Israel-Iran attacks are absolutely inflationary, says Apollo's Torsten Slock
Apollo's Torsten Slok joins 'Power Lunch' to discuss the price of oil in lieu of the attacks between Iran and Israel, how the Federal Reserve considers the aggression and much more.
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Yahoo
2 hours ago
- Yahoo
US Fed set to hold rates steady in the face of Trump pressure
The US central bank is expected to keep interest rates unchanged for a fourth straight policy meeting this week, despite President Donald Trump's push for rate cuts, as officials contend with uncertainty sparked by the Republican's tariffs. While the independent Federal Reserve has started lowering rates from recent highs, officials have held the level steady this year as Trump's tariffs began rippling through the world's biggest economy. The Fed has kept interest rates between 4.25 percent and 4.50 percent since December, while it monitors the health of the jobs market and inflation. "The hope is to stay below the radar screen at this meeting," KPMG chief economist Diane Swonk told AFP. "Uncertainty is still very high." "Until they know sufficiently, and convincingly that inflation is not going to pick up" either in response to tariffs or related threats, "they just can't move," she said. Since returning to the presidency, Trump has slapped a 10 percent tariff on most US trading partners. Higher rates on dozens of economies are due to take effect in July, unless an existing pause is extended. Trump has also engaged in a tit-for-tat tariff war with China and imposed levies on imports of steel, aluminum and automobiles, rattling financial markets and tanking consumer sentiment. But economists expect it will take three to four months for tariff effects to show up in consumer prices. Although hiring has cooled slightly and there was some shrinking of the labor force according to government data, the unemployment rate has stayed unchanged. Inflation has been muted too, even as analysts noted signs of smaller business margins -- meaning companies are bearing the brunt of tariffs for now. At the end of the Fed's two-day meeting Wednesday, analysts will be parsing through its economic projections for changes to growth and unemployment expectations -- and for signs of the number of rate cuts to come. The Fed faces growing pressure from Trump -- citing benign inflation data -- to lower rates more quickly, a move the president argues will help the country "pay much less interest on debt coming due." On Wednesday, Trump urged Fed Chair Jerome Powell to slash interest rates by a full percentage point, and on Thursday, he called Powell a "numbskull" for not doing so. He said Powell could raise rates again if inflation picked up then. But Powell has defended US central bank independence over interest rates when engaging with Trump. - 'Cautious patience' - For their part, Fed policymakers have signaled "little urgency" to adjust rates, said EY chief economist Gregory Daco. He believes they are unwilling to get ahead of the net effects from Trump's trade, tax, immigration and regulation policy changes. Powell "will likely strike a tone of cautious patience, reiterating that policy remains data dependent," Daco said. While economists have warned that Trump's tariffs would fuel inflation and weigh on economic growth, supporters of Trump's policies argue the president's plans for tax cuts next year will boost the economy. On the Fed's path ahead, HSBC Global Research said: "Weak labor market data could lead to larger cuts, while elevated inflation would tend to imply the opposite." For now, analysts expect the central bank to slash rates two more times this year, beginning in September. The Fed is likely to be eyeing data over the summer for inflationary pressures from tariffs, said Ryan Sweet, chief US economist at Oxford Economics. "They want to make sure that they're reading the tea leaves correctly," he said. Swonk warned the US economy is in a different place than during the Covid-19 pandemic, which could change how consumers react to price increases. During the pandemic, government stimulus payments helped households cushion the blow from higher costs, allowing them to keep spending. It is unclear if consumers, a key driver of the economy, will keep their dollars flowing this time, meaning demand could collapse and complicate the Fed's calculus. "If this had been a world without tariffs, the Fed would be cutting right now. There's no question," Swonk said. bys/jgc
Miami Herald
15 hours ago
- Miami Herald
Federal Reserve, White House interest-rate cut battle heats up
