Latest news with #FederalReserve
Yahoo
22 minutes ago
- Business
- Yahoo
Collins Says Solid Economy Gives Fed Time to Assess Next Move
(Bloomberg) -- Federal Reserve Bank of Boston President Susan Collins said she continues to believe the US central bank can be patient in considering interest-rate cuts, suggesting healthy business and household balance sheets may limit the impact of tariffs on the economy. The Dutch Intersection Is Coming to Save Your Life Advocates Fear US Agents Are Using 'Wellness Checks' on Children as a Prelude to Arrests LA Homelessness Drops for Second Year Manhattan, Chicago Murder Rates Plunge in 2025, Officials Say 'Continued overall solid economic conditions enable the Fed to take the time to carefully assess the wide range of incoming data,' Collins said Tuesday in remarks prepared for an event organized by the National Association for Business Economics in Washington. 'Thus, in my view, an 'actively patient' approach to monetary policy remains appropriate at this time.' Fed officials have kept interest rates steady this year as they await the impact of aggressive policy changes by President Donald Trump, particularly those related to trade. Most officials expect tariffs to raise inflation, but recent reports have been mixed, fueling a debate among policymakers over their ultimate impact. Consumer price data released Tuesday showed underlying inflation in June rose by less than expected for a fifth consecutive month, but also that tariffs were beginning to leave their mark on the prices of some goods. 'In all, financial data point to the possibility that the impact of tariffs may be lessened somewhat by an ability for firms to decrease profit margins and for consumers to continue spending, despite higher prices,' Collins said. 'As a result, the adverse impact of tariffs on labor market conditions and economic growth may be more limited.' Collins said the Boston Fed had developed a 'a new methodology that quantifies how price increases at the US border transmit to domestic consumer prices.' She said she expects the central bank's preferred gauge of underlying inflation will likely 'be in the vicinity of 3% by year's end, before resuming its decline.' In May, it stood at 2.7%. Thailand's Changing Cannabis Rules Leave Farmers in a Tough Spot The New Third Rail in Silicon Valley: Investing in Chinese AI How Hims Became the King of Knockoff Weight-Loss Drugs 'The Turbulence Is Brutal': Four Shark Tank Businesses on Tariffs Will Trade War Make South India the Next Manufacturing Hub? ©2025 Bloomberg L.P. Sign in to access your portfolio
Time of India
23 minutes ago
- Business
- Time of India
Scott Bessent says Jerome Powell should leave Fed board in May '26
NEW YORK: US Treasury Secretary Scott Bessent suggested that Federal Reserve Chair Jerome Powell should step down from the central bank's board when his term as chair is up in May 2026. "Traditionally, the Fed chair also steps down as a governor," Bessent said in an interview with Bloomberg Television Tuesday. "There's been a lot of talk of a shadow Fed chair causing confusion in advance of his or her nomination. And I can tell you, I think it'd be very confusing for the market for a former Fed chair to stay on also." Powell's term as a Fed governor doesn't end until January 2028, leaving it possible for him to remain at the central bank - and to participate in monetary policymaking - even after his tenure as the chair comes up next May. Powell has repeatedly declined to answer questions on whether he might stay on as a governor. That reticence has complicated the decision-making for President Donald Trump and his aides as they look to revamp Fed leadership next year. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like The Top 25 Most Beautiful Women In The World Articles Vally Undo "There's a formal process that's already starting" with regard to identifying the nominee to become next Fed chair, Bessent also said. "There are a lot of good candidates inside and outside the Federal Reserve." Asked whether Trump has asked Bessent himself to serve as Fed chair, the Treasury chief said, "I am part of the decision-making process." He noted that "it's President Trump's decision, and it will move at his speed." Live Events Treasuries dropped after Bessent's remarks, with two-year yields hitting a session high of 3.92%. The Bloomberg Dollar Spot Index pared losses and was little changed as of 7:55 a.m. in New York. Unless Powell makes clear he'll vacate his board position, Trump has one scheduled opening to fill next year, with Governor Adriana Kugler reaching the end of her term in January.
