Latest news with #JonathanPingle
New Straits Times
2 days ago
- Business
- New Straits Times
Fed to keep rates on hold at least until September as inflation risks linger
BENGALURU: The US Federal Reserve will keep interest rates on hold for at least another couple of months, according to most economists polled by Reuters, as risks linger that inflation may resurge due to President Donald Trump's tariff policies. With most trade negotiations incomplete as the July 9 deadline for a 90-day pause on tariffs announced in April approaches, forecasters have been reluctant to change their already fragile economic outlook. Rising concerns about US debt and a deluge of bond issuance fuelled by a sweeping tax cut bill passed by the House of Representatives, but not the Senate, are not helping. Data on Friday showed no signs of significant stress building in the labor market, suggesting the Fed is in no hurry to cut interest rates any time soon. All but two of the 105 economists in the June 5-10 Reuters poll predicted the Federal Open Market Committee would keep the fed funds rate unchanged at its June 17-18 meeting in a 4.25-4.50 per cent range, where it has been since the start of the year. Around 55 per cent of economists - 59 of 105 - said the Fed would resume cutting next quarter, most likely in September and in line with interest rate futures pricing. That outlook has not changed from last month. "As long as the labor market looks fine, we expect the FOMC to continue to stay on hold, and use rhetoric to bolster their inflation-fighting credibility. Until there is a cost, why signal otherwise?" said Jonathan Pingle, chief US economist at UBS. "At the moment 'grey area' seems more 'charcoal'... the Committee is facing a substantial amount of uncertainty." Inflation expectations have remained elevated on predictions of high US trade barriers. The administration has recently raised aluminum and steel tariffs to 50 per cent from 25 per cent. US officials are currently engaged in trade talks with top Chinese officials in London, looking to secure a breakthrough. In the meantime, consumers are expecting price pressures to surge in coming years, while economists predict inflation to remain well above the Fed's 2 per cent target until at least 2027. A significant 42 per cent minority of poll participants - 44 of 105 - expect the FOMC to resume cutting rates in the fourth quarter of 2025 or later, with 20 predicting no cuts this year. "High tariffs are here to stay, and they will produce elevated inflation that is sustained well into 2026," said James Egelhof, chief US economist at BNP Paribas. "The Fed will see little need to cut... the lesson we have from history is, if inflation becomes entrenched in the economy, it can be very hard and very costly to remove." There was no clear consensus on where the rate would be by end-2025, but about 80 per cent of economists - 85 of 105 - predicted the fed funds rate in a 3.75-4.00 per cent range or higher. Trump called for a full percentage point reduction to 3.25-3.50 per cent immediately on Friday. The president's signature bill making its way through Congress is expected to add US$2.4 trillion to an already enormous US$36.2 trillion debt pile, making a rate cut more unlikely. "With more fiscal stimulus coming out of the tax and spending bill, the Fed sees less of a case for supporting the economy with lower interest rates," said Bill Adams, chief economist at Comerica Bank. "The fiscal policy looks set to push the deficit (higher)... exerting continued upward pressure on long-term interest rates that will be a headwind for credit-intensive parts of the economy like the housing market and business capital spending." The economy, which contracted 0.2 per cent last quarter on a widening trade deficit, is forecast to grow just 1.4 per cent this year, a sharp fall from 2.8 per cent in 2024. Next year, it was predicted to expand 1.5 per cent. That outlook was unchanged from May.
