logo

Atlanta Fed shock sounds 'Trumpcession' warning: McGeever

Zawya04-03-2025

(The opinions expressed here are those of the author, a columnist for Reuters.)
ORLANDO, Florida - "Trumpcession".
If you haven't heard the term before, you will now, as a closely watched real-time U.S. economic weathervane is signalling that GDP is shrinking at the fastest pace since the pandemic lockdown.
The Atlanta Fed's GDPNow model estimate for annualized growth in the current quarter was a stunning -2.8% on Monday, down from +2.3% last week. A month ago the model showed that growth in the January-March period was tracking close to +4.0%.
These estimates are published regularly as new economic data is released, and can be quite volatile. There were 11 in February alone. Friday's shock reading of -1.5% was led by a record-high $153 billion trade deficit in January, most likely as firms front-loaded imports ahead of tariffs, and Monday's decline was driven by soft manufacturing activity.
There's every chance -2.8% turns into a positive reading in a few weeks.
True, the Atlanta Fed number is an outlier for now. The New York Fed's equivalent Nowcast real-time tracking model was updated on Friday to +2.9% annualized growth in Q1 from +3.0%. And the Dallas Fed's "weekly economic index", which doesn't include the most recent data, was showing +2.4% on February 27.
But the Atlanta Fed's GDPNow real-time estimates are historically the most reliable of these models, and the negative figures didn't come out of nowhere. A lot of soft economic indicators, like sentiment surveys, have been extremely weak in recent weeks, and some hard economic activity indicators are flashing red too.
Consumer sentiment in January slumped the most in three and a half years, retail sales dropped by the most in nearly two years, real spending fell at the fastest rate since early 2021, and retail giant Walmart has warned of a tough year ahead. It's perhaps no surprise that Citi's U.S. economic surprises index has slid into negative territory, hitting the lowest point since September.
A common thread running through all of this is the huge level of uncertainty being created by U.S. President Donald Trump's agenda: trade protectionism, particularly tariffs; his apparent growing closeness with Russia and distance from traditional allies like Europe; and the DOGE (Department of Government Efficiency) scythe being taken to federal spending and employment.
NEGATIVE WEALTH EFFECT
Markets are certainly signaling there could be trouble ahead. The Nasdaq has lost as much as 9% in 10 days, with Big Tech down even more. Investors are seeking the safety of U.S. Treasuries: the two-year yield on Friday fell below 4.00% for the first time since October, and the 10-year yield has tumbled 60 bps since mid-January.
These moves could matter to the real economy because of the "wealth effect". As Moody's Mark Zandi noted recently, the top 10% of American households now account for around half of all consumer spending. That's a record. They also own a lot of stocks, and if Wall Street is heading south, they are more likely to tighten their belts.
Economist Phil Suttle said he expected Trump's agenda to weigh on the economy this year, but didn't expect it to have such an apparently negative impact so quickly. But if the "blunt and chaotic" implementation of Trump's spending and trade policies hit growth harder than imagined, the Federal Reserve may cut rates in the second quarter, Suttle reckons.
The Fed's rate-cutting cycle is on hold for now, largely because of the uncertainty surrounding Trump's trade and fiscal policies. But an impending "Trumpcession" probably wasn't on policymakers' mind when they pressed the pause button. It likely is now.
(The opinions expressed here are those of the author, a columnist for Reuters.)
(By Jamie McGeever)

Orange background

Try Our AI Features

Explore what Daily8 AI can do for you:

Comments

No comments yet...

Related Articles

World Bank slashes global growth forecast as trade tensions bite
World Bank slashes global growth forecast as trade tensions bite

