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Yahoo
16 minutes ago
- Yahoo
Are US tariffs starting to bite? Trump, in denial over rising prices, targets Fed chief Powell
Memo from the White House: inflation is 'right on track', it declared this week, citing the latest official data. Price growth is now 'very low', according to Donald Trump. The actual statistics paint a markedly different picture. Just six months after he regained power, in part by promising to rapidly reduce prices, Trump has presided over the chaotic rollout of tariffs on an array of overseas products that many have argued risk having the exact opposite effect. After a lull, the consumer price index (CPI) is back on the rise. In June, everything from fruit and washing machines to dresses and toys became more expensive. Businesses in the US and around the world have struggled to keep up with the Trump administration's erratic rollout of its aggressive trade strategy: the daily White House soap opera of warnings, threats, confusion, deadlines, delays and drama. Related: Can Trump fire Federal Reserve chair Jerome Powell? Putting to one side the steady stream of twists, cliffhangers and all-caps declarations, each episode has pushed US tariffs higher. The overall average effective tariff rate is now set to hit 20.6%, according to the non-partisan The Budget Lab at Yale, its highest level since 1910. Eventually, someone has to foot the bill. Interactive By Trump's telling, the countries he targets will be forced to pay up. But in reality, tariffs are paid by the importer – US-based companies, in this case – and often passed on. Tariffs are a burden. One way or another, the impact typically is felt along each link of the supply chain, from the initial manufacturer to the customer who buys the finished product. 'All through that chain, people will be trying not to be the ones who pick up the cost,' noted Jerome Powell, the Federal Reserve chair, at a recent press conference. 'But ultimately, the cost of the tariff has to be paid and some of it will fall on the end consumer,' added Powell. 'We know that. That's what businesses say. That's what the data says from past evidence. So we know that's coming.' The effect is not immediate, though. It might take Trump a matter of minutes to announce a tariff on Truth Social, but the full effects can take months to work their way through the economy. Interactive And so Powell, and the Fed, has waited. For seven months now, at four consecutive meetings, the US central bank's policymakers have sat on their hands and kept interest rates on hold. After dramatically raising rates to combat inflation, they want to see how prices respond to Trump's tariffs before cutting them back. It's early days. Prices are still rising, and by more than the Fed's target of 2% each year. Officials want to know if Trump's plan will make them rise faster. The evidence has so far been mixed. While consumer price growth accelerated slightly between May and June, the annual rate of wholesale price growth slipped. The Fed's latest 'beige book', a semi-quarterly report of anecdotal economic insights from across the US, also released this week, described a relatively calm business landscape, despite persisting uncertainty. Assuming Trump's announced tariffs are enforced, they will dent US economic growth by 0.1 percentage point this year and 0.3 percentage points next, according to modeling by Oxford Economics. 'The drag on the economy is predominantly tied to core inflation, which will temporarily be 0.2bps [basis points] higher than in the current baseline,' said its chief US economist, Ryan Sweet. 'Though the boost to consumer prices is modest, it still reduces growth in real disposable income and, by extension, consumer spending.' Inside the Fed's headquarters in Washington DC, Powell and his officials are patiently monitoring the data while deciding their next steps. But less than a mile away, one man is not prepared to wait. In a series of increasingly bitter attacks, Trump has publicly lambasted Powell for being 'too late' to cut rates, and claimed the Fed's inaction is costing the US economy. He has called on Powell (whom he first tapped to be Fed chair in 2017) to quit, and unnerved Wall Street by raising the prospect of firing him. Bharat Ramamurti, former deputy director of the national economic council under Joe Biden, said: 'If you replace Jay Powell with someone who is clearly doing whatever Donald Trump wants them to do, expectations about what inflation is going to do in the long run are going to spike and that's going to create a real problem for the Fed in the long term.' The supreme court signaled it views the Fed chair as legally shielded from presidential removal, describing the central bank as a 'uniquely structured, quasi-private entity' in a May ruling about two of Trump's other firings. Trump is 'highly unlikely' to fire Powell, he has asserted, before floating one reason he might have to go: a $2.5bn renovation of the Fed's buildings. 'I mean, it's possible there's fraud involved,' the president claimed. Powell has reportedly asked the central bank's inspector general to review the project. Powell is due to finish his term in May, and has stressed he will remain in post until then. Advocates of the Fed's independence insist the more important question is not whether the president can remove him before then, but if he should. 'Once you no longer have the check of the central bank, which can raise interest rates as needed to curb inflation, you really start to raise the specter of runaway costs, runaway inflation, and it makes the US economy less attractive for investors domestically and abroad,' said Ramamurti. Inflation is 'right on track', according to his administration. Economists are already concerned it is tilting off course – and Trump won't rule out taking action that critics warn would shunt it off the rails altogether.
