US Fed Poised To Hold Off On Rate Cuts, Defying Trump Pressure
Policymakers at the independent Federal Reserve have kept the benchmark lending rate steady since the start of the year as they monitor how Trump's sweeping tariffs are impacting the world's biggest economy.
With Trump's on-again, off-again tariff approach -- and the levies' lagged effects on inflation -- Fed officials want to see economic data from this summer to gauge how prices are being affected.
When mulling changes to interest rates, the central bank -- which meets on Tuesday and Wednesday -- seeks a balance between reining in inflation and the health of the jobs market.
But the bank's data-dependent approach has enraged the Republican president, who has repeatedly criticized Fed Chair Jerome Powell for not slashing rates further, calling him a "numbskull" and "moron."
Most recently, Trump signaled he could use the Fed's $2.5 billion renovation project as an avenue to oust Powell, before backing off and saying that would be unlikely.
Trump visited the Fed construction site on Thursday, making a tense appearance with Powell in which the Fed chair disputed Trump's characterization of the total cost of the refurbishment in front of the cameras.
But economists expect the Fed to look past the political pressure at its policy meeting.
"We're just now beginning to see the evidence of tariffs' impact on inflation," said Ryan Sweet, chief US economist at Oxford Economics.
"We're going to see it (too) in July and August, and we think that's going to give the Fed reason to remain on the sidelines," he told AFP.
Since returning to the presidency in January, Trump has imposed a 10 percent tariff on goods from almost all countries, as well as steeper rates on steel, aluminum and autos.
The effect on inflation has so far been limited, prompting the US leader to use this as grounds for calling for interest rates to be lowered by three percentage points.
Currently, the benchmark lending rate stands at a range between 4.25 percent and 4.50 percent.
Trump also argues that lower rates would save the government money on interest payments, and floated the idea of firing Powell. The comments roiled financial markets.
"Powell can see that the administration floated this trial balloon" of ousting him before walking it back on the market's reaction, Sweet said.
"It showed that markets value an independent central bank," the Oxford Economics analyst added, anticipating Powell will be instead more influenced by labor market concerns.
Powell's term as Fed chair ends in May 2026.
Analysts expect to see a couple of members break ranks if the Fed's rate-setting committee decides for a fifth straight meeting to keep interest rates unchanged.
Sweet cautioned that some observers may spin dissents as pushback on Powell but argued this is not necessarily the case.
"It's not out-of-line or unusual to see, at times when there's a high degree of uncertainty, or maybe a turning point in policy, that you get one or two people dissenting," said Nationwide chief economist Kathy Bostjancic.
Fed Governor Christopher Waller and Vice Chair for Supervision Michelle Bowman have both signaled openness to rate cuts as early as July, meaning their disagreement with a decision to hold rates steady would not surprise markets.
Bostjancic said that too many dissents could be "eyebrow-raising," and lead some to question if Powell is losing control of the board, but added: "I don't anticipate that to be the case."
For Sweet, "the big wild card is the labor market."
There has been weakness in the private sector, while the hiring rate has been below average and the number of permanent job losers is rising.
"There are some fissures in the labor market, but they haven't turned into fault lines yet," Sweet said.
If the labor market suddenly weakened, he said he would expect the Fed to start cutting interest rates sooner.
