s borrowing ability through March 2017, thus averting a statutory default.

As U.S. presidential candidates propose various tax plans and policies, the markets anxiously await what might come of such mandates should certain candidates be elected. European regulators are now pursuing U.S. companies that have been using European operations as a tax haven, thus avoiding billions of dollars in taxes. A report issued by the Organization for Economic Cooperation & Development (OECD) released in October noted that various U.S. multi-nationals engage in unfair tax strategies.

The House of Representatives passed a bill in early October that would lift the 40-year old ban from exporting oil out of the United States. The ban was put in place in 1975 following the Arab oil embargo in order to stem oil exports and to supposedly keep oil prices from rising in the U.S.

As a result of dramatic increases in domestic oil production, U.S. Strategic Petroleum Reserves reached capacity levels, prompting the government to sell millions of barrels of oil over the next few years.

The International Monetary Funds (IMF) released a report detailing the flow of over $200 billion into the U.S. from abroad. Investments in the U.S. range from business acquisitions to real estate purchases as foreign investors seek political and fiscal stability.

Sources: Treasury, Fed, IMF

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