US rate cut call adds fuel to global market rally
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Zawya
a minute ago
- Zawya
Fed more hamstrung by murky data than Trump interference: McGeever
(The opinions expressed here are those of the author, a columnist for Reuters.) ORLANDO, Florida - It's widely believed that U.S. President Donald Trump's insistence on lower interest rates is what's making life most difficult for Federal Reserve Chair Jerome Powell and his colleagues. But what's causing the biggest headache for Fed officials is, in fact, probably more prosaic: economic data. The key challenges facing Powell were encapsulated perfectly on Tuesday by the release of an inconclusive U.S. inflation readout followed by Trump's latest verbal attack – and threats of a "major lawsuit." Politics aside, most Fed officials agree that rates will fall this year, with the median "dot plot" in the Fed's June Summary of Economic Projections pointing to 50 basis points of easing through December. Traders are betting heavily that the first move will be in September. But it's tough to justify that confidence based purely on economic data. While some indicators suggest policy should be eased sooner rather than later, others indicate that would be a high-risk move. Looking at the "totality of the data," to borrow a phrase from Powell, there is no clear signal either way. PLENTY NOISE, FEW SIGNALS Consider the latest U.S. inflation and employment reports, the two most important data sets. On their own, they don't appear soft enough to warrant the Fed trimming rates right now, but they also aren't firm enough to dispel the notion that policy easing is only a question of "when" not "if." Annual headline CPI inflation held steady in July at 2.7%, contrary to an expected rise, with month-on-month increases in line with forecasts. But annual core inflation rose more than expected to 3.1%, the highest level since February and still meaningfully above the Fed's 2% target. Economists calculate that durable goods prices rose 1.7% in the first six months of the year – the biggest six-month rise since 1987, excluding the COVID-19 pandemic. They warn there is likely more of that to come as Trump's tariffs kick in. "July's CPI data are probably more worrying under the surface than in the headlines, and we expect the upward pressure to goods inflation to build in the coming months," James Pomeroy, a global economist at HSBC, wrote on Tuesday. Meanwhile, last week's employment report showed job growth in July was much weaker than anticipated, and, more importantly, downward revisions to the previous two months were among the biggest on record. But these ominous signals were offset by accelerating wage growth, an increase in hours worked, and a meager rise in the unemployment rate. Hardly signs of a shaky labor market. Nevertheless, markets focused more on the softer elements in the jobs data, suggesting investors think the Fed's bar to easing is much lower than the bar to standing pat. Indeed, the rates market is now pricing in a near-100% chance of a cut at the U.S. central bank's September 16-17 meeting. RISK MANAGEMENT But markets may be getting ahead of themselves. Powell has indicated that a rise in the unemployment rate is needed for the Fed to act. But that rate is potentially being distorted by post-pandemic labor supply issues - employers' reluctance to fire workers and Trump's immigration policies are limiting the number of people looking for work. Regardless, cutting before seeing a meaningful rise in the unemployment rate would be tough to justify, creating a significant communications problem for Powell. And on a more fundamental level, as economist Phil Suttle noted on Tuesday, is preparing to cut rates at full employment just as inflation is accelerating good risk management? This is a particularly apt question when looking at financial markets: the S&P 500 and Nasdaq Composite indexes, gold, and bitcoin are all near record highs, and corporate bond spreads are the tightest in years. This hardly looks like a restrictive policy environment. In that light, patience and caution would appear justified, especially given the added risk of appearing to buckle under Trump's political pressure. If the Fed wants to cut, Powell could use some cover. Unfortunately for him, he's unlikely to find that in this noisy data. (The opinions expressed here are those of the author, a columnist for Reuters) (By Jamie McGeever Editing by Paul Simao)
Zawya
a minute ago
- Zawya
BOJ faces pressure to ditch obscure inflation gauge, clear path to tighter policy
TOKYO - Pressure is mounting within the Bank of Japan to ditch a vaguely defined gauge of inflation as worries about second-round price effects prompt some board members to call for a more hawkish communication of policy and a clearer path to future rate hikes. BOJ Governor Kazuo Ueda has justified going slow on rate hikes by explaining that "underlying inflation," which focuses on the strength of domestic demand and wages, remains short of the central bank's 2% target. The trouble is that there is no single indicator that gauges "underlying inflation", making it a target for critics who say the BOJ is overly reliant on an obscure reading to guide monetary policy despite both headline inflation and core measures exceeding its target for years. Now, even some members of the BOJ board - worried that second-round price effects were becoming embedded in pricing behaviour and public perceptions of future inflation - are calling for a change to the bank's communication to a more hawkish one that focuses on headline inflation, which hit 3.3% in June. "We're at a phase where we should shift the core of our communication away from underlying inflation to actual price moves and their outlook, as well as the output gap and inflation expectations," one member said, according to a summary of opinions at the bank's July policy meeting. Another member said the BOJ must put more emphasis on upside risks to prices, and consider tweaking its communication to one that is based on the view Japan will hit 2% inflation. Some members of the government's top economic council also warned this month the BOJ might be too complacent of mounting price pressure, a clear nudge to the central bank to steer a more hawkish policy path in the wake of growing public alarm over persistent inflation. "I'm worried that monetary policy is already behind the curve," one panel member was quoted as saying at a meeting last week, adding that prolonged price rises were already affecting people's livelihood and their inflation expectations. OCTOBER POLICY TILT? The BOJ exited a decade-long, radical stimulus programme last year and raised short-term interest rates to 0.5% in January on the view that Japan was on the cusp of sustainably hitting its 2% inflation target. While the central bank has signalled its readiness to raise rates further, the economic impact of higher U.S. tariffs forced it to cut its growth forecasts in May and complicated decisions around the timing of the next rate increase. With Japan having agreed on a trade deal with the U.S. in July, the BOJ has shed some of its gloom over the economic outlook. Of the BOJ's nine board members, Naoki Tamura, Hajime Takata and Junko Koeda have highlighted the risk of persistent rises in food prices leading to broader-based, sustained inflation. To be sure, there is no consensus within the board yet on whether a communication overhaul is needed, with one member quoted as saying in the summary that underlying inflation remained an "important concept in guiding policy." But the fact some members openly called for a tweak to the dovish communication highlights the board's growing attention to broadening inflationary pressure that may pave the way for rate hikes in coming months and into 2026, some analysts say. Annual core consumer inflation hit 3.3% in June, exceeding the BOJ's 2% target for well over three years, due largely to a 8.2% spike in food costs. Such price pressures led the board to revise up its core inflation estimates last month, and cast doubt on the BOJ's view that underlying inflation - measured by a mix of proxies such as public expectations of future price moves - has yet to reach 2%. The BOJ may gradually phase out the concept of underlying inflation from its communication, as it gears up for the next rate hike that could happen as soon as in October, said veteran BOJ watcher Naomi Muguruma. "I think many BOJ officials are beginning to realise that the idea doesn't fit quite well with reality," she said. "We might hear less of this concept when the timing of the next rate hike draws near."