Al Etihad

timean hour ago

  • Al Etihad

World Bank slashes global growth forecast as trade tensions bite

10 June 2025 17:49 WASHINGTON (REUTERS)The World Bank on Tuesday slashed its global growth forecast for 2025 by 0.4 percentage point to 2.3%, saying that higher tariffs and heightened uncertainty posed a "significant headwind" for nearly all its twice-yearly Global Economic Prospects report, the bank lowered its forecasts for nearly 70% of all economies - including the United States, China and Europe, as well as six emerging market regions - from the levels it projected just six months ago before US President Donald Trump took has upended global trade with a series of on-again, off-again tariff hikes that have increased the effective US tariff rate from below 3% to the mid-teens - its highest level in almost a century - and triggered retaliation by China and other World Bank is the latest body to cut its growth forecast as a result of Trump's erratic trade policies, although US officials insist the negative consequences will be offset by a surge in investment and still-to-be approved tax bank stopped short of forecasting a recession, but said global economic growth this year would be its weakest outside of a recession since 2008. By 2027, global gross domestic product growth was expected to average just 2.5%, the slowest pace of any decade since the report forecast that global trade would grow by 1.8% in 2025, down from 3.4% in 2024 and roughly a third of its 5.9% level in the 2000s. The forecast is based on tariffs in effect as of late May, including a 10% US tariff on imports from most countries. It excludes increases announced by Trump in April and then postponed until July 9 to allow for bank said global inflation was expected to reach 2.9% in 2025, remaining above pre-COVID levels, given tariff increases and tight labor it said the risk of a global recession was less than 10%.The World Bank said the global outlook had "deteriorated substantially" since January, mainly due to advanced economies, now seen growing by just 1.2%, down half a point, after expanding 1.7% in US forecast was slashed by 0.9 percentage point from its January forecast to 1.4%, and the 2026 outlook was lowered by 0.4 percentage point to 1.6%. Rising trade barriers, "record-high uncertainty" and a spike in financial market volatility were expected to weigh on private consumption, trade and investment, it estimates in the euro area were cut by 0.3 percentage point to 0.7% and in Japan by 0.5 percentage point to 0.7%.It said emerging markets and developing economies were expected to grow by 3.8% in 2025 versus 4.1% in January's countries would suffer the most, the report said. By 2027 developing economies' per capita GDP would be 6% below pre-pandemic levels, and it could take these countries - minus China - two decades to recoup the economic losses of the heavily dependent on trade with the US, saw its growth forecast cut by 1.3 percentage points to 0.2% in 2025. The World Bank left its forecast for China unchanged at 4.5% from January, saying Beijing still had monetary and fiscal space to support its economy and stimulate growth.

World Bank slashes global growth forecast as trade tensions bite
World Bank slashes global growth forecast as trade tensions bite

Zawya

timean hour ago

  • Zawya

World Bank slashes global growth forecast as trade tensions bite

The World Bank on Tuesday slashed its global growth forecast for 2025 by 0.4 percentage point to 2.3%, saying that higher tariffs and heightened uncertainty posed a "significant headwind" for nearly all economies. In its twice-yearly Global Economic Prospects report, the bank lowered its forecasts for nearly 70% of all economies - including the United States, China and Europe, as well as six emerging market regions - from the levels it projected just six months ago before U.S. President Donald Trump took office. Trump has upended global trade with a series of on-again, off-again tariff hikes that have increased the effective U.S. tariff rate from below 3% to the mid-teens - its highest level in almost a century - and triggered retaliation by China and other countries. The World Bank is the latest body to cut its growth forecast as a result of Trump's erratic trade policies, although U.S. officials insist the negative consequences will be offset by a surge in investment and still-to-be approved tax cuts. The bank stopped short of forecasting a recession, but said global economic growth this year would be its weakest outside of a recession since 2008. By 2027, global gross domestic product growth was expected to average just 2.5%, the slowest pace of any decade since the 1960s. The report forecast that global trade would grow by 1.8% in 2025, down from 3.4% in 2024 and roughly a third of its 5.9% level in the 2000s. The forecast is based on tariffs in effect as of late May, including a 10% U.S. tariff on imports from most countries. It excludes increases announced by Trump in April and then postponed until July 9 to allow for negotiations. The bank said global inflation was expected to reach 2.9% in 2025, remaining above pre-COVID levels, given tariff increases and tight labor markets. "Risks to the global outlook remain tilted decidedly to the downside," the bank wrote. It said its models showed that a further 10-percentage point increase in average U.S. tariffs, on top of the 10% rate already implemented, and proportional retaliation by other countries, could shave another 0.5 percentage point off the outlook for 2025. Such an escalation in trade barriers would result "in global trade seizing up in the second half of this year ... accompanied by a widespread collapse in confidence, surging uncertainty and turmoil in financial markets," the report said. Nonetheless, it said the risk of a global recession was less than 10%. 'FOG ON A RUNWAY' Top officials from the United States and China are meeting in London this week to try to defuse a trade dispute that has widened from tariffs to restrictions over rare earth minerals, threatening a global supply chain shock and slower growth. "Uncertainty remains a powerful drag, like fog on a runway. It slows investment and clouds the outlook," World Bank Deputy Chief Economist Ayhan Kose told Reuters in an interview. But he said there were signs of increased dialogue on trade that could help dispel uncertainty, and supply chains were adapting to a new global trade map, not collapsing. Global trade growth could see a modest rebound in 2026 to 2.4%, and developments in artificial intelligence could also boost growth, he said. "We think that eventually the uncertainty will decline," he said. "Once the type of fog we have lifts, the trade engine may start running again, but at a slower pace." Kose said while things could get worse, trade was continuing and China, India and others were still delivering robust growth. Many countries were also discussing new trade partnerships that could pay dividends later, he said. US GROWTH FORECAST CUT SHARPLY The World Bank said the global outlook had "deteriorated substantially" since January, mainly due to advanced economies, now seen growing by just 1.2%, down half a point, after expanding 1.7% in 2024. The U.S. forecast was slashed by 0.9 percentage point from its January forecast to 1.4%, and the 2026 outlook was lowered by 0.4 percentage point to 1.6%. Rising trade barriers, "record-high uncertainty" and a spike in financial market volatility were expected to weigh on private consumption, trade and investment, it said. Growth estimates in the euro area were cut by 0.3 percentage point to 0.7% and in Japan by 0.5 percentage point to 0.7%. It said emerging markets and developing economies were expected to grow by 3.8% in 2025 versus 4.1% in January's forecast. Poor countries would suffer the most, the report said. By 2027 developing economies' per capita GDP would be 6% below pre-pandemic levels, and it could take these countries - minus China - two decades to recoup the economic losses of the 2020s. Mexico, heavily dependent on trade with the U.S., saw its growth forecast cut by 1.3 percentage points to 0.2% in 2025. The World Bank left its forecast for China unchanged at 4.5% from January, saying Beijing still had monetary and fiscal space to support its economy and stimulate growth. (Reporting by Andrea Shalal; Editing by Andrea Ricci)

