Remember that in a beggar thy neighbor world, where currency warfare has once again broken out between the US, Europe and Japan, for every winner there is a loser. In this case, the loser is the one country that has decided that a strong currency is a great thing for its economy (if only for the time being): that would be the US.
Why is this relevant? Because as the chart below shows, US trade excluding Petroleum, just crashed to $43.7 billion, the worst print in the history of the series, suggesting that portrayals of the US as a resurgent export powerhouse are completely erroneous, and that instead the US is as big a net importer of goods and services (and soon to be oil) as ever.
Biggest ever trade deficit (ex Petroleum)
The crucial point here is that with Shale production now expected to decline (if only modestly: after all those junk bond investors are desperate to keep the MotherFracking dream alive), the US will soon have to import more oil which will require more debt issuance to fund the soaring trade deficit which will require more QE to monetize the deficit.
And thus the stage is set for QE4.
One thing is sure – if the trade deficit surge continues, and Q1 GDP tumbles below 0%, the Fed will be right back at the frontlines, CTRL-Ping the US economy right back into “beggar thy global neighbor”competitiveness. Because as we noted, with Q1 GDP now assured a negative print, and with Q2 GDP according to the Atlanta Fed at 0.8% and likely going lower if there are several “unexpected” spring showers, the US may enter a technical recession as soon as June 30.
Hardly the stuff rate hikes are made of...