The post-pandemic inflation that's been squeezing your grocery and credit-card bills for years takes center stage in Washington in just days. That's when the Federal Reserve Board meets to consider interest rates, a gathering that the White House has been – to put it mildly – strongly trying to influence. Don't miss the move: Subscribe to TheStreet's free daily newsletter The Trump Administration wants the Fed to slash rates immediately by almost half after May inflation and job rates basically held steady despite fidgety action earlier this year. Trump and others say this is to keep the nation from sliding into a recession, or worse, stagflation. Related: CPI inflation report resets interest rate cut bets Many economists say the central bank can't ignore the potential impact to inflation from zigzagging U.S. tariffs in the next three to six months. Energy and oil prices are now considerations due to the latest Middle East conflict. Federal Reserve Board Chair Jerome Powell has been the target of President Trump's usual brash manner towards opponents. The president has taunted the chairman with a string of nasty names and other insults. The most recent invective: "Numbskull.'' Trump's ratcheting rhetoric includes allusions to installing a "shadow" Fed president until Powell leaves on or before his term expires in May 2026. Powell has been mum about his gig and the president's efforts to squeeze him out of hisThe Federal Reserve's dual mandate is to set monetary policy that keeps inflation and unemployment low at the same time. This is often at odds because high interest rates lower inflation but cut jobs. Lower interest rates decrease unemployment rates but increase inflation. The central bank's Federal Open Market Committee, meeting June 17-18, controls the Federal Funds Rate that banks charge each other overnight to borrow money. When that rate goes up, so do interest rates – the cost of borrowing money for us all. This impacts Treasury bond yields, crucial to determining how much banks charge for mortgage rates. The post-pandemic housing market is stalled again this spring because of higher mortgage rates, a crunch hurting first-time or lower-income buyers while many sellers, especially older Americans looking to downsize, are stuck in their nests. The current Federal Funds Rate is between 4.25% and 4.50%. Trump said he wants a cut of 2.0%, up from his earlier demand of 1.0 %, after the May Jobs and CPI reports were cooler than expected. This would add $600 billion back in the pockets of Americans, the president claimed. But not everybody's buying it. Related: Fed official revamps interest-rate cut forecast for rest of this year Economists and market analysts say the Federal Reserve is being prudent because the full depth and breadth of Trump's tariffs and trade deals' economic impact are uncertain. Raphael W. Bostic, president and chief executive officer of the Federal Reserve Bank of Atlanta, said in a recent conference call with reporters that he's "very cautious about jumping to cuts at this point." Bank of America analysts, in a note to clients, said it was unlikely there would be additional cuts to the Federal Funds Rate in 2025 but added that 2026 looked promising. While market watchers expect the Federal Reserve to cut interest rates by 1% next year, the White House is maintaining that the cuts must come now. Related: Bank of America unveils surprising Fed interest rate forecast for 2026 Trump said a drop in interest rates, coupled with his "One Big Beautiful Bill" being chewed over by Congress, would boost the tepid economy. The lagging housing market would get an especially big boost. American consumers have embraced the tariffs with China, Mexico, Canada, and the trade wars, the Trump administration says. Not so fast, say economists, who maintain that tariff-driven lags could start to drag the prices of goods and services in 30 to 90 days as manufacturers and retailers pass the costs onto their customers. Powell is one of the few government officials the president can't fire or 'DOGE' from a job. Trump compensates by slamming Powell with derogatory nicknames like "Mr. Too Late" and a "Major Loser" for the Fed's cautious approach to a rate cut. The president is so ticked that he's threatened to install a "shadow president" to ride out Powell's remaining days. By nominating a new Fed head before Powell's term expires, the expectation is that Powell will resign. Multiple names have bubbled up for that role, with the latest being Treasury Secretary Scott Bessent who's actually been on the same pipe as Trump stoking for a Powell exit. There's no comment from the Fed on the FOMC meeting or Powell on the president. Expectations are interest rates will remain the same in June after the FOMC meets. Central banks in China, Switzerland, the U.K., Japan and Brazil are also expected to decide on interest rates in the coming days. Related: Fed Chair hit with savage message on interest rates The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
Yahoo
16 hours ago
- Yahoo
Why the Fed and ECB are no longer on the same page
