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Time of India
13 hours ago
- Business
- Time of India
Fed policymakers meet as new data raises growth concerns, geopolitical risks rise
Federal Reserve officials met on Tuesday armed with new economic data that could give more weight to their concerns that Trump administration policies, or at least the intense uncertainty around them, will slow growth in the coming months. Shortly before the start of the two-day policy meeting, the U.S. Commerce Department reported that U.S. retail sales fell 0.9% in May, exceeding the expected 0.7% decline in a Reuters poll of economists and marking the biggest drop in four months. The U.S. central bank itself then released a report showing a surprise contraction in industrial production last month. The data, however, was hardly clear-cut. The retail sales report, with revisions also showing a small drop in April, was heavily influenced by slower auto sales after a surge earlier in the year driven by consumers hoping to avoid 25% levies on imported vehicles. Bad weather may have also been an influence, said Bradley Saunders, a North America economist at Capital Economics, with sales of an underlying group of goods more closely related to broader economic conditions suggesting "overall consumption continues to look healthy." The 0.2% drop in industrial production, however, pushed overall capacity utilization down 77.4%, its lowest level since January. A separate survey showed sentiment among homebuilders slid to the lowest point in two and a half years amid weak demand among buyers and high financing costs, a factor tied to monetary policy and the Fed's reluctance to reduce interest rates any further until it is clear that President Donald Trump's tariff policies won't lead to a persistent increase in inflation. Recent inflation data has been tame despite rising tariffs, but the Fed is still trying to reduce the pace of price increases to 2% after it surged in the years following the COVID-19 pandemic - with tariff-driven price hikes still seen as on the way. The risk of rising prices remains a dominant concern for the central bank despite signs the economy overall may be slowing. Trump's final tariff plans remain unclear, with trade deals promised but still not done with dozens of nations he has threatened to tax, and one-off proposals to levy specific goods like appliances that may or may not be implemented. Ongoing hostilities between Iran and Israel, meanwhile, have boosted the price of oil, another risk the Fed must contend as it prepares to release on Wednesday a new policy statement and updated policymakers' economic and interest rate projections. James Knightley, chief international economist at ING, noted that the retail sales data is not adjusted for inflation, and the drop, once accounting for price rises, "paints a weak picture that reflects subdued consumer confidence readings. Households are nervous that tariff-induced price hikes will squeeze spending power while respondents have become much more cautious on job prospects, and this suggests that consumer spending will continue to cool through this year." How to balance the risk of slowing growth against the risk of anticipated higher inflation will be at the center of Fed policymakers' debate on Tuesday and Wednesday, along with likely discussion of the implications of the crisis in the Middle East. FED FORECASTS The U.S. central bank is widely anticipated to leave its benchmark overnight interest rate in the 4.25%-4.50% range, where it has been since December, and repeat that it can't give much guidance until it is clearer whether Trump's import tariffs and fiscal policies push inflation higher, undercut growth, or - as his administration contends will happen - keep growth on track while prices ease. Trump has demanded immediate rate cuts. Days of intense missile exchanges between Israel and Iran, however, have presented the Fed with even more reason for caution after oil prices jumped again on Tuesday and presented a possible new source of inflation. The conflict highlights the uncertainty Fed officials say has gripped their policy debate since Trump returned to power in January and unveiled a far more aggressive effort than expected to raise import taxes and rewrite global trade rules. Fed officials and many economists have largely expected that Trump's trade policies will have a stagflationary effect on the U.S. economy, simultaneously slowing growth and raising prices, with the monetary policy path - whether rate cuts or an extended hold of borrowing costs at the current level - dependent on which problem seems to be more serious. The Fed will issue a new policy statement as well as updated projections for the economy and the benchmark interest rate at 2 p.m. EDT (1800 GMT) on Wednesday, with Fed Chair Jerome Powell scheduled to hold a press conference half an hour later. The central bank's Summary of Economic Projections may draw more attention than the policy decision itself, as analysts and investors look for evidence of how Fed officials' views of the outlook have changed since their last set of projections in March, before the scope of Trump's tariff plans became clear but also before he delayed some of the stiffest levies in the face of largely negative market reaction. Live Events Fed officials in March marked down their expectations for economic growth this year and raised their level of expected inflation, but left unchanged the median outlook for two quarter-percentage-point rate cuts this year. Though that rate outlook matched the one in December, the spread of views in the Fed's "dot plot" chart narrowed, and some analysts anticipate a further hawkish shift in light of the central bank's emphasis on keeping inflation controlled and expectations that Trump's new tariffs still will lead to price increases. "Trade policy developments have likely led to a significant change in Fed forecasts," towards even slower growth and higher inflation this year than expected as of March, Michael Feroli, chief U.S. economist at JP Morgan, wrote on Friday.