USA Today
25 minutes ago
- Business
- USA Today
Why the stock market rally may mislead investors in 2025
Investors have gotten good news lately. The U.S. stock market reacted positively to a stable unemployment rate of 4.1 % in June 2025, which was lower than the expected 4.3%. A dip in the Consumer Price Index (a metric used to gauge inflation) from 3.3% in May 2024 to 2.4% in May 2025 helped alleviate concerns about inflation. The Federal Reserve held its benchmark interest rates steady between 4.25% and 4.50% in June 2025, while the next rate cut is likely scheduled for September 2025. Against the backdrop of encouraging economic numbers and reduced concerns about tariff wars, the benchmark S&P 500 (SNPINDEX: ^GSPC) index hit record highs. Despite the current market optimism, picking stocks based solely on a few economic metrics can be risky. Instead, investors should consider data across various aspects of the economy — such as employment, inflation and production — and make sure they aren't missing the bigger picture. Economic metrics can be deceptive Consider the employment rate in June 2025. Although it appears healthy, the economy is currently facing critical problems, including a decline in overall labor force participation and slower job creation. The labor force participation rate has fallen to 62.3%, the lowest it has been since late 2022. Private sector nonfarm payrolls increased by only 147,000 jobs in June 2025, far lower than the 180,000 to 200,000 jobs per month estimated to be required to maintain growth in the working-age population. While inflation appears to be under control based on headline CPI numbers, the core CPI (excluding food and energy) rose 2.9% for the 12 months ending in May 2025. Inflation persists in areas such as insurance, medical services and housing. Industrial production numbers are also mixed. While manufacturing grew 4.8% in the first quarter of 2025, manufacturing production declined by almost 0.5% in April, primarily due to a decline in motor vehicle output. Manufacturing output rose just 0.1% in May 2025, as an increase in motor vehicle and aircraft output was offset by weakness in other areas. So, does the economy seem strong enough to match the market exuberance? I don't think so. Analyzing historical case studies To demonstrate how relying on lagging indicators alone can prove problematic for investors' portfolios, we can analyze two specific case studies. In June 2020, a record jobs report showed that 4.8 million nonfarm payroll jobs were added and unemployment had dropped to 11.1% from the expected 12.4%, sending the markets soaring. Investors were optimistic, anticipating a strong rebound in the coming months following the pandemic-related lockdowns. However, the market exuberance was short-lived, as megacap tech stocks primarily experienced a dramatic decline in September 2020. Wall Street had overlooked the acceleration of COVID-19 cases in certain key states and low overall consumer confidence. The jobs report was also based on data collected during the initial reopenings, which included the temporary rehiring of workers and did not account for job suspensions and rollbacks in regions experiencing a resurgence in COVID-19 cases. The challenging macroeconomic conditions raised concerns about the tech stock valuations being too high. Then, in March 2023 markets surged due to cooler-than-anticipated inflation numbers and increased expectations that the Federal Reserve would ease its aggressive interest rate hiking. This led to capital flowing into rate-sensitive sectors such as technology, consumer discretionary and communication services. However, while the headline CPI was cooling down, shelter costs increased month over month by 0.6% in March 2023. Although this was the smallest monthly gain since November 2022, it still resulted in an 8.2% year-over-year rise in shelter costs. Additionally, the March 2023 CPI reading of 5% was still 2.5 times the Federal Reserve's target of 2%. Hence, contrary to market expectations, the Federal Reserve delivered its 10th consecutive interest rate hike in May 2023, raising the benchmark rate to 5%-5.25%, the highest since August 2007. Not surprisingly, the very sectors that had benefited from the March rally, including housing stocks and fintech companies, suffered the most after the rate hikes were announced. These case studies highlight the importance of thoroughly examining lagging indicators to comprehend the investment landscape accurately. Stocks for the current cautious economic environment In this environment of a softening labor market, with declining job openings, reduced labor force participation and persistent uncertainty surrounding tariffs, it makes sense to take stakes in fundamentally strong companies with recurring revenue streams and high pricing power. Leading cloud and enterprise software player Microsoft (NASDAQ: MSFT) could prove to be a smart pick in periods of economic ambiguity thanks to its diversified business model, recurring revenue streams and strong balance sheet. The company plans to invest $80 billion in AI infrastructure and data centers in fiscal 2026 (ending June 30, 2026), aiming to capture a significant share of the AI market, which is estimated to be worth nearly $1.8 trillion by 2032. Microsoft's increasingly dominant AI ecosystem, which includes Azure AI services, Copilot virtual assistant integrated across its various software offerings, and AI-powered personal computers, is expected to be a significant growth catalyst even in a challenging market environment. Custom data center chip and advanced networking infrastructure provider Broadcom (NASDAQ: AVGO) is another stock that is benefiting dramatically from the ongoing AI infrastructure boom. The company's AI-related revenues surged 46% year over year to $4.4 billion in the second quarter of fiscal 2025 (ending May 4, 2025). Broadcom's AI networking business also grew over 170% year over year in the second quarter, capturing 40% of total AI revenue. Analysts expect the company's AI revenue to be $15 billion to $18 billion in fiscal 2025, driven by rising demand for large AI clusters from its existing three major hyperscaler clients, as well as the addition of new hyperscaler customers. Furthermore, Broadcom's $61 billion acquisition of VMware has also strengthened the company's position in the hybrid cloud and networking software space. Do your homework Relying on economic headlines for investment decisions can prove harmful in the long run. Instead, it makes sense to triangulate economic data and pick stocks that have low downside risk in the current environment. By avoiding potential traps, you can build a solid portfolio for long-term wealth generation. Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. 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. Should you invest $1,000 in Microsoft right now? Offer from the Motley Fool: Before you buy stock in Microsoft, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Microsoft wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider whenNetflixmade this list on December 17, 2004... if you invested $1,000 at the time of our recommendation,you'd have $671,477!* Or when Nvidiamade this list on April 15, 2005... if you invested $1,000 at the time of our recommendation,you'd have $1,010,880!* Now, it's worth notingStock Advisor's total average return is1,047% — a market-crushing outperformance compared to180%for the S&P 500. Don't miss out on the latest top 10 list, available when you joinStock Advisor. See the 10 stocks »
Yahoo
25 minutes ago
- Business
- Yahoo
June inflation: One key point that tariffs are overshadowing
The June CPI report shows that inflation is continuing to rise. Many on Wall Street have been focusing on the impact tariffs will have on inflation, but StoneX senior adviser Jon Hilsenrath thinks they may be overlooking another important point. He is joined by AllianceBernstein chief economist Eric Winograd to discuss the data. To watch more expert insights and analysis on the latest market action, check out more Market Catalysts here. Frankly, I think there's too much attention right now on the tariff effects, uh, and not enough attention on just the underlying rate of inflation. The Fed's goal is 2% inflation. So let's say there's been very little effect of tariffs so far. The inflation rate is still a little bit above the Fed's 2% target. And what we saw with the number today is consistent with that story. Uh, we had four straight months of readings that were low of two tenths or below. And this month we got a reading of 0.3, which is consistent with like a three to four percent inflation rate. Uh, I like to look at the price of a haircut. Uh, I think that tells you something about the rate of domestic inflation. Uh, the biggest inputs, uh, in the rate of a haircut are labor and rent, uh, and that's going at a rate of three and a half to 4%. That's got nothing to do with tariffs. It's got nothing to do with the exchange rate. It's the domestic economy. And I think the Fed doesn't have inflation at the 2% goal. It's really in my mind, they're going to find it hard to justify cutting rates a lot in the months ahead if they're hovering a little bit above the 2% rate objective inflation rate objective, regardless of what tariff, uh, what tariffs are doing. Breaking news, we got to make the Hilsenrath haircut index. You heard it here first folks, that's what we're gonna be introducing to the economic world. You can see the chart on my LinkedIn page, I guess posted. Well, I obviously, I, I need to spend more time on LinkedIn. Um, Eric, is part of this that the Fed needs to bring down that inflation target or or or should say bring up that inflation target. Excuse me, is