Brazil economy starting to see impact of high rates, official says
Brazil's central bank last week held its benchmark rate at 15%, the highest in almost two decades, pausing an aggressive tightening cycle after seven consecutive hikes aimed at fighting sticky inflation, which should cool down economic activity.
"Monetary policy is having the expected impact, perhaps even sooner than expected," Mello told an event hosted by news outlet JOTA, though adding the government for now continues to see growth this year close to 2.5%.
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BBC News
an hour ago
- BBC News
The US economy is a puzzle but the pieces aren't fitting together
Ask almost any economist and they will tell you: US President Donald Trump has been running risks with the world's largest say his tariffs and crackdown on immigrants risk a return of 1970s-esque "stagflation", when a sudden oil shock prompted stagnant growth and spiralling prices, except this time the crisis would be self-inflicted. The White House has just as steadfastly dismissed those concerns, attacking the experts - and, in the case of the US Bureau of Labor Statistics commissioner, firing her. Questions about how it will all play out have left the US central bank in a state of paralysis, as it waits for data to clarify what's happening before making a move on interest rates. But after a busy few weeks of company updates, data on jobs and inflation, we still don't really know. The labour market is sending clearly worrisome signals. Job creation was almost non-existent in May and June, sluggish in July, and the ranks of discouraged workers are growing. That 1 August jobs report sent the stock market sinking and Trump into a tailspin, prompting him to fire the BLS commissioner. A few days later, Moody's Analytics economist Mark Zandi declared on social media that the economy was "on the precipice of a recession". That's not the sure, the economy has slowed, growing at an annual rate of 1.2% in the first half of the year, down one percentage point from consumer spending, despite weakening, has stayed more resilient than many had expected, despite downbeat assessments by some after the 1 August hit, quickly resumed their upward march."We continue to struggle to see signs of weakness," the chief financial officer of JPMorgan Chase, America's biggest bank, told investors last month. "The consumer basically seems to be fine." That has raised hopes that the economy might power through, as it did a few years ago, to widespread surprise, despite getting hit with the highest inflation since the 1980s and a sharp rise in interest rates. On Friday, the US government reported that spending at retailers and restaurants rose 0.5% from June to July - and that spending in June had been stronger than previously estimated. "Consumers are down but not out," wrote Michael Pearce, deputy chief US economist at Oxford Economics, which is predicting a modest recovery in spending in the months ahead, as tax cuts and a stock market recovery boost confidence. "With the sluggish yet resilient real economy, the labor market is unlikely to deteriorate sharply." Challenges remain in the months ahead. For now, households haven't seen a dramatic run-up in prices at the store that might force them to cut prices rose 2.7% in July compared with a year ago, the same pace as in June. But many forecasters had not expected higher prices to start appearing until later this year, especially after Trump delayed some of his most aggressive tariff plans until this for hard-to-substitute, imported staples, like coffee and bananas, have already expect price increases to widen in the months ahead, as firms sell down pre-tariff stock and raise prices, now that they have more confidence about what the tariff policies might why there was so much focus on the producer price index, which measures wholesale prices commanded by US producers before they hit consumers, offering a clue to what's coming. It accelerated at the fastest pace in more than three years in July. And worryingly, both consumer and producer inflation show the uptick in prices is not limited to goods, suggesting stagflation might very well be staging a return.
