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Zawya
10 hours ago
- Business
- Zawya
Fed set to hold rates steady as Middle East crisis, tariffs cloud outlook
The Federal Reserve is expected to keep interest rates unchanged on Wednesday as its policymakers assess signs of a cooling economy and the risk of higher inflation from U.S. import tariffs and the escalating crisis in the Middle East. Since setting its benchmark interest rate in the current 4.25%-4.50% range in December, the Fed has watched the economic outlook grow cloudier, particularly after President Donald Trump returned to power in January and quickly overhauled U.S. trade policy by announcing sharply higher levies on imported goods. While many of the tariffs have been delayed, the issue is unresolved and on the radar of U.S. central bank officials. Oil prices also have risen after Israel's attack last week on Iran, and subsequent missile exchanges by the two regional foes, while data on the job market, retail sales, and other aspects of the U.S. economy suggests growth may be weakening. Fed officials have said they want clarity on the economy's path towards either higher inflation or weaker growth before giving much new guidance on interest rates, but so far the prospect of both rising prices and slowing employment remains a possibility. A National Association for Business Economics survey released on Monday showed economists expect 2025 GDP growth to ebb to 1.3%, down from the 1.9% projected in early April, with inflation ending the year at 3.1%, a percentage point higher than the reading in April and well above the Fed's 2% target. Respondents said the unemployment rate, which was 4.2% in May, would end this year at 4.3% before beginning a steady rise to 4.7% in early 2026. 'PARALYZED BY TRUMP'S UNCERTAINTY' With risks to both the Fed's inflation and employment goals and the unresolved questions around Trump's policy plans, investors expect the central bank to be anchored where it is for perhaps months to come, with no further rate cuts until September. Trump has demanded an immediate reduction in borrowing costs. The U.S. central bank cut rates three times in 2024. "The Fed's revealed preference is to be paralyzed by Trump's uncertainty. Central bankers are always a conservative bunch, and with risks to both sides of their mandate, the bias is to wait and see if the next few months will resolve their dilemma. Meanwhile, the president ain't happy," Dario Perkins, an economist at TS Lombard, wrote in an analysis of where the Fed stands in relation to the current economic data and what Trump wants the central bank to do. The Fed will release its policy statement alongside policymakers' updated economic and interest rate projections at 2 p.m. EDT (1800 GMT) on Wednesday following the end of its latest two-day meeting. Fed Chair Jerome Powell will hold a press conference half an hour later. Michael Feroli, chief U.S. economist at JP Morgan, said he did not expect any substantive changes in the policy statement, with recent job growth still solid, inflation remaining above the Fed's target, and uncertainty elevated. Policymakers' projections, however, will provide an updated sense of how they expect the economy to evolve in coming months, and how monetary policy may need to respond. The last round of projections in March showed they expected the Fed to deliver two quarter-percentage-point rate cuts by the end of 2025, a view that matches current market pricing. (Reporting by Howard Schneider; Editing by Paul Simao)
Yahoo
2 days ago
- Business
- Yahoo
Economy to slow, inflation to persist above Fed 2% goal: NABE survey
This story was originally published on CFO Dive. To receive daily news and insights, subscribe to our free daily CFO Dive newsletter. The U.S. economy, jarred by the highest tariffs since the 1930s, will likely slow to 1.3% growth this year as inflation persists above the Federal Reserve's 2% target, the National Association for Business Economics said Monday, citing a survey of forecasters. Almost four-out-of-five economists (78%) consider import duties the biggest risk to the economy during the next 12 months, followed by 7% who deem geopolitical conflicts as the top risk, NABE said. Nearly half of panelists (49%) expect tariffs to push up inflation this year by between 0.5 and 0.99 percentage point, while 15% see an increase between 1 point and 2 points. 'Most of the panelists look for sluggish economic growth and elevated inflation to persist, at least for this year, and for inflation even to remain a little bit above target next year,' Nationwide Mutual Chief Economist Kathy Bostjancic said during an NABE webcast. The impact on oil prices from war between Iran and Israel also threatens to bring about below-trend economic growth and rising price pressures, or 'stagflation,' according to Torsten Sløk, chief economist at Apollo Global Management. A sustained $10 increase in oil prices would stoke inflation by 0.4% and erode gross domestic product by 0.4%, Sløk said in a client note Saturday, citing a Fed model. The price of West Texas Intermediate crude oil surged to $77.68 on Thursday during the outbreak of Iran-Israel hostilities before declining to $71.26 on Monday. 