Mint
06-05-2025
- Business
- Mint
US trade deficit hits record as companies front-load pharmaceuticals
The U.S. trade deficit ballooned 14% to a record $140.5 billion in March, as businesses stockpiled goods to get ahead of sweeping tariffs that President Trump imposed the following month. The value of imported goods totaled $346.8 billion, according to Census Bureau data, continuing a sharp increase that began in January. Nearly all of the $22.5 billion surge in imported consumer goods for March were pharmaceutical products, which the Trump administration is currently considering to hit with tariffs. Imports of computer accessories, automobiles, and car parts and engines also increased. The rush may be short-lived. Trump announced tariffs on all imported goods on April 2, and ratcheted up his trade war with China . Cargo shipments from China have slowed considerably , with additional tariffs on Chinese goods now pegged at 145%. 'The record has only been a result of front running," and 'the trade deficit should be narrower in April," said Bradley Saunders, economist at Capital Economics. Some economists say businesses continued to front-load in April as Trump put a 90-day pause on 'reciprocal" tariffs, or the higher duties for some countries. The concentration on pharmaceuticals also means companies didn't buy as much of everything else, from toys to apparel. Omar Sharif, an economist at the advisory firm Inflation Insights LLC, said as the Trump administration takes time to possibly reach trade deals with other nations, businesses might begin to run down on stockpiles of inventory. For American consumers, he said it meant 'store shelves may be emptier sooner than we thought." The sharp rise in the goods deficit, to a record $163.5 billion, was offset by a $23 billion surplus in services trade, which includes travel, transportation and financial services. The U.S. exported about $95 billion in services in March. The March report capped off a quarter that saw the U.S. import $1 trillion in goods, up from $796 billion during the same period last year. Meanwhile, exports of U.S. goods have only risen modestly, reaching $539 billion in the first quarter. That imbalance pushed the goods deficit to $466 billion for the quarter, up from $279 billion a year ago. During the quarter, the U.S. imported $51 billion more in goods from Switzerland than it did during the same period a year earlier—much of that in gold, according to Census data. The precious metal, often recast in Swiss refineries, is viewed as a haven at times of heightened risk. A surge of U.S. imports during the quarter also came from Ireland, Mexico, Taiwan and Vietnam. Trade data for April is due for release in early June.
Yahoo
04-03-2025
- Business
- Yahoo
Why the February jobs report may push a jittery stock market toward a correction
Angst over the health of the U.S. economy has investors nervous about the possibility of an approaching recession — and the next big jobs report may not be enough to calm nerves for very long. That's because investors and traders will be eyeing Friday's nonfarm-payrolls report for February through the lens of recent developments that have led to mounting fears about consumer demand and a potential economic downturn, triggering notable drops in stocks and Treasury yields. Why investors who fear a recession and the end of 'American exceptionalism' may be overreacting Three AI stocks to buy if you want to look past the Nvidia hardware build-out 10 dividend stocks for investors who also want growth Wall Street can't stop talking about the 'Mar-a-Lago Accord.' Here's how the currency deal would work. 'Why am I so afraid to retire?' I'm 60 and lost $1.2 million in a divorce. Can I rebuild my life? Those developments include sinking consumer confidence in a Conference Board report on Feb. 25; signs of a contraction in a key S&P Global survey of services-sector activity on Feb. 21; and disappointing earnings guidance from Walmart Inc. WMT on Feb. 20. 'Investors are on edge, so it wouldn't take much to trigger a full-blown correction,' said Brian Jacobsen, chief economist at Annex Wealth Management in Wisconsin, which manages about $6.5 billion in assets. 