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Newsweek
28-07-2025
- Business
- Newsweek
Economist Warns Fed Could Hike Interest Rates Despite Trump Calls for Cut
Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources. Newsweek AI is in beta. Translations may contain inaccuracies—please refer to the original content. An economist believes the Federal Reserve may choose to raise interest rates to address stubborn inflation, despite many forecasting a cut and pressure for this from President Donald Trump. "The unemployment rate is low but the rate of inflation is somewhat elevated," William Silber wrote in a recent article for The Wall Street Journal. "That suggests, if anything, the target interest rate should be higher to push down inflation." Why It Matters Since the beginning of his second term, Trump and many in his administration have been pushing for a major rate cut to stimulate economic growth and reduce the U.S.'s debt payments. Much of this pressure has been directed at the central bank's chair, Jerome Powell, whom Trump has routinely criticized and called "too late Powell," a "stupid person" and a "Trump Hater." The president has floated the possibility of replacing Powell with someone whose views on monetary policy more closely align with his own, though both he and the administration maintain that there are no imminent plans to do so. What To Know The Federal Open Market Committee (FOMC), the body tasked with setting monetary policy, has not cut interest rates since December. The Fed has held the target range at 4.25 to 4.50 percent, remaining in a "wait and see" mode absent greater clarity on the trajectory of inflation and the effects of Trump's tariffs on the economy. In a statement following the most recent FOMC meeting in June, the Fed said, "The unemployment rate remains low, and labor market conditions remain solid." Unemployment dropped to 4.1 percent in June, according to Labor Department data, down from 4.2 percent in May and the forecast increase of 4.3 percent. However, the Fed's "dual mandate" is to promote both maximum employment and stable prices, and it acknowledged in the same statement that inflation remains elevated. Per the most recent Consumer Price Index, the annual inflation rate increased to 2.7 percent in June from 2.4 percent in May. According to Silber, this persistently high inflation creates a mystery of why no Fed officials have suggested raising borrowing costs—which slows spending and investment—to bring inflation closer to the central bank's long-term 2 percent target. Silber told Newsweek that given the "full employment" the U.S. is enjoying, he did not see "any reason" for the Fed to cut rates until inflation fell below this target. "Right now inflation is above 2 percent—never mind that it has declined. … That's history," he added. "The target rate should be higher by at least 25 basis points." Federal Reserve Chair Jerome Powell arrives for the Integrated Review of the Capital Framework for Large Banks Conference at the Federal Reserve in Washington, D.C., on July 22. Federal Reserve Chair Jerome Powell arrives for the Integrated Review of the Capital Framework for Large Banks Conference at the Federal Reserve in Washington, D.C., on July Pearce, the deputy chief U.S. economist at Oxford Economics, told Newsweek that the chances of the Fed raising rates at its next meeting or this year are "slim to none." Christopher Waller and Michelle Bowman, both Trump appointees to the Fed's Board of Governors, have already voiced their support for a rate cut. Waller told Bloomberg TV earlier this month that the labor market may be weaker than people believe, his justification for more stimulative monetary policy. Bowman, meanwhile, said last month that the inflationary effects of tariffs "may take longer, be more delayed, and have a smaller effect than initially expected." Trump has called on the Fed to cut rates by several points, which he believes could save the federal government up to $900 billion in annual debt payments. Economists who previously spoke with Newsweek anticipated the Fed cutting rates by the end of the year at the latest, though some said tariffs and the potential effects of the One Big Beautiful Bill Act could push the Fed to maintain its "wait and see" stance. What People Are Saying William Silber wrote in The Wall Street Journal: "No one on the FOMC knows precisely the appropriate interest rate needed for price stability and maximum employment. And neither does any Nobel Prize-winning economist. The so-called neutral rate of interest is observed in hindsight—by whether the economy is expanding fast enough to keep unemployment low but not too fast to provoke higher inflation. By that measure, the current target interest rate of 4.25 percent to 4.50 percent seems about right." Michael Pearce, the deputy chief U.S. economist at Oxford Economics, told Newsweek: "We have an economy where unemployment looks about right, and core inflation is running a little hot—somewhere between a half and a full point above 2 percent. Most policy rules would suggest we want rates slightly restrictive—and moving down closer to neutral as the inflation risk fades. "There is always uncertainty about the Goldilocks level of interest rates—not too hot to stoke inflation, not too cold to drive up unemployment. I disagree that neutral rates are that high—my best guess is neutral is somewhere in the low threes." What Happens Next The FOMC is scheduled to meet on Tuesday and Wednesday and announce its interest rate decision. According to the minutes of its June meeting, "a couple" of policymakers were open to cutting rates at the upcoming meeting, while others argued that the Fed could hold off until the end of 2025, based on both "elevated short-term inflation expectations" and belief that the economy can "remain resilient."