Stocks, dollar stall as investors watch progress in US-China trade talks
Stocks, dollar stall as investors watch progress in US-China trade talks

Zawya

time3 hours ago

  • Zawya

Stocks, dollar stall as investors watch progress in US-China trade talks

Global stocks and the dollar held steady on Tuesday as trade talks between the United States and China continued into a second day, giving investors some reason to believe tensions between the world's two largest economies may be easing. U.S. Commerce Secretary Howard Lutnick said discussions between the two sides were going well, while President Donald Trump on Monday put a positive spin on the talks after Monday's session. Lutnick, together with Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer met their Chinese counterparts in London. Any progress in the negotiations is likely to provide relief to markets given that Trump's often-shifting tariff announcements and swings in Sino-U.S. ties have undermined the two economies, disrupted supply chains and threaten to hobble global growth. World stocks, as reflected by the MSCI All-Country World index, traded near record highs, while the dollar steadied against a range of currencies. "While market participants are clearly taking a glass half-full view of the outlook, both on trade policy and more broadly, we don't think that should be interpreted as a view that tariffs will be fully unwound," said Jonas Goltermann, deputy chief markets economist at Capital Economics. Goltermann anticipates U.S. duties on Chinese goods to settle at around 40%, while most analysts have said that the universal 10% levy on imports into the United States is here to stay. In Europe, the STOXX 600 edged lower, led by UBS , whose shares dropped 7% as investors worried about the impact of new government proposals to force the Swiss bank to hold $26 billion in extra capital. U.S. stock futures were trading around 0.1% higher. Meanwhile, in Tokyo, Finance Minister Katsunobu Kato said policymakers were looking at measures to promote domestic ownership of Japanese government bonds, a day after Reuters reported that Japan is considering buying back some super-long government bonds issued in the past at low interest rates. The yield on the 10-year JGB was flat at 1.47%, while 30-year yields were up 1 bp at 2.92%, having retreated from late May's record high of 3.18%. The yen strengthened throughout the day, leaving the dollar roughly unchanged on the day around 144.5 yen, while the euro also turned positive, up 0.1% at $1.1428. The pound dropped 0.3% to $1.35 after weak UK employment data. QUALITY NOT SIZE Trump's erratic trade policies and worries over Washington's growing debt pile have dented investor confidence in U.S. assets, in turn undermining the dollar, which has already fallen more than 8% this year. "It's not that the Americans are blowing up their fiscal situation because the deficit is going to remain more or less stable. But the quality of the deficit has degenerated," Samy Chaar, an economist at Lombard Odier, said. "If you invest, and spend on productive investments, you'll get macro payoffs, because you're going to develop an industry, you're going to strengthen your economy, you're going to create jobs, you have a payoff. If you spend by basically reducing revenues because you cut taxes on people who don't need the money, they won't be consuming more, or investing more, so the macro payoff is more limited," he said. U.S. Treasuries were yielding around 4.45%, down 3.4 basis points on the day. Data on U.S. consumer inflation for May due out on Wednesday could show the impact on tariffs on goods prices. The producer price index (PPI) report will be released a day later. "May's U.S. CPI and PPI data will be scrutinised for signs of lingering inflationary pressures," said Convera's FX and macro strategist Kevin Ford. "If core CPI remains elevated, expectations for rate cuts could be pushed beyond the June 18 FOMC meeting." Traders expect the Fed to leave rates unchanged at its policy meeting next week. Just 44 bps worth of easing have been priced in by December. In commodity markets, oil prices rose on the back of optimism that Tuesday's U.S.-China talks could ease trade tensions and improve demand for energy, pushing Brent crude up 0.5% to $67.40 a barrel. Spot gold rose 0.4% to $3,341 an ounce. (Additional reporting by Rae Wee and Johann M Cherian in Singapore; Editing by Shri Navaratnam, Kim Coghill and Susan Fenton)

DOWNLOAD THE APP

Get Started Now: Download the App

Ready to dive into the world of global news and events? Download our app today from your preferred app store and start exploring.
app-storeplay-store