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DW
an hour ago
- DW
EU-US trade deal: European leaders back plan amid criticism – DW – 07/28/2025
Germany's Friedrich Merz welcomes US-EU trade pact, saying it avoids "needless escalation in transatlantic trade relations." While specifics are yet to be disclosed, the deal marks a pivotal moment following tensions. The US and EU have announced a trade deal that would set tariffs at 15% for European goods, including automobiles, averting the worst-case scenario. "This is the biggest deal ever made," Trump said, lauding EU plans to dramatically increase its purchases of US energy and military equipment as part of the deal. Trump said the tariff rate would apply to "automobiles and everything else" and added that the 50% tariff on steel and aluminum "stays the way it is." The baseline 15% tariff is still seen by many in Europe as too high, compared with Europe's initial hopes to secure a zero-for-zero tariff trade agreement framework between the United States and the European Union is worse than the deal the United Kingdom has with Washington, Hungarian Prime Minister Viktor Orban said Monday. "Donald Trump did not reach an agreement with Ursula von der Leyen, but rather Donald Trump ate Ursula von der Leyen for breakfast," Orban said during a Facebook livestream. The European Union and the United States reached a trade agreement Sunday that imposes a 15% tariff on most EU goods, higher than the United Kingdom's 10% tariff rate. Orban, widely regarded as Trump's strongest ally in Europe, has previously said US tariffs were the result of Brussels' incompetence, according to his government. France's European affairs minister, Benjamin Haddad, criticized what he described as an "unbalanced" trade deal between the EU and the US. "The trade deal negotiated by the European Commission with the United States will provide temporary stability for economic actors threatened by American tariff escalation," Haddad said. "But it is unbalanced," he stressed. "Let's be clear: the current state of affairs is not satisfactory and cannot be sustainable." France has long called for a tough line on the US tariff policy, as well as for the European Union to develop its strategic autonomy. The Federation of German Industries (BDI) criticized the trade deal between the EU and the US, calling it an "inadequate compromise" that sends a "disastrous signal." The powerful industry lobby group said that the EU was accepting painful tariffs and that a 15% tariff rate is expected to have significant negative consequences. "The only positive aspect of this agreement is that a further escalation spiral has, for now, been avoided," BDI said. It added that the lack of a deal on steel and aluminum exports was an "additional blow." To view this video please enable JavaScript, and consider upgrading to a web browser that supports HTML5 video DW Correspondent Birgit Maass said that many in the EU and critics of Donald Trump would say that US President Donald Trump has strong-armed the EU to get concessions, using the leverage of his country's resources when it comes to security policy. "NATO and the US have been a big guarantor of European security. This obviously comes all in a mix. Europe needs the US not just for trade but also for the general security situation with a war in the continent of Europe, in Ukraine, and the threat that's being posed by Russia." she said. To view this video please enable JavaScript, and consider upgrading to a web browser that supports HTML5 video Italy's Prime Minister Giorgia Meloni called the trade deal between the EU and the US "positive," but added that she would need to see the details. Italy is one of Europe's biggest exporters to the US, with a trade surplus of over €40 billion. "I consider it positive that there is an agreement, but if I don't see the details I am not able to judge it in the best way," Meloni said. The country's national coalition-led government had pressed its European partners to refrain from a trade clash with the US. Meloni said in a statement that the deal "ensures stability". She added that the 15% tariff "is sustainable, especially if this percentage is not added to previous duties, as was originally planned." The statement was also signed by coalition partners, Antonio Tajani of Forza Italia and Matteo Salvini of the League. "We are ready to activate support measures at the national level, but we ask that they also be activated at the European level for sectors that will be particularly affected by US tariff measures," Meloni added. Irish Prime Minister Micheal Martin hailed the agreement between the European Union and the United States, saying that it will help "protect many jobs" in his country. "The negotiations to get us to this point have been long and complex, and I would like to thank both teams for their patient work," he said. "We will now study the detail of what has been agreed, including its implications for businesses exporting from Ireland to the US, and for different sectors operating here," he added. Martin also noted that higher tariffs will make trade between the EU and US more expensive and challenging. But he said the deal creates a "new era of stability" that could promote a deeper relationship between the EU and the US, which the Irish prime minister said was important for the global economy. "Given the very real risk that existed for escalation and for the imposition of punitively high tariffs, this news will be welcomed by many," Martin said. The trade pact means the bloc would avoid the 30% tariffs that Trump had threatened on all goods from the EU on July 12. But it marks a significant compromise, especially given that European