The Federal Reserve on Wednesday is widely expected to hold interest rates steady for the fourth meeting in a row, while the European Central Bank just lowered its rates for the eighth time in a year. The divide has caught the attention of President Trump, who has seized on the gap as he pushes the Fed to lower rates by a full percentage point. He did so again last week as he called central bank chairman Jerome Powell a "numbskull" who has refused to ease policy despite Europe dropping its rates "10 times." "We've done none," Trump added. "Nobody understands.' The two central banks in the US and Europe have diverged as their respective economies move in different directions, impacted not just by tariffs from the Trump administration but other domestic factors. Earlier this month the ECB cut its benchmark interest rate to 2% from 2.25%, the lowest level since early 2023, leaving borrowing costs now more than 2 percentage points lower in Europe than the US. It also signaled it is nearing the end of its rate-cutting cycle. The Fed last cut rates in December 2024, reaching a target range of 4.25%-4.5%, and has yet to cut rates during Trump's second term in office. Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments 'The president is going to keep getting more and more upset about it,' said Wilmington Trust chief economist Luke Tilley. Perhaps the major difference is how the two central banks are viewing inflation. Policymakers in the US hiked their inflation forecasts in the spring as they worried about the ultimate impact of Trump's tariffs on prices — even though the higher expected prices haven't arrived yet. The Fed will offer new forecasts this coming week. In Europe, by contrast, the ECB has been cutting its inflation forecasts and now expects inflation to fall to its target of 2% this year before falling further to 1.6% next year. 'The European Union is cutting because inflation is low and there's a threat to growth," Tilley said. "I say the Fed either should be or will be cutting because inflation is low and there's a threat to growth, but they're holding on a little bit here.' Jeffrey Roach, chief economist for LPL Financial, said the Fed is more likely to remain in 'wait-and-see' mode than the ECB because US consumers are on stronger footing than their European counterparts, giving the Fed the luxury of time before US policymakers have to act. "Relatively stronger consumer demand means US inflation is running a bit hotter than the Euro area," said Roach. "As growth prospects look weaker in the Euro area, the ECB is becoming more dovish as they respond to economic pressures in Europe." ECB president Christine Lagarde has warned that trade tensions could lead to greater volatility and risk aversion in financial markets, which could weigh on demand in Europe and would also act to lower inflation. Most exports to the US face a 10% tariff, and levies could rise to 50% if the European Union and the US don't reach a deal by the White House's July 9 deadline. A fragmentation of global supply chains could also raise inflation by pushing up import prices and adding to capacity constraints in the domestic economy, Lagarde added. Unlike the US, Europe's central bank does not have a dual mandate. The ECB only targets inflation, while the Fed has to maintain both stable prices and maximum employment. Fed Chair Jerome Powell and many of his colleagues this year have repeatedly urged caution and patience on rates, saying they expect Trump's tariffs to push inflation higher and drag down growth, putting the Fed in a challenging spot. But a divide is emerging within the Fed about whether to hold rates steady for some time or get more comfortable about cuts later this year as officials try to determine whether any inflation coming from Trump's tariffs will prove to be longer-lasting. Some policymakers are arguing for "looking through" the impact of the duties as temporary, a stance that would leave the door open for cuts. Many on the rate-setting committee, however, believe there is a risk that inflation from tariffs could become more persistent. 'If we had a good Fed chairman, you would lower rates,' Trump told reporters earlier this week. 'And you know what? If inflation happened in a year from now or two years, let them raise rates.' The president stressed that the US has a lot of debt coming due and lower rates would mean lower interest expense for the US. 'If this guy would lower rates, we get a lower interest rate. It's unbelievable,' said Trump. 'And he's worried about inflation.' The World Bank warned this week that heightened trade tensions and policy uncertainty are expected to drive global growth down to 2.3 percent this year, nearly half a percentage point lower than the rate that had been expected at the start of the year and the slowest pace since 2008 outside of outright global recessions. The international body said turmoil has resulted in growth forecasts being cut in nearly 70% of all economies — across all regions and income groups. However, a global recession is not expected. Dustin Reid, chief strategist for fixed income at Mackenzie Investments, which has $150 billion in assets under management, said he thinks "the ECB may need to go a bit lower" with its rates. "Tariffs are going to be quite challenging for the European Union,' said Reid. On the Fed side, Reid thinks September is in play for a Fed rate cut. 'I do think the labor market data in the US is cracking a bit,' said Reid, adding that he 'would not be surprised" if Powell this coming week keeps "a little bit of an open door [to] at least keep July in play.' Click here for in-depth analysis of the latest stock market news and events moving stock prices