'If the jobs number is slightly weak, the fear is that disruptions from tariffs could turn slight weakness into something more severe.' Read: Risk of a stock-market correction is rising, Goldman Sachs warns U.S. stocks finished higher on Friday after an inflation reading from the personal-consumption expenditures price index met expectations for January. Over the past two weeks, however, major indexes have moved closer to the magnitude of declines required for a correction — which is defined as a decline of at least 10%, but less than 20%, from a recent high. As of Friday, the S&P 500 SPX was down 3.1% from its record high of 6,144.15, reached on Feb. 19. The Nasdaq Composite COMP was down 6% from its 2025 high of 20,056.25, recorded that same day. February's nonfarm-payrolls report is expected to reflect a gain of 160,000 jobs, up from 143,000 in January, according to the consensus forecast reflected on FactSet. The unemployment rate is expected to remain at 4%, while average hourly earnings are forecast to slip 0.3% on a monthly basis, from 0.5% previously. Overall, expectations for Friday's job gains are wide. Bradley Saunders of U.K.-based Capital Economics foresees a 170,000 gain in jobs for February. By contrast, Thomas Simons of Jefferies said his New York-based firm is expecting only an increase of 115,000 to 120,000 jobs, after initially estimating fewer than 100,000. Meanwhile, Ryan Jacobs, founder of Florida-based advisory firm Jacobs Investment Management, said a surprisingly positive jobs report will likely lead to only a temporary improvement in investor sentiment, while a negative jobs report could be seen as 'the tip of the iceberg' and result in a stock-market correction within a couple of quarters. Jefferies' Simons and Annex Wealth's Jacobsen are among those who are leaning toward the possibility that Friday's jobs data will come in below expectations. Jacobsen described the Feb. 21 release of the S&P Global's services-sector purchasing managers' index — which fell below 50 — as a 'shot across the bow' that leaves him biased toward a downside outcome on Friday, which could produce a selloff in U.S. stocks and a drop in Treasury yields. He expects a nonfarm-payroll reading closer to 125,000 and sees job gains falling below 100,000 in the March report that arrives on April 4. 'My fear is that any slowdown could snowball into something worse,' Jacobsen said. 'We no longer have a wave of positive consumer sentiment to ride.' Even if Friday's report produces an upside surprise or as-expected job gains, investors could end up focusing instead on the prospect of softer employment growth in the months ahead. That is because February's round of data will not reflect federal cutbacks, and the economy may be due for a slowdown anyway regardless of what the Trump administration does. President Donald Trump's ongoing trade threats against other countries have only added further uncertainty to the U.S. outlook — producing big swings in stock, bond and currency markets. The past week's worth of data has included an updated estimate that revealed the U.S. economy grew at a 2.3% annual rate during the final three months of last year. Before those months, the economy produced a GDP growth rate of more than 3% on a quarterly basis for most of the time between the third quarter of 2023 and the same period in 2024. This stretch was 'an exceptionally long period of time for GDP to be growing above potential,' outside of time periods immediately following recessions, said Simons of Jefferies. Via phone, Simons said his expectation for below-consensus job growth in February is based on a general cooling-off period that he expected to occur during the first six months of 2025. At Philadelphia-based Glenmede, which oversees roughly $47 billion in assets, Michael Reynolds, vice president of investment strategy, said his firm expects February's jobs data to reflect a labor market that continues to hold up. If the unemployment rate ticks higher, however, market participants will reassess how healthy consumers will be over the rest of 2025, he said. And depending on the magnitude of any misses in the jobs report, market participants could immediately price in a growth scare as a higher-probability outcome, Reynolds said via phone. Under that scenario, 'there's going to be more meaningful questions about whether this is a true growth scare' that stops short of a recession, he said — adding that 'we would expect a meaningful correction in equities, but not a full-blown bear market.' A dear friend, 91, wants to add me to the deed of his house. His daughter died and he's not close to his son. Is that a good idea? Inflation traders brace for short-term shock from tariffs, immigration policies 'She's bleeding her retirement dry': My friend earns $9 an hour, but wastes money on vacations and massages. What can I do? 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