Commission President Ursula von der Leyen offered a "zero-for-zero tariffs for industrial goods" when talks began. Still, von der Leyen said they agreed "zero-for-zero tariffs on a number of strategic products" including aircraft and aircraft parts, some chemicals, and certain agricultural products. She added that the framework trade deal did not contain any decision regarding the spirits sector. The trade pact will need to be approved by all 27 member states. After the US and European Union reached a trade deal, Dutch Prime Minister Dick Schoof thanked the European Commission, which is responsible for EU policy on trade, for a determined effort "to secure the best possible outcome for our businesses and consumers." But Schoof also wrote that: "Of course, no tariffs would have been better, but this agreement provides more clarity for our businesses and brings more market stability." German Chancellor Friedrich Merz welcomed the trade agreement between the European Union and the US which will see a 15% tariff on EU goods entering the US. "We have thus managed to preserve our fundamental interests, even if I would have wished for more relief in transatlantic trade," Merz said in a government statement issued on Sunday evening. The no-deal scenario would have "hit the export-oriented German economy hard," according to Merz. He added that this applied in particular to the automotive industry, where the current tariffs of 27.5% have been almost halved. The US is Germany's main trading partner. The EU and US have struck a trade deal, with European Commission President Ursula von der Leyen saying the deal "will bring stability." She later told reporters that the tariff level on cars was "the best we could get." Though specifics are yet to be revealed, she also told reporters that bilateral tariff exemptions had been agreed on for a number of strategic products. But a decision was still pending on other critical sectors like pharmaceuticals and steel and aluminum. Follow along for the latest news and reactions to the deal.
Local Germany
2 hours ago
- Local Germany
What we know so far about the EU-US trade deal
The stakes were high with a looming August 1st deadline and $1.9 trillion transatlantic trading relationship on the line. Many European businesses will breathe a sigh of relief after the leaders agreed the 27-country bloc will face a baseline levy of 15 percent instead of a threatened 30 percent -- but the deal will not satisfy everyone. Here is what we know so far: What did the EU-US agree? Both sides confirmed there will be a 15-percent across-the-board rate on a majority of EU goods -- the same level secured by Japan this month -- with bilateral tariff exemptions on some products. The deal will bring relief for the bloc's auto sector, employing around 13 million people -- and hit by Trump with 25-percent tariffs, on top of a pre-existing 2.5 percent. "Obviously, it is good news for the car industry. So Germany will be happy. And all the EU members with auto supply chains, they go from 27.5 to 15 percent," said Jacob Funk Kirkegaard of the Peterson Institute For International Economics. A 15-percent levy will remain "costly" for German automakers, "but it is manageable", said trade geopolitics expert Elvire Fabry at the Jacques Delors Institute. While 15 percent is much higher than pre-existing US tariffs on European goods -- averaging 4.8 percent -- it mirrors the status quo, with companies currently facing an additional flat rate of 10 percent imposed by Trump since April. Advertisement The EU also committed to buy $750 billion of liquefied natural gas, oil and nuclear fuels from the United States -- split equally over three years -- to replace Russian energy sources. And it will pour $600 billion more in additional investments in the United States. Trump said EU countries -- which recently pledged to ramp up their defence spending within NATO -- would be purchasing "hundreds of billions of dollars' worth of military equipment". Are there exemptions? Von der Leyen said the 15-percent rate applied across most sectors, including semiconductors and pharmaceuticals -- a critical export for Ireland, which the bloc has sought to protect. Trump in April launched probes that could lead to significantly steeper tariffs on the two key sectors, warning this month he could slap 200-percent levies on drugs. Brussels and Washington agreed a bilateral tariff exemption for key goods including aircraft, certain chemicals, semiconductor equipment, certain agricultural products and critical raw materials, von der Leyen said. The EU currently faces 50-percent tariffs on its steel exports to the United States, but von der Leyen said a compromise on the metal had been reached with Trump. Advertisement "Between us, tariffs will be cut and a quota system will be put in place," she said. It is understood that European steel would be hit with 50-percent levies only after a certain amount of the metal arrived in the United States, but no details were initially provided on the mechanism. What happens next? The deal needs to be approved by EU member states, whose ambassadors will meet first thing Monday morning for a debrief from the European Commission. And there are still technical talks to come, since the agreement needs to be fully fleshed out. Von der Leyen described the deal as a "framework" agreement. "Details have to be sorted out, and that will happen over the next weeks," she said. In particular, she said there has yet to be a final decision on alcohol, critical since France and The Netherlands have been pushing for carve-outs for wine and beer respectively. "This is something which has to be sorted out in the next days," von der Leyen said.