Yahoo
16 minutes ago
- Yahoo
Trump steps up attacks on Fed's independence amid interest rates row
Donald Trump called on top Federal Reserve officials to seize control from its chair, Jerome Powell, if he fails to cut interest rates, stepping up his extraordinary attacks on the central bank's independence. The US president called Powell 'a stubborn MORON' in a series of critical social media posts on Friday, days after the Fed held rates steady for the fifth consecutive time. It comes as Trump faces heightened questions over the impact of his aggressive economic policy, and the White House presses forward with plans for a fresh wave of tariffs next week. Hours before the federal government released data which underlined a significant deterioration in the jobs market, Trump again broke with precedent to pin blame on the Fed – and urge it to change course. 'Jerome 'Too Late' Powell, a stubborn MORON, must substantially lower interest rates, NOW,' Trump wrote on Truth Social, his social network. 'IF HE CONTINUES TO REFUSE, THE BOARD SHOULD ASSUME CONTROL, AND DO WHAT EVERYONE KNOWS HAS TO BE DONE!' Related: Divided Fed leaves interest rates unchanged despite Trump pressure The Fed chair does not unilaterally set interest rates, which are decided by its rate-setting Federal Open Market Committee. Presidents typically respect its independence, leaving the central bank to make an objective decision – without political interference – about the best policy on interest rates for the US economy. 'Too Little, Too Late. Jerome 'Too Late' Powell is a disaster,' Trump wrote, minutes after Friday's lackluster jobs report. 'DROP THE RATE! The good news is that Tariffs are bringing Billions of Dollars into the USA!' Powell has repeatedly argued that the best approach for the Fed right now is to wait and see the impact of Trump's aggressive tariff strategy before cutting rates. But Trump has increasingly used the Powell, whom he appointed during his first term, as something of a piñata – repeatedly accusing him of damaging the US economy. Two members of the Fed's rate-setting committee dissented from its other policymakers' call to hold rates steady this week, and – to the president's delight – published their reasons on Friday. 'STRONG DISSENTS ON FED BOARD,' Trump wrote, claiming: 'IT WILL ONLY GET STRONGER!' By Friday evening, however, Trump's tone appeared to have changed as he told Newsmax during an interview that Powell will 'most likely' stay in his position. Trump said he would remove Powell 'in a heartbeat' and said the Fed's interest rate was too high but added that others have said Powell's removal would 'disturb the market'. 'He gets out in seven or eight months and I'll put somebody else in,' Trump said. On Friday afternoon, another member of the committee abruptly resigned. Adriana D Kugler, whose term was set to expire in January, announced she would step down next week. She did not provide a reason for the move, and will return to Georgetown University as a professor in the fall. 'I am especially honored to have served during a critical time in achieving our dual mandate of bringing down prices and keeping a strong and resilient labor market,' Kugler said in a statement. Her resignation creates a vacancy for the White House to fill. Reuters contributed reporting Sign in to access your portfolio
Yahoo
16 minutes ago
- Yahoo
Trump fires US labor official over data and gets earlier than expected chance to reshape Fed
By Lucia Mutikani, Nandita Bose and Michael S. Derby WASHINGTON/NEW YORK (Reuters) -President Donald Trump on Friday fired a top Labor Department official on the heels of a market-shocking weak scorecard of the U.S. job market, accusing her without evidence of manipulating the figures and adding to already growing concerns about the quality of economic data published by the federal government. In a second surprise economic policy development, the door for Trump to make an imprint on a Federal Reserve with which he clashes almost daily for not lowering interest rates opened much earlier than anticipated when Fed Governor Adriana Kugler unexpectedly announced her resignation on Friday afternoon. The two developments further rattled a stock market already reeling from his latest barrage of tariff announcements and the weak jobs data. The benchmark S&P 500 Index sank 1.6% in its largest daily drop in more than two months. Trump accused Erika McEntarfer, appointed by former President Joe Biden, of faking the jobs numbers. There is no evidence to back Trump's claims