Reuters
2 hours ago
- Reuters
US retail sales rise in July; softening job market poses risk to spending
WASHINGTON, Aug 15 (Reuters) - U.S. retail sales increased solidly in July, supported by strong demand for motor vehicles as well as promotions by and Walmart, though a softening labor market and higher goods prices could curb consumer spending growth in the third quarter. The rise last month together with an upward revision to June's sales data eased some concerns that economic activity was stalling following weak employment growth over the past three months. The report from the Commerce Department and a survey from the University of Michigan on Friday showing consumers' inflation expectations increased in August further dimmed the prospect of an oversized interest rate cut by the Federal Reserve next month. U.S. Treasury Secretary Scott Bessent said on Thursday he thought a half-percentage-point rate cut from the U.S. central bank was possible given the soft employment numbers. But some economists doubted the Fed would even resume its policy easing cycle in September amid growing signs that inflation was poised to accelerate as businesses pass on higher costs from import duties to consumers. "There is no data-based support here for a rate cut in September," said Conrad DeQuadros, senior economic advisor at Brean Capital. Retail sales rose 0.5% last month after an upwardly revised 0.9% gain in June, the Commerce Department's Census Bureau said. Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, would increase 0.5% after a previously reported 0.6% rise in June. Sales increased 3.9% on a year-over-year basis. Motor vehicles led the almost broad rise in sales, with receipts at auto dealerships advancing 1.6% after rising 1.4% in June. A rush to buy battery-powered electric vehicles ahead of the September 30 expiration of federal government tax credits helped to drive automobile sales in July, analysts at J.P. Morgan said. Online sales rose 0.8% after increasing 0.9% in June. Amazon (AMZN.O), opens new tab and Walmart (WMT.N), opens new tab held sales promotions last month to lure inflation-weary consumers with deep discounts, including on back-to-school essentials. Amazon extended its sales window to 96 hours, up from the typical 48, featuring aggressive promotions on categories ranging from apparel to electronics. Clothing store sales rose 0.7%. Receipts at furniture outlets jumped 1.4%, while sales at sporting goods, hobby, musical instrument and book store sales rebounded 0.8%, both suggesting tariff-driven price increases rather than volumes. But sales at building material and garden equipment retailers fell 1.0% while receipts at electronics and appliance stores dropped 0.6%. Households also pulled back on spending at restaurants and bars. Sales at food services and drinking places, the only services component in the report, fell 0.4% after rising 0.6% in June. Economists view dining out as a key indicator of household finances. Financial markets currently expect a rate cut at the Fed's September 16-17 meeting. The central bank left its benchmark overnight interest rate in the 4.25%-4.50% range last month for the fifth straight time since December. Stocks on Wall Street were trading mostly lower. The dollar fell against a basket of currencies. U.S. Treasury yields rose. Retail sales excluding automobiles, gasoline, building materials and food services increased 0.5% after an upwardly revised 0.8% rise in June. These so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product, were previously reported to have gained 0.5% in June. Adjusted for inflation, economists estimated that core retail sales increased 0.3% in July, marking a decent start to the third quarter. But downside risks to consumer spending are growing against the backdrop of the softening labor market as well as rising goods and services prices. The University of Michigan's Surveys of Consumers showed consumer sentiment weakened in August, with its measure of buying conditions for long-lasting manufactured goods slumping to a one-year low as concerns over purchasing power mounted. "Underlying fundamentals are clearly softening," said Lydia Boussour, senior economist at EY-Parthenon. "In the months ahead, the drag on consumer demand is expected to intensify, with demand destruction from higher tariffs likely to become more pronounced as consumers increasingly scale back discretionary purchases to cope with rising costs." Consumers' 12-month inflation expectations increased to 4.9% this month from 4.5% in July. The increase occurred across all three political affiliations. Expectations that inflation would pick up were reinforced by a separate report from the Labor Department's Bureau of Labor Statistics that showed import prices increased 0.4% in July, boosted by a strong rise in the cost of consumer goods. That followed a 0.1% dip in June. Import prices exclude tariffs. Prices for imported consumer goods excluding motor vehicles increased 0.4%. The higher reading suggested exporting nations are not cutting prices to offset the impact of higher costs from duties on U.S. companies and consumers, as has been suggested by the White House. "Tariff evangelists in the Trump administration predict that import prices would fall after tariffs because exporters would cut their prices to defend export sales and market shares," said Carl Weinberg, chief economist at High Frequency Economics. "We are not seeing what they are saying." Tariffs are constraining manufacturing activity. A report from the Fed showed factory output stalled in July. "We expect this trend to continue over the coming months with risks tilted towards sharper weakening," said Veronica Clark, an economist at Citigroup. "Tariffs, supply chain disruptions and shipping delays should weigh on activity broadly in the manufacturing sector. Of course, some pockets of manufacturing could benefit from tariffs."