Reuters
2 days ago
- Business
- Reuters
Fed to keep rates on hold at least until September as inflation risks linger
BENGALURU, June 10 (Reuters) - The U.S. Federal Reserve will keep interest rates on hold for at least another couple of months, according to most economists polled by Reuters, as risks linger that inflation may resurge due to President Donald Trump's tariff policies. With most trade negotiations incomplete as the July 9 deadline for a 90-day pause on tariffs announced in April approaches, forecasters have been reluctant to change their already fragile economic outlook. Rising concerns about U.S. debt and a deluge of bond issuance fuelled by a sweeping tax cut bill passed by the House of Representatives, but not the Senate, are not helping. Data on Friday showed no signs of significant stress building in the labor market, suggesting the Fed is in no hurry to cut interest rates any time soon. All but two of the 105 economists in the June 5-10 Reuters poll predicted the Federal Open Market Committee would keep the fed funds rate unchanged at its June 17-18 meeting in a 4.25%-4.50% range, where it has been since the start of the year. Around 55% of economists - 59 of 105 - said the Fed would resume cutting next quarter, most likely in September and in line with interest rate futures pricing. That outlook has not changed from last month. "As long as the labor market looks fine, we expect the FOMC to continue to stay on hold, and use rhetoric to bolster their inflation-fighting credibility. Until there is a cost, why signal otherwise?" said Jonathan Pingle, chief U.S. economist at UBS. "At the moment 'grey area' seems more 'charcoal'... the Committee is facing a substantial amount of uncertainty." Inflation expectations have remained elevated on predictions of high U.S. trade barriers. The administration has recently raised aluminum and steel tariffs to 50% from 25%. U.S. officials are currently engaged in trade talks with top Chinese officials in London, looking to secure a breakthrough. In the meantime, consumers are expecting price pressures to surge in coming years, while economists predict inflation to remain well above the Fed's 2% target until at least 2027. A significant 42% minority of poll participants - 44 of 105 - expect the FOMC to resume cutting rates in the fourth quarter of 2025 or later, with 20 predicting no cuts this year. "High tariffs are here to stay, and they will produce elevated inflation that is sustained well into 2026," said James Egelhof, chief U.S. economist at BNP Paribas. "The Fed will see little need to cut... the lesson we have from history is, if inflation becomes entrenched in the economy, it can be very hard and very costly to remove." There was no clear consensus on where the rate would be by end-2025, but about 80% of economists - 85 of 105 - predicted the fed funds rate in a 3.75%-4.00% range or higher. Trump called for a full percentage point reduction to 3.25%-3.50% immediately on Friday. The president's signature bill making its way through Congress is expected to add $2.4 trillion to an already enormous $36.2 trillion debt pile, making a rate cut more unlikely. "With more fiscal stimulus coming out of the tax and spending bill, the Fed sees less of a case for supporting the economy with lower interest rates," said Bill Adams, chief economist at Comerica Bank. "The fiscal policy looks set to push the deficit (higher)... exerting continued upward pressure on long-term interest rates that will be a headwind for credit-intensive parts of the economy like the housing market and business capital spending." The economy, which contracted 0.2% last quarter on a widening trade deficit, is forecast to grow just 1.4% this year, a sharp fall from 2.8% in 2024. Next year, it was predicted to expand 1.5%. That outlook was unchanged from May. (Other stories from the Reuters global economic poll)
Los Angeles Times
12-05-2025
- Business
- Los Angeles Times
Dow leaps 1,100 points and S&P 500 rallies 3.3% following a 90-day truce in the US-China trade war
NEW YORK — Stocks rallied Monday after China and the United States announced a 90-day truce in their trade war. Each of the world's two largest economies agreed to take down temporarily most of its tariffs against the other, which economists had warned could start a recession and create shortages on U.S. store shelves. The Standard and Poor's 500 index shot up 3.3% to pull back within 5% of its all-time high set in February. It's been roaring higher since falling nearly 20% below the mark last month on hopes that President Trump will lower his tariffs after reaching trade deals with other countries. The index at the heart of many 401(k) accounts is back above where it was on April 2, Trump's 'Liberation Day,' when he announced stiff worldwide tariffs that ignited worries about a potentially self-inflicted recession. The Dow Jones Industrial Average jumped 1,160 points, or 2.8%, and the Nasdaq composite climbed 4.3%. It wasn't just stocks rising following what one analyst called a 'best case scenario' for US-China tariff talks, which reduced tariffs by more than what many investors expected. Crude oil prices climbed because a global economy less burdened by tariffs will likely burn more fuel. The value of the U.S. dollar strengthened against everything from the euro to the Japanese yen to the Swiss franc. And Treasury yields jumped on expectations that the Federal Reserve won't have to cut interest rates as deeply this year as earlier expected in order to protect the economy from the damage of tariffs. Gold's price fell, meanwhile, as investors felt less need to buy something safe. The move announced Monday could add 0.4 percentage points to the U.S. economy's growth this year, according to Jonathan Pingle, U.S. chief economist at UBS. That's a significant chunk, and every bit counts when the U.S. economy shrank at a 0.3% annual rate in the first three months of the year. The United States said in a joint statement that it will cut tariffs on Chinese goods to 30% from as high as 145%. China, meanwhile, said its tariffs on U.S. goods will fall to 10% from 125%. The 90-day pause gives time for more talks following the weekend's negotiations in Geneva, Switzerland, which the U.S. side said yielded ' substantial progress.' The 90-day reprieve also comes at a vital time for the economy, allowing retailers and suppliers to 'ensure that shelves are stocked for the all important back-to-school and holiday shopping seasons,' said Carol Schleif, chief market strategist at BMO Private Wealth. Of course, conditions could change quickly again, as Wall Street has seen all too often in Trump's on-again-off-again rollout of tariffs. Big challenges still remain in the negotiations between China and the United States, and there is 'no reason to believe that this will be anything other than a slow process,' said Scott Wren, senior global market strategist at Wells Fargo Investment Institute. The U.S.