of data manipulation by the Bureau of Labor Statistics, the statistical agency that compiles the closely watched employment report as well as consumer and producer price data. A representative for the BLS did not respond to a request for comment. Friday began with BLS reporting the U.S. economy created only 73,000 jobs in July, but more stunning were net downward revisions showing 258,000 fewer jobs had been created in May and June than previously reported. "We need accurate Jobs Numbers. I have directed my Team to fire this Biden Political Appointee, IMMEDIATELY. She will be replaced with someone much more competent and qualified," Trump said in a post on Truth Social. DATA CONCERNS A Trump administration official who requested anonymity said that while all economic data is noisy, the White House has been dissatisfied with how large the revisions have been in the recent data and issues with lower survey responses. The problem started during COVID and has not been addressed in the years since. "There are these underlying problems that have been festering here for years now that have not been rectified," the person said. "The markets and companies and the government need accurate data, and like, we just weren't getting that," the official said. The BLS has already reduced the sample collection for consumer price data as well as the producer price report, citing resource constraints. The government surveys about 121,000 businesses and government agencies, representing approximately 631,000 individual worksites for the employment report. The response rate has declined from 80.3% in October 2020 to about 67.1% in July, BLS data shows. A Reuters poll last month found 89 of 100 top policy experts had at least some worries about the quality of U.S. economic data, with most also concerned that authorities are not addressing the issue urgently enough. In addition to the concerns over job market data, headcount reductions at BLS have resulted in it scaling back the scope of data collection for the Consumer Price Index, one of the most important gauges of U.S. inflation, watched by investors and policymakers worldwide. Trump's move fed into concerns that politics may influence data collection and publication. "Politicizing economic statistics is a self-defeating act," said Michael Madowitz, principal economist at the Roosevelt Institute's Roosevelt Forward. "Credibility is far easier to lose than rebuild, and the credibility of America's economic data is the foundation on which we've built the strongest economy in the world. Blinding the public about the state of the economy has a long track record, and it never ends well." FED CHANGE SOONER THAN EXPECTED Meanwhile, Kugler's surprise decision to leave the Fed at the end of next week presents Trump an earlier-than-expected opportunity to install a potential successor to Fed Chair Jerome Powell on the central bank's Board of Governors. Trump has threatened to fire Powell repeatedly because the Fed chief has overseen a policymaking body that has not cut interest rates as Trump has demanded. Powell's term expires next May, although he could remain on the Fed board until January 31, 2028, if he chooses. Trump will now get to select a Fed governor to replace Kugler and finish out her term, which expires on January 31, 2026. A governor filling an unexpired term may then be reappointed to a full 14-year term. Some speculation has centered on the idea Trump might pick a potential future chair to fill that slot as a holding place. Leading candidates for the next Fed chair include Trump economic adviser Kevin Hassett, Treasury Secretary Scott Bessent, former Fed Governor Kevin Warsh and Fed Governor Chris Waller, a Trump appointee who this week dissented with the central bank's decision to keep rates on hold, saying he preferred to start lowering them now. Trump, as he was leaving the White House to spend the weekend at his Bedminster, New Jersey, estate, said he was happy to have the open slot to fill. "I would not read any political motivation into what [Kugler is] doing, although the consequence of what she's doing is she's calling Trump's bluff," said Derek Tang, an analyst at LH Meyer, a research firm. "She's putting the ball in his court and saying, look, you're putting so much pressure on the Fed, and you want some control over nominees, well, here's a slot." (Additional reporting by Jasper Ward and Trevor Hunnicutt; Writing by Daniel Burns; Editing by Chris Reese and Nia Williams and Anna Driver) Sign in to access your portfolio