Forbes
24-07-2025
- Business
- Forbes
Where To Park Cash When Fed Starts Lowering Rates
Federal Reserve Board Chairman Jerome Powell speaks with attendees before the start of the Federal ... More Reserve Board of Governors' "Integrated Review of the Capital Framework for Large Banks Conference" at the Federal Reserve Board in Washington, DC, on July 22, 2025. (Photo by Mandel NGAN / AFP) (Photo by MANDEL NGAN/AFP via Getty Images) Money market accounts still offer 5%, but these rates won't last. Short-term yields are dropping, fast. With the 'safe 5% party' ending, you and I should skedaddle to the '11% yield afterparty' now. Fear not, my fellow contrarian—I have an extra dividend VIP pass for you. Fed Chair Jay Powell's tenure is in the homestretch. Whether or not ol' Jay makes it to the finish or gets hauled off prematurely, the Chair is a lame duck as far as the markets are concerned. Traders are pricing in two Fed cuts over the next nine months. Meanwhile, the industry projects money market rates to plummet to 3.8% by year end, with the 2-year Treasury yield also trending down, currently at 3.9%. Given President Trump's preference for lower rates, aggressive rate cuts are around the corner. Fed independence? Nah. Trump's appointed chair will cut, cut and cut. Defensive plays like short-term bonds are out. Offensive-minded yields take the field. They will shine as the US national debt tab comes due. Uncle Sam has racked up a $36.2 trillion bill, which has doubled in the last decade! Quite the spending bender, not yet including the 'One Big Beautiful Bill Act' (OBBBA), which may add an extra $3.8 trillion! US Debt: An Unstoppable Uptrend What does a huge debt load and Trump hating Powell have to do with each other? Everything. Treasury Secretary Scott Bessent is issuing 80% of debt on the short end of the yield curve. A lower Fed rate will save the US billions of dollars in interest payments. In fact, US interest payments are already down year-over-year despite a ballooning debt load! Plus, the administration will not have to 'answer' to the bond market, which determines long-term rates. The 10-year yield won't really matter if the US is issuing 2-year bonds! This will free up policymakers to pursue their true passions like spending money and printing it. This 'short instead of long' issuing practice was unheard of only a few years ago. Treasury debt was traditionally issued at the long end of the curve, such as 10 and 30 years, and purchased by pension funds and sovereigns. Janet Yellen started the practice and Bessent, while critical, has continued it. Hence their motivation to send Powell out to pasture—save billions in interest payments and take control of the bond market. By issuing more short-term debt, the US needn't rely on the 'kindness' of strangers (sovereigns) and funds to bankroll its deficit. Banks can permanently stash more (cheaper!) short-term debt on their balance sheets where they can lend against it. Recent legislative changes will let banks effectively lend against this debt, indirectly contributing to monetary expansion. This monetary environment has already kicked the US dollar down nearly 10% this year. Is a gashed greenback bad for stocks? Anything but! Bearish dollar trends tend to be wildly bullish for stocks, which happen to be priced in dollars. Plus, American corporations typically get an international sales boost when the buck is low (because our products are cheaper abroad). Here are four examples of weak dollar periods over the last four decades. All resulted in higher stock prices: USD Weakness Fuels Markets One 'pro move' dividend in this environment is Nuveen Nasdaq 100 Dynamic Overwrite Fund (QQQX). QQQX purchases the Nasdaq-100's tech-driven growth stocks and then sells ('writes') covered calls on them for additional income. Tech stocks are particularly attractive for call writing. They are volatile so they command high option premiums—which is profitable for sellers ('writers') of these options. Plus, the underlying shares have an underappreciated tailwind from shrinking payrolls due to AI! QQQX manufactures a reliable quarterly dividend that annualizes to 8.5% per share: QQQX Dividend Thanks to April's aftermath of the late winter almost-crash, the fund still trades at a 7% discount to its net asset value (NAV, or price of the stocks it holds). Which means we can buy the Nasdaq 100 for just 93 cents on the dollar. QQQX is poised for a potential moonshot as tech firms report earnings and articulate to Wall Street what we already know—these cash cows are really going to produce in the quarters ahead thanks to the 'rise of the machines' and, therefore, reduced expenses. How about a bond-like play with stock-like upside for our Fed cut afterparty? Let's hat tip our friends at FS Credit who gave us another 5.1% dividend raise. Our FS Credit Opportunities (FSCO) now yields 11.3%, paid monthly! We discussed FSCO as a favorite CEF for 2025, and it has not disappointed. Back in December, FS Investments' Joseph Montelione shared with us that his firm was preparing for a pickup in M&A under Trump 2.0. As a business development company in a 'CEF wrapper,' FSCO presented us with the best of all possible worlds—a reliable income strategy derived from value-based lending, a fat dividend and a generous discount! We were 'early adopters' into FSCO in my Contrarian Income Report, and we have been rewarded with 25% annualized gains. Now our initial 10% discount to its net asset value (NAV) at purchase has almost disappeared, making future 26% gains unlikely, but hey, it is tough to argue with a secure 11.3% dividend paid monthly. Brett Owens is Chief Investment Strategist for Contrarian Outlook. For more great income ideas, get your free copy his latest special report: How to Live off Huge Monthly Dividends (up to 8.7%) — Practically Forever. Disclosure: none
Yahoo
22-07-2025
- Business
- Yahoo
Fed's Powell on Importance of Bank Capital Framework
Federal Reserve Chair Jerome Powell underscored the need for the banking system's capital framework to work together effectively, adding that competition is also crucial for the banking industry. Powell delivered introductory remarks Tuesday at the Fed's "Integrated Review of the Capital Framework for Large Banks Conference."
The Hill
26-06-2025
- Business
- The Hill
OpenAI's Sam Altman to speak at Fed bank conference
OpenAI CEO Sam Altman will speak at a Federal Reserve conference on bank regulation next month. The leader of the key artificial intelligence (AI) firm will join newly confirmed Fed Vice Chair for Supervision Michelle Bowman for a fireside chat at the Integrated Review of the Capital Framework for Large Banks Conference on July 22. It's unclear what Altman plans to discuss at the banking conference, which is set to feature mostly banking industry executives and analysts, as well as remarks from Fed Chair Jerome Powell. Altman has become a key leader in the tech space following the explosive debut of OpenAI's ChatGPT in 2022. Like other tech executives, he has sought to develop an amicable relationship with President Trump in his second term, donating $1 million to the president's inaugural fund and attending his inauguration. Altman's company, alongside SoftBank and Oracle, is a key player in Trump's Stargate project, which aims to invest more than $500 billion into AI infrastructure over the next four years. However, his relationship with the administration was complicated by tech billionaire Elon Musk's prominent role in the White House as the Department of Government Efficiency (DOGE). Musk and Altman have long had a contentious relationship, with the Tesla CEO suing OpenAI and its CEO over their plans for a for-profit transition. Musk owns his own AI firm, xAI. But with Musk's departure from the administration and his very public blowout with the president, he now appears to be largely out of the picture in the White House.