-China pause followed a deal the United States announced last week with the United Kingdom that will bring down tariffs on many U.K. imports to 10% but will still require weeks to finalize all the details. Economic reports scheduled for later this week, including on inflation and sentiment among U.S. consumers, could also show how much damage the U.S. economy has already taken because of uncertainty about tariffs. But the mood was nevertheless ebullient across Wall Street on Monday, and gains were widespread. Stocks of smaller companies rallied. Their livelihoods can be more dependent on the strength of the U.S. economy than their bigger and more insulated rivals, and the smaller stocks in the Russell 2000 index jumped 3.4%. Apparel companies were also strong. Lululemon leaped 8.7%, for example. More than a quarter of its fabric came from mainland China last fiscal year, and a reduction in tariffs would mean a less-tough decision on whether to pass along increases to costs to customers or to eat them through reduced profits. Nike rose 7.3%. Travel companies jumped on hopes that lower tariffs would encourage more customers to feel comfortable enough to spend on trips. Carnival rose 9.6%, and Delta Air Lines climbed 5.8%. Many retailers rose because much of what they sell comes from China and elsewhere in Asia. Best Buy jumped 6.6%, and Amazon rallied 8.1%. All told, the S&P 500 rose 184.28 points to 5,844.19. The Dow Jones Industrial Average gained 1,160.72 to 42,410.10, and the Nasdaq composite leaped 779.43 to 18,708.34. In stock markets abroad, indexes rose across most of Europe and Asia, though often by less than the U.S. market. In the bond market, the yield on the 10-year Treasury jumped to 4.47% from 4.37% late Friday. The two-year Treasury yield, which more closely tracks expectations for what the Fed will do with interest rates, jumped even more. It rose to 4.00% from 3.88% as traders ratcheted back expectations for how many cuts to interest rates the Fed may deliver this year. Many traders are now betting on just two cuts this year, according to data from CME Group. Choe writes for the Associated Press.
New York Times
25-02-2025
- Business
- New York Times
Americans Are Expecting Higher Prices. That Could Unnerve the Fed.
Fresh off the worst inflation shock in decades, Americans are once again bracing for higher prices. Expectations about future inflation have started to move up, according to metrics closely watched by officials at the Federal Reserve. So far, the data, including a consumer survey from the University of Michigan and market-based measures of investors' expectations, does not suggest that price pressures are perceived to be on the verge of spiraling out of control. But the recent jump has been significant enough to warrant attention, stoking yet more uncertainty about an economic outlook already clouded by President Trump's ever-evolving approach to trade, immigration, taxation and other policy areas. On Tuesday, a survey from the Conference Board showed that consumer confidence fell sharply in February and inflation expectations rose as Americans fretted about the surging price of eggs and the potential impact of tariffs. 'This is the kind of thing that can unnerve a policymaker,' Jonathan Pingle, who used to work at the Fed and is now chief economist at UBS, said about the overarching trend in inflation expectations. 'We don't want inflation expectations moving up so much that it makes the Fed's job harder to get inflation back to 2 percent.' Most economists see keeping inflation expectations in check as crucial to controlling inflation itself. That's because beliefs about where prices are headed can become a self-fulfilling prophecy: If workers expect the cost of living to rise, they will demand raises to compensate; if businesses expect the cost of materials and labor to rise, they will increase their own prices in anticipation. That can make it much harder for the Fed to bring inflation to heel. That's what happened in the 1960s and 1970s: Years of high inflation led consumers and businesses to expect prices to keep rising rapidly. Only by raising interest rates to a punishing level and causing a severe recession was the Fed able to bring inflation fully back under control. When prices began rising rapidly in 2021 and 2022, many forecasters feared a repeat of that scenario. Instead, inflation expectations remained relatively docile — rising only modestly, and falling quickly once inflation began to ease — and the Fed was able to bring down inflation without causing a big increase in unemployment. 'The No. 1 reason why that scenario didn't play out was that, even though inflation went up quite a bit, expected inflation by most measures only went up a little bit,' said Laurence Ball, an economist at Johns Hopkins University. 