that part of the issue here? So look, the Fed can't change the inflation target. It's no good changing a target when it's convenient to do so because then you lose credibility. I think it's reasonable to argue that the target should have been set higher when they originally set it, but it's a little bit late to do that now. I, I, it's just you can't change it midstream without risking your credibility. I, I, I disagree with John to a certain degree though. I, I, you know, I don't think the Fed has to wait. In fact, I think it would be a mistake for the Fed to wait until inflation is all the way back to target before they contemplate cutting rates. We know, But what, but what's the argument for cutting rates sooner? So the argument for cutting rates sooner is that inflation tends to lag the economic cycle, right? If you wait until it's all the way back to target, you have almost certainly waited for the economy to weaken too much. So I agree, you need to see downward momentum, and I think that the, the, the Fed agrees with that too. Um, but take the counterfactual. The Fed did cut rates last year. If they hadn't, rates would be quite significantly higher now, and I don't know that anybody really thinks that would be appropriate for the economic circumstance. The Fed, much as they are data driven, also needs to try to be forward-looking. And, and when you see indicators that suggest inflation is going to come down, you want to respond to that. I'm pretty confident that were it not for the tariff overlay, the Fed would be cutting rates right now. I think the underlying dynamics are consistent with the gradual progress toward that target. It is the uncertainty that's restraining them. Uh, and we can debate whether that's appropriate policy or not. Within the Fed, there's a debate. If you think about the dot plot right now, roughly half the committee doesn't think they're going to cut rates at all this year, and another half of it thinks they're going to cut rates at least twice. Uh, so, so these are reasonable disagreements to have. Um, but you know, unfortunately from a market perspective, this is a disagreement that's going to persist because the data aren't giving us a clear answer. John, what do you think of that view? Look, can I, can I take the bait on, on this debate? Uh, and, and I, I think, um, you, you answered my response, which is that the Fed has already cut interest rates. They cut interest rates by a full percentage point last year. Uh, they, they did some of those rate cuts before the election, and some of those rate cuts after the election. So some of them may have benefited Biden, and some of them benefited Trump, but they got the, the, uh, the short-term rate down a full percentage point. And now they're waiting to see if there's follow through and if inflation is continuing to recede. So is it continuing to recede? I, you know, I, I think another way of looking at this is, I just don't think the neutral rate, the rate at which, uh, the economy is producing either less inflation or more inflation is where the Fed puts it. The Fed has said it's around 3%. I think it's closer to 4%. The Fed funds rate is a little over 4%. I just don't think they've got a lot of room to cut rates much more unless they want to create more inflation. And that's the risk they're going to run. And frankly, if the president gets what he wants and the Fed cuts rates by three percentage points, we're going to get a lot more inflation. 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The Hill
29 minutes ago
- Business
- The Hill
5 things to know about the latest inflation report
Inflation moved up in June, due partially to businesses passing tariff costs onto consumers. Despite the uptick, President Trump is on the warpath for the Federal Reserve to cut interest rates, a move that would stimulate markets and investment, but that could also push inflation higher. As tariff-induced inflation threatens to become the dominant narrative on the economy, Trump and Fed chair Jerome Powell headed toward a collision. Treasury Secretary Scott Bessent said Tuesday that a 'formal process' was underway to pick Powell's successor. Trump's perceived strength on the economy was one of the primary reasons he was able to take back the White House. If inflation takes off as a result of Trump's tariffs, the White House could lose control of the economic narrative, which could have a big impact on the midterm elections. Here's a deeper look at the June inflation report and what it means politically. The report matches expectations Economists' expectations for June inflation ranged from a 2.6-percent to a 3-percent annual increase, so the 2.7-percent jump reported Tuesday by the Labor Department lines up pretty squarely with forecasts. Inflation increased for the second month in a row, up from a 2.4-percent increase in May and a 2.3-percent increase in April. Principal Asset Management strategist Seema Shah saw the number as 'coming in softer than expected,' though many economists emphasized the fulfillment of predictions. 