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Why the Fed and ECB are no longer on the same page

Yahoo

an hour 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

Boosting Social Security: A simple way to increase the average payment up to $1,000

USA Today

an hour ago

USA Today

Boosting Social Security: A simple way to increase the average payment up to $1,000

Boosting Social Security: A simple way to increase the average payment up to $1,000 Show Caption Hide Caption Social Security uncertainty and policy changes are driving more people to file With a significant rise in Social Security applications, retirees face financial decisions influenced by legislation and economic concerns in today's climate. Scripps News Your monthly Social Security benefit is based primarily on your career earnings and when you claim benefits. The first one is pretty straightforward: The more you earn over the years, the more you pay in Social Security payroll taxes (up to a certain amount), and the larger you can expect your monthly benefit to be. Increasing your earnings, however, is much easier said than done. On the other hand, you're likely to have more control over the timing of your claim, and waiting until after your full retirement age (FRA) to collect Social Security will increase your monthly benefit. It's a simple move that could increase the average retiree's monthly payment by $1,000 or more. How delaying claiming benefits affects how much you receive Your FRA is the age at which you qualify for your full monthly benefit, or primary insurance amount (PIA). Think of your PIA as your base benefit, and from there, the Social Security Administration adjusts what you ultimately receive based on whether you claim before or after FRA. Delaying benefits past your FRA increases them by 2/3 of 1% monthly, or 8% annually, relative to your PIA. These delayed retirement credits will stack up until you reach age 70. But just as your benefit increases when claiming after FRA, it decreases if you claim before FRA. You can start collecting Social Security at 62, but doing so will reduce your monthly check by as much as 30%, again relative to your PIA. To see this dynamic in action, let's assume your PIA is $2,000 (the average monthly benefit for retired workers as of April was $1,997.97), and your FRA is 67. Claiming right at 62 would get you a benefit of $1,400. However, if you delay until 70, you'd be eligible to receive $2,480. So, for someone entitled to the average benefit as their PIA, waiting until 70 to claim is enough to get them more than $1,000 per month versus claiming at 62. For someone expecting a PIA of $3,000 instead of $2,000, the monthly difference between claiming at 70 ($3,720) versus 62 ($2,100) increases to $1,620. And you don't have to claim at only the extreme ends of this timeline. With the same $3,000 PIA, claiming at 69 gets you $3,480 while claiming at 63 gets you $2,250 — a $1,230 difference. If you want to do your own calculations, you can check your estimated benefit at different ages with your online Social Security Administration account. Should everyone delay benefits until 70? Although a higher monthly benefit is attractive and delaying benefits until 70 is a simple enough strategy, in theory, it's not the right move for everyone. First and foremost, if you need Social Security to cover essential expenses, then claim as soon as necessary. Stability should be your top priority. Even if you have other income streams (retirement accounts, pension, etc.), delaying Social Security until 70 may not be the best route if you're in poor health. This is why I always recommend people look at their break-even age to help with their decision. Your break-even age is when the total lifetime benefits from claiming at one age equals those from claiming at another age. If we continue with our first example and are deciding between claiming at 62 and claiming at 70 for someone collecting the average retired worker benefit, the break-even age is around 80 years and 5 months: Monthly Benefit Total Received at Age 80 Total Received at Age 80 and 5 Months Total Received at Age 81 $1,400 (claim at 62) $302,400 $309,400 $319,200 $2,480 (claim at 70) $297,600 $309,760 $327,360 In other words, for the decision to claim at age 62 versus age 70, this person only gets more in lifetime Social Security benefits if they live until at least 80-and-a-half years old. Even with an extra $1,080 per month when claiming at age 70, it takes time to make up for the years of missed benefits from waiting. Break-even age isn't the only factor to consider, but it's a helpful data, in addition to things like your health, savings and retirement goals. The Motley Fool has a disclosure policy. The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY. The $23,760 Social Security bonus most retirees completely overlook Offer from the Motley Fool: If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets"could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. JoinStock Advisorto learn more about these strategies. View the "Social Security secrets" »

Yahoo

an hour 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

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Why the Fed and ECB are no longer on the same page

Boosting Social Security: A simple way to increase the average payment up to $1,000

Why the Fed and ECB are no longer on the same page

Best CD rates today, June 12, 2025 (lock in up to 4.2% APY)

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Why the Fed and ECB are no longer on the same page

Boosting Social Security: A simple way to increase the average payment up to $1,000

Why the Fed and ECB are no longer on the same page

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