'That's the big difference between the 1970s and the 2020s.' Now, though, there are hints that Americans are anticipating higher inflation in the years ahead. Persistent price pressures driven in part by a surge in the costs of eggs and energy-related expenses coupled with concerns about the impact of tariffs are among the factors to have pushed consumers' expectations for inflation over the next 12 months to their highest level in more than a year, according to the long-running survey from the University of Michigan. More concerning to economists, consumers' expectations for inflation in the longer run — which tend to be more stable over time — experienced their biggest one-month jump since 2021 in February. The increase cut across age and income levels, suggesting inflation fears are widespread. Expectations in the Michigan survey have risen before, only to fall back in subsequent months. And the recent results have shown a huge partisan split — inflation expectations have risen sharply among Democrats since the election, but have fallen among Republicans — leading some economists to discount the results. Inflation expectations have also risen among political independents, however — a significant development because their assessment of the economy is typically more stable, said Joanne Hsu, who leads the Michigan survey. Other measures paint a mixed picture. The Conference Board's survey showed rising concerns about inflation in both January and February, but another from the Federal Reserve Bank of New York in January did not. One closely watched measure of investors' inflation expectations has been edging up, but another one has not. Both measures are based on yields on U.S. government debt — when investors expect inflation to eat away at the value of their bond holdings, they demand a greater return to make up for it. Surveys of businesses and of professional forecasters have found little if any evidence that inflation expectations are rising. But economists said that the longer inflation remained elevated, the greater the chances that consumers and businesses would start to readjust their expectations. What central banks fear most is if those expectations become 'unanchored,' or move enough to suggest little confidence that over time inflation will return to the 2 percent target. That risk appears more prominent now than it did a few months ago. Progress on inflation has stalled in recent months and President Trump has pursued policies that many economists believe are likely to push prices higher, such as imposing tariffs and restricting immigration. 'The data does show that inflation expectations appear to be well anchored, but if I were at the Fed, I wouldn't assume that or take that for granted,' said Richard Clarida, a former Fed vice chair who is now at Pimco, an investment firm. Officials at the central bank have so far downplayed concerns about inflation expectations. Austan Goolsbee, president of the Federal Reserve Bank of Chicago, said the latest survey from the University of Michigan 'wasn't a great number,' but reflected just one month's worth of data so far. 'You need at least two or three months for that to count,' Mr. Goolsbee, who casts votes on policy decisions this year, said on Sunday. Alberto Musalem, president of the St. Louis Fed and a voting member, was also emphatic that inflation expectations were under control while talking to reporters last week. Mr. Musalem described the Michigan data as 'one metric amongst a variety of metrics that has shown a little uptick.' Despite this confidence, the Fed has put additional interest rate cuts on hold for the time being. Officials not only want more evidence that inflation is in retreat but have also said a solid economy affords them time to wait and see how Mr. Trump's plan will impact the trajectory for consumer prices, the labor market and growth more broadly. Minutes from the most recent policy meeting in January showed that policymakers expected some impact on consumer prices from Mr. Trump's policies. But how the central bank should respond remains a big point of debate. Some, like Fed governor Christopher J. Waller, have argued that the central bank can 'look through' the economic impact of policies like tariffs. But that stance hinges on a number of factors, most crucially that such levies lead to only a one-off increase in prices and that expectations across businesses and households remain in check. But according to Charles Evans, who retired as president of the Chicago Fed in 2023, that could be a risky strategy, especially in light of the inflation surge that followed the Covid-era economic shock. 'That's the same transitory story the Fed and everybody was saying in 2021,' he said. 'You would think that policymakers would be a little more reluctant to lean on that.' Already, Mr. Evans said that seeing inflation expectations move up somewhat made him 'a little nervous,' especially in light of his concerns that businesses might be more inclined than in the past to pass along higher prices to their customers. For those reasons, he expects the Fed to stay 'cautious' about further interest rate cuts this year. John Roberts, who most recently served as a top staff member in the division of research and statistics at the Fed before joining Evercore ISI, added that the central bank might be inclined to forgo cuts entirely this year if inflation expectations did not improve from current levels. At this point, he already sees 'a little bit of unanchoring here.' After the release of the latest University of Michigan data on Friday, economists at LHMeyer, a research firm, pushed back their timing for the next Fed cut from June to September. There is also another risk: If Mr. Trump moves to erode the Fed's independence, or threatens to do so, that could undermine confidence in the central bank's ability to bring inflation under control, leading inflation expectations to rise. Last week, Mr. Trump sought to expand his reach over the Fed as part of a broader effort to wrest greater control of congressionally designated independent agencies. The executive order targeted the central bank's supervision and regulation of Wall Street and carved out its decisions on monetary policy. But the expansive nature of the order stoked concerns about how much further Mr. Trump's encroachment on the Fed's independence could eventually go. 'That's the most dangerous scenario,' Mr. Ball said, adding that even the threat of political interference could make the Fed's job more difficult. 'The Fed's ability to control expectations could be impeded not only by the Trump administration taking over, but also by the fear that might happen.'