Reuters
2 hours ago
- Reuters
Wall St. Week Ahead Wall Street trains sights on Jackson Hole Fed gathering
Aug 15 (Reuters) - Investors will next week train their sights on Jackson Hole, Wyoming, where Federal Reserve policymakers gather for their annual policy symposium, in a search for clues on the path of interest rate cuts that could boost stocks to more record highs. This year's gathering follows a week in which consumer and wholesale price data appeared to send mixed signals about how well the economy is weathering U.S. President Donald Trump's sweeping import tariffs. Its climax will be on Friday, when Fed Chair Jerome Powell is scheduled to speak following what will have been a data-light week. After last week's flurry of data demonstrated that consumers are resilient and the jobs market is not dead, some investors still fret Powell may use the gathering to pour cold water on widespread expectations for interest rate cuts in the coming weeks, which have pushed stock indexes to multiple records, citing other figures suggesting that inflation remains a problem. "We may have a lot at stake; this is a potentially significant event this year," said Steven Sosnick, market strategist at IBKR. "What if, once again, people are going into this expecting a dovish Powell and he comes out with all guns blazing?" The futures market still expects the Federal Open Market Committee to cut rates by a quarter of a percentage point at least twice more this year, including an initial cut at its mid-September meeting. Companies likely to benefit most from lower borrowing costs have been among the big winners in recent Wall Street trading, said Andrew Slimmon, head of Applied Equity Advisors at Morgan Stanley Asset Management. "It's all about homebuilders, cyclical stocks, industrials, and materials companies," Slimmon said. Shares of leading homebuilders such as PulteGroup (PHM.N), opens new tab, Lennar (LEN.N), opens new tab, and D.R. Horton (DHI.N), opens new tab are up between 4.2% and 8.8% in the last week, as of midday Friday, thanks largely to the recent drop in mortgage lending rates. Their gains trounced the 1% rally in the Standard & Poor's 500 index (.SPX), opens new tab over the last week. The group has outpaced the broader market more dramatically over the last month, with gains of 15% to 22% compared to 3.3% for the S&P 500. But their future gains hinge on mortgage rates continuing to fall, something that a recent uptick in 10-year Treasury bond yields puts into question. Any hint by Powell that he is paying more heed to bearish signals on inflation than to other, more benign indicators might threaten those gains, Slimmon said. "The more I have seen the homebuilders rally, the more it tells me the market thinks the Fed is going to cut, which means any suggestion at Jackson Hole that this is not going to happen will make markets more vulnerable" to a selloff, he added. To keep markets calm, Powell will have to walk a fine line and underscore the Goldilocks conviction held by many investors that the economy is neither overheating nor at risk of tipping into a recession, said Ashwin Alankar, head of global asset allocation at Janus Henderson. "He can't scare the market by saying the Fed believes the economy really needs a lot of stimulus," Alankar said. Some market-watchers on Thursday said they already detected a shift in sentiment. In a note to clients, Thierry Wizman, global FX and rates strategist at Macquarie Group, said as recently as Wednesday, "the talk on the street was of a 'mega' rate cut" but that a dovish cut in September was "more grounded in reality." Other factors make Powell's comments even more important for stocks this year, investors said. In addition to the market's lofty levels and a recent slide in the Cboe Volatility Index to its lowest level this year, a string of positive second-quarter earnings results is drawing to a close, leaving investors few signals to guide them during the late-summer doldrums. "The calendar is getting pretty quiet," said Jeff Blazek, co-chief investment officer, multi-asset, at Neuberger Berman. The biggest risk of all, however, may be the market's recent euphoria, which has defied a litany of bad news and left April's tariff-driven nosedive in the rear-view mirror. "Going into this event, the more smug we feel ... the greater the risk of a market-moving reaction," said Sosnick.
