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US Net International Investment Position Worsens to -$23.60 Trillion in Q3 2024
Liabilities surge by $2.83 trillion due to increased US stock prices and foreign purchases
The US net international investment position deteriorated further, reaching -$23.60 trillion at the end of the third quarter of 2024, as reported by the Bureau of Economic Analysis. This represents a steep decline from the -$22.55 trillion recorded in the previous quarter, driven by significant shifts in financial transactions and market valuations.
The Federal Reserve has been trying to stimulate further growth with interest rate cuts but the high inflation rates have cast doubt on its headroom for accelerated action in 2025, as Fed Reserve chair Jerome Powell said earlier this month.
Changes in Investment Dynamics
The shift in the US international investment position during the third quarter was primarily influenced by net financial transactions amounting to -$479.5 billion and other changes totaling -$577.2 billion, which included price and exchange rate fluctuations. The largest impact came from a drastic price adjustment of -$1.43 trillion due to a rise in U.S. stock prices that disproportionately increased the value of U.S. liabilities over assets.
Exchange Rate Impacts on Asset Valuation
Despite the negative trends, some relief was seen through exchange rate changes that favored the U.S. dollar, contributing $936.0 billion to the asset side. These changes significantly enhanced the dollar value of U.S. assets abroad, particularly in the portfolio and direct investment categories, which saw increases of $786.2 billion and $563.5 billion, respectively.
Growth in US Assets and Liabilities
Total U.S. assets saw a rise, reaching $37.86 trillion, spurred by the appreciation of major foreign currencies against the U.S. dollar. However, U.S. liabilities outpaced this growth, escalating to $61.46 trillion by the end of the quarter, mainly due to surging U.S. stock prices and robust foreign investment in U.S. securities.
Sector-Specific Shifts
The portfolio investment segment experienced significant volatility, with liabilities jumping by $1.59 trillion to $32.49 trillion, driven by a combination of stock price increases and active foreign transactions. Direct investment liabilities also saw a substantial increase, surging by $840.5 billion due to similar market dynamics.