'The headline consumer price index (CPI) increased in line with expectations,' Raymond James chief economist Eugenio Aleman said in a note. Taking out the more volatile categories of food and energy, the 'core' CPI increased less than expected, rising to a 2.9-percent annual increase versus an expected 3 percent. That's up from 2.8 percent last month. Tariffs are likely contributing to the price rise Economists have been warning for months that Trump's import taxes would likely be passed onto consumers in the form of higher prices. They pointed Tuesday to various categories in the CPI in which they saw this happening: fruits, home furnishings, recreation goods, appliances, video and audio products, and apparel. 'There is a trickle of what is likely tariff-induced inflation in some categories, particularly household appliances and furnishings,' Fitch Ratings U.S. economist Olu Sonola wrote in an analysis. 'This trickle is likely to gain momentum in the coming months.' Shah concurred. 'Import levies are slowly filtering through to core goods prices,' she wrote in a commentary. Aleman saw tariff influence in the food sector. 'Fruits and vegetables and nonalcoholic beverages prices had strong increases during the month, which could be pointing to tariffs,' he wrote. It's not all tariffs The CPI is a wide-ranging sample of prices for goods and services in the economy, and substantial segments of it are not directly affected by tariff rates. Shelter was the 'primary driver' of inflation in June, according to the Labor Department, and while imported raw materials can factor into construction costs, shelter costs are more directly sensitive to other factors, such as short-term interest rates set by the Federal Reserve. Admittedly, the Fed has been keeping interest rates elevated in anticipation of tariff inflation, but that's not a case of tariffs being passed directly onto consumers. Car prices deflated in June, dropping by 0.3 percent, after being the target of significant tariffs. Both new and used vehicle prices were down. Car companies executed a huge pull-ahead in orders from abroad ahead of tariffs, so dealers may be marking down prices to clear inventories. Excluding vehicles, durable goods saw broad increases in June, jumping 0.8 percent and rising by an annualized 5.8 percent in the last three months. '[It's] the fastest rate since 2022,' Preston Caldwell, chief U.S. economist at Morningstar, wrote in an analysis. 'We've seen substantial price increases for appliances, other household goods, and some electronics.' Why did tariffs take so long to show up in prices? Trump's trade war started almost as soon as he took office, with the bulk of his novel 'reciprocal' tariffs announced in early April. This begs the question of why they took so long to show up in the CPI. One reason is the stockpiling of inventories. Both consumers and businesses stocked up before the tariffs were announced. Households went on a shopping spree — notably for autos — in the first quarter, and importers executed a huge pull-ahead in orders that took a bite out of first-quarter gross domestic product. Trump has also delayed the implementation of many of his announced tariffs, as they have functioned initially as stances for negotiations. He paused his 'reciprocal' tariffs for 90 days in early April and then pushed them back again this month to Aug. 1. Finally, many of Trump's tariffs apply to component parts rather than finished consumer goods. The additional cost of tariffs takes time to move through a value chain as a final good is assembled. 'A majority of U.S. imports are not consumer goods. They are inputs that US manufacturers use, such as raw materials and machinery components,' Ryan Young, senior economist with the Competitive Enterprise Institute, wrote in a commentary. 'These price increases take time to work their way through supply chains down to consumer goods.' Political blowback and the economic narrative Trump on Tuesday blasted the Fed, again, for not cutting interest rates. 'Consumer prices low. Bring down the Fed rate, now!' the president wrote. He said the Fed should cut rates by a full 3 percentage points, which would probably be the largest cut ever executed. Monetary policy is a fundamental disagreement now between the Fed and the White House, as Powell has said the central bank is specifically not cutting rates due to Trump's tariff policies. Moves are underway in the executive to get rid of Powell and find his successor, which could seriously undermine the longstanding independence of the U.S. central bank. Bessent said Tuesday that a 'formal process' was underway to find Powell's replacement. Powell's term expires next year.
