A new green beggar-thy-neighbour strategy

<p>Kia ora,</p><p>Welcome to Thursday's Economy Watch where we follow the economic events and trends that affect New Zealand.</p><p>I'm David Chaston and this is the International edition from Interest.co.nz.</p><p>Today we lead with news of a green twist in beggar-thy-neighbour economic policies.</p><p>But first, in today's review of its policy settings, the <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20210428a.htm" target="_blank"><strong>US Federal Reserve has changed nothing</strong></a>. It did acknowledge the greatly improved economic prospects, and it said it wants to see inflation running ahead of its target 2% for some time before it will make any changes. And it gave no indication of any tapering its bond purchases and QE support. The equity markets have ignored the statement. Bond markets have seen yields fall, but only marginally.</p><p>Some analysts are saying the US economy is in for a sustained rise in inflation, rather than the transitory increase that Fed policymakers are suggesting. And that markets are underestimating the Fed’s tolerance for higher inflation, meaning rates will be kept near-zero until late 2023 – later than many expect – which in turn means that real interest rates will remain negative for years.</p><p>Meanwhile, the US <a href="https://www.census.gov/econ/indicators/advance_report.pdf" target="_blank"><strong>merchandise trade deficit</strong></a> swelled to -US$85.6 bln in March, and far above the March 2020 deficit of -US$60 bln. But this one is on the back of fast-rising exports, up +12%, and even faster rising imports, up +22% year-on-year. No doubt, their services surplus will be rising as well, but that is not included in this report.</p><p>The new Biden Administration is set to announce a US$1.8 tln program of new spending on safety-net issues like child care, education and paid leave and extensions of some tax breaks. It wants to fund it with new taxes on about 500,000 uber-wealthy Americans. The proposal follows on the heels of a US$2.25 t