FRANCE: PM Bayrou To Outline Plans For Spending Cuts Early July
Speaking to BFM TV, Prime Minister Francois Bayrou says that the gov't will seek E40B in spending cuts in the next budget, with the gov't to present its proposals in early July, saying he "will ask all French people to make an effort" to steady the public finances. The PM says savings must be found as "The country is in a situation of over-indebtedness[...]. Every month, we spend 10% more than what comes into our coffers. It's an unbearable situation that cannot continue," Bayrou says that come the start of July, "I will outline in an overall plan the choices we are making to return to a certain balance in three or four years."
- It is unclear at present what measures might be included as part of the package. Bayrou does add he "could take up" the issue of "social VAT", which consists of compensating for reductions in contributions weighing on employment by increasing VAT."
- Separately, Bayrou says that he would support the introduction of proportional representation for legislative elections. Currently, deputies are elected for single-member constituencies via a two-round system. Bayrou supports a 5% threshold for winning seats, with deputies apportioned proportionally on a department-by-department basis.
- A PR system has been used once during the Fifth Republic, in 1986. This election resulted in the first period of 'cohabitation' in the Fifth Republic (the president and PM hailing from different parties), and saw the far-right Front National of the late Jean-Marie Le Pen win seats for the first time.
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US TSYS: Extraordinary Measures And Cash Look Sufficient To Head Off X-Date
Treasury has about $164B in "extraordinary measures" available as of April 23 to avoid hitting the debt limit, per its regular report out Friday. That's out of a maximum total of $375B (they have used $211B).
- With Treasury cash looking healthy (around $600B), that's a fair amount of dry powder to get through the summer months to wait out the debt limit impasse. Tax receipts have looked strong with tariff revenues also starting to boost cash flows, further reducing the near-term urgency to adjust bond issuance.
- This has also helped push back analyst “x-date” expectations to later in the summer/September. We expect to hear from Treasury about its own x-date assumptions next week.
US TSYS: Treasury Market Trading Stayed Orderly In April: Fed Report
Liquidity across financial markets including the Treasury market deteriorated after President Trump's April 2 reciprocal tariffs announcement but market functioning was generally orderly, according to the Federal Reserve's semiannual report on financial stability, released Friday. (PDF link is here)
- Treasury market liquidity has been poor for years and yields were particularly volatile in early April, contributing to a deterioration in market liquidity, the Fed said.
- Nevertheless "trading remained orderly, and markets continued to function without serious disruption," according to the report, which looked at information available as of April 11.
FED: Ex-Gov Warsh: Fed Has Failed To Satisfy Price Stability Remit
From our Washington Policy Team - Some fairly sharp words today from ex-Fed Governor Warsh on the central bank (who for what it's worth is seen by betting markets as by far the frontrunner for the next Fed Chair):
- The best way for the Federal Reserve to safeguard its independence is for policymakers to avoid expanding the institution's role over time, including wading into policy areas that are outside its core mission, former Fed Governor Kevin Warsh, a leading contender to replace Jerome Powell as chair next year, said Friday.
- "I strongly believe in the operational independence of monetary policy as a wise political economy decision. And I believe that Fed independence is chiefly up to the Fed," Warsh said in a speech at a Group of Thirty event on the sidelines of the IMF meetings. "Institutional drift has coincided with the Fed’s failure to satisfy an essential part of its statutory remit, price stability. It has also contributed to an explosion of federal spending." His speech made no mention of Trump's tariffs or the appropriate monetary policy to deal with them.
- He said the ideas of data dependence and forward guidance widely adopted by Fed officials are not especially useful and might even be counterproductive.
"We should care little about two numbers to the right of the decimal point in the latest government release. Breathlessly awaiting trailing data from stale national accounts -- subject to significant, subsequent revision -- is evidence of false precision and analytic complacency," he said.
"Near-term forecasting is another distracting Fed preoccupation. Economists are not immune to the frailties of human nature. Once policymakers reveal their economic forecast, they can become prisoners of their own words. Fed leaders would be well-served to skip opportunities to share their latest musings."