Khaleej Times
a minute ago
- Khaleej Times
Pakistan-UAE trade diplomacy: A focus on outcomes and impact
Since the UAE has historically remained one of the key trading partners of Pakistan, an overview of the bilateral trade indicates that the total merchandise trade only has surged over $10 billion during the financial year 2024-25. Pakistan's merchandise exports to the UAE have increased over $2 billion marking an increase when compared with the last year. This growth was mainly driven in all trade sectors including food and agro-based commodities, textiles and apparel, chemicals, plastics and rubber, minerals/fuels and other manufactured goods. Pakistan's exports to the UAE are also diversifying beyond traditional sectors. An increase in exports of tobacco, marble, electrical cables and furnace oil from Pakistan is taking place due to the growing industrialisation and real estate projects of the UAE. While encompassing a targeted focus on enhanced regional connectivity, trade facilitation, active commercial diplomacy and improvement in regulatory compliance, Pakistan aims to enhance its exports to the UAE through targeted initiatives for substantial outcomes. As part of trade diplomacy, active interaction with the host Government's ministries and trade related departments is maintained by the mission at all levels so that institutional linkages can be strengthened for mutual gains. During a successful 12th Session of the Joint Ministerial Commission (JMC) held in Abu Dhabi after a lapse of almost 12 years, two specific Memorandum of Understandings (MoUs) for enhancement of bilateral trade and investment were signed. The first deal included a deal on the establishment of a Joint Task Force to promote Investments while the second agreement was about Artificial Intelligence and Digital Economy. Prior to the JMC, a MoU was also signed for Establishment of Pakistan-UAE Joint Business Council. These actions underscore the deep-rooted and multifaceted collaboration between Pakistan and the UAE and their shared vision for a stronger economic and commercial relationship in future. Capitalising on the UAE's strategic location as global hub, its business ecosystem and diverse preferences, the participation of Pakistani exporters under Trade Development of Pakistan (TDAP) in Dubai's world class exhibitions like Gulfood, Arab Health, Gitex Global, Beauty World, Middle East Energy, ISM, Big 5, InterSec, Gulfood Manufacturing, etc has provided great opportunities to showcase a wide range of goods and services. Besides facilitation extended to these trade delegations by Trade & Investment Wing in the Consulate, various efforts are made to explore new partnerships by arranging successful B2B linkages with the support of different UAE based Trade Missions, Pakistan Business Councils of Dubai and Sharjah, multinational business councils and Business Chambers of Commerce and Industry. Secondly, the focus on promoting country branding during these mega events, organising of various networking events, conferences and media publicity are crucial steps taken to create impact of Pakistani products and to achieve progress on the initiatives in the host market. Since the Ministry of Commerce in Pakistan prioritises the enhancement of exports trade through various frameworks, the Trade & Investment Wing conducts regular market intelligence through various conferences, data analysis, talks and seminars on trade and investment hosted by different multinational forum and government entities in the UAE. Consequently, these reports are prepared for essential insights about foreign market size and potential, tariff and non-tariff measures and other legal environment enabling Pakistani exporters for their informed decisions. The UAE has invested in the sectors of communications, services, tourism, information technology, oil and gas, housing, banking, telecommunication and real estate in Pakistan and has branches of its giant companies such as Etihad Airways, Emirates, Emaar, Al Falah Bank, Dubai Islamic Bank, Parco, Mashreq Bank, DP World, Abu Dhabi Ports Company and others. During recent bilateral visits, the keen interest shown by the UAE side in expanding its investment portfolio in Pakistan and the recent successful investment initiatives facilitated under the platform of Special Investment Facilitation Council (SIFC), DP World and Abu Dhabi Ports are a shining example of this robust and ever-expanding cooperation. In addition to agriculture, renewable energy, tourism and IT, there are many potential sectors in Pakistan which can attract investment in healthcare, skilled human resorces, hospitality, mining and minerals, logistics and transport infrastructure, real estate and climate change financing. — Ali Zeb Khan is a Trade and Investment Counsellor at Pakistan Consulate Dubai.