Int'l Business Times
6 hours ago
- Int'l Business Times
Europe Hopes For 'No Surprises' As US Weighs Force Withdrawals
After keeping Donald Trump happy with a pledge to up defence spending at NATO's summit, Europe is now bracing for a key decision from the US president on the future of American forces on the continent. Washington is currently conducting a review of its military deployments worldwide -- set to be unveiled in coming months -- and the expectation is it will lead to drawdowns in Europe. That prospect is fraying the nerves of US allies, especially as fears swirl that Russia could look to attack a NATO country within the next few years if the war in Ukraine dies down. However, the alliance is basking in Trump's newfound goodwill following its June summit in The Hague, and his officials are making encouraging noises that Europe will not be left in the lurch. "We've agreed to no surprises and no gaps in the strategic framework of Europe," said Matthew Whitaker, US ambassador to NATO, adding he expected the review to come out in "late summer, early fall". "I have daily conversations with our allies about the process," he said. While successive US governments have mulled scaling back in Europe to focus more on China, Trump has insisted more forcefully than his predecessors that the continent should handle its own defence. "There's every reason to expect a withdrawal from Europe," said Marta Mucznik from the International Crisis Group. "The question is not whether it's going to happen, but how fast." When Trump returned to office in January many felt he was about to blow a hole in the seven-decade-old alliance. But the vibe in NATO circles is now far more upbeat than those desperate days. "There's a sanguine mood, a lot of guesswork, but the early signals are quite positive," one senior European diplomat told AFP, talking as others on condition of anonymity. "Certainly no panic or doom and gloom." The Pentagon says there are nearly 85,000 US military personnel in Europe -- a number that has fluctuated between 75,000 and 105,000 since Russia's 2022 invasion of Ukraine. "I think it is inevitable that they pull out some of their forces," a second European diplomat told AFP. "But I don't expect this to be like a dramatic overhaul. I think it's going to be gradual. I think it's going to be based on consultations." Trump's first target is likely to be the troops left over from a surge ordered by his predecessor Joe Biden after Moscow's tanks rolled into Ukraine. Officials say relocating the rump of that 20,000-strong deployment would not hurt NATO's deterrence too much -- but alarm bells would ring if Trump looked to cut too deep into personnel numbers or close key bases. The issue is not just troop numbers -- the US has capabilities such as air defences, long-range missiles and satellite surveillance that allies would struggle to replace in the short-term. "The kinds of defence investments by Europe that are being made coming out of The Hague summit may only be felt in real capability terms over many years," said Ian Lesser from the German Marshall Fund think tank. "So the question of timing really does matter." Washington's desire to pull back from Europe may be tempered by Trump now taking a tougher line with Russia -- and Moscow's reluctance to bow to his demands to end the Ukraine war. "It seems an inopportune moment to send signals of weakness and reductions in the American security presence in Europe," Lesser said. He also pointed to Trump's struggles during his first term to pull troops out of Germany -- the potential bill for relocating them along with political resistance in Washington scuppering the plan. While European diplomats are feeling more confident than before about the troop review, they admit nothing can be certain with the mercurial US president. Other issues such as Washington's trade negotiations with the EU could rock transatlantic ties in the meantime and upend the good vibes. "It seems positive for now," said a third European diplomat. "But what if we are all wrong and a force decrease will start in 2026. To be honest, there isn't much to go on at this stage."