'Higher oil prices exacerbate the ongoing stagflation shock stemming from tariffs and immigration restrictions,' Sløk said, referring to how plans by President Donald Trump to deport undocumented workers would reduce the labor supply. Higher long-term interest rates and the resumption of student loan payments also pose headwinds to GDP growth but, along with tariffs and more expensive oil, will probably not cause a recession, Sløk said in a note Monday. Economists downgraded their median forecast for economic growth to 1.3% this year from 1.9% prior to Trump's April 2 announcement of tariffs against virtually all U.S. trading partners, according to NABE. 'Downgrades to consumer spending, residential investment, government consumption expenditures and a larger trade deficit (net exports) drove the downward revision of the median forecasts,' NABE said. The economists' projection is gloomier than recent estimates by the World Bank and OECD, which forecast U.S. GDP growth this year of 1.4% and 1.6%, respectively. 'The rise in trade barriers, heightened uncertainty and the spike in financial market volatility are set to weigh on private consumption, international trade and investment,' the World Bank said in a June 10 report. The personal consumption expenditures price index, minus volatile food and energy prices, will likely accelerate this year to 3.3% on a Q4-to-Q4 basis, a 0.5 percentage point increase compared with 2024, the association said, citing the median estimate of 42 economists. So-called core PCE is the Fed's preferred gauge of inflation. 'Higher inflation says the Fed should be hiking,' Sløk said. 'Lower GDP growth says the Fed should be cutting.' Fed officials on Tuesday will begin a two-day meeting to discuss the economy and monetary policy. Will policymakers 'put more weight on the upward pressure on inflation or more weight on the coming slowdown in growth?' Sløk said. Unemployment will likely average 4.3% this year and rise to 4.7% in 2026, the highest level since 2021, the NABE said. As the economy cools, the Fed will probably trim the benchmark interest rate by 0.5 percentage point this year from its current range between 4.25% and 4.5%, and by a half point next year, according to the NABE panel of economists. The quarter-point cuts will likely extend from the third quarter through Q2 next year, NABE said, citing the survey.
Yahoo
15-04-2025
- Business
- Yahoo
Inflation likely to surge to 3.3% this year: NABE survey
This story was originally published on CFO Dive. To receive daily news and insights, subscribe to our free daily CFO Dive newsletter. President Donald Trump's April 2 'Liberation Day' announcement of sweeping tariffs prompted economists to forecast higher inflation and unemployment, and raise the odds of recession, the National Association for Business Economics said Monday. Economists surveyed from April 7 until April 9 pushed up their estimate for the 2025 increase in the personal consumption expenditures price index, excluding food and energy prices, to 3.3% from a 2.8% estimate in March before Trump's announcement, NABE said. They marked down their projection for annualized gross domestic product growth this year to 1.3% from 1.9%, and 37% of the economists put the odds of recession at 50% or higher. 'The new tariff policy is one of the biggest shocks to affect the U.S. economy in many decades,' Federal Reserve Governor Christopher Waller said in a speech Monday, adding 'the future of that policy, as well as its possible effects, is still highly uncertain.' Economists surveyed by NABE expect the inflationary surge to prove short-lived but persist above the Fed's 2% target through next year. Core PCE will likely increase 2.4% in 2026, the economists indicated in a median forecast, according to NABE. Consumers also see price pressures rising this year before falling back in 2026, the New York Fed said Monday, citing survey data collected last month. They see prices 3.6% higher in a year, or 0.5 percentage point higher than their February expectation. Yet consumer expectations for inflation in three years were unchanged at 3%, while their forecast for inflation in five years fell 0.1 percentage point since February to 2.9%, according to the New York Fed. The Fed regional bank's survey results differ from more recent findings by the University of Michigan. Consumer expectations for inflation surged to the highest level since 1981 amid anxiety about a growing global trade war, according to a survey, ended April 8, by the university released Friday. Consumers expect inflation during the coming year to heat up to 6.7%, 1.7 percentage points higher than last month, the university said. Their long-run inflation expectations rose to 4.4% this month from 4.1% in March. 'Consumers report multiple warning signs that raise the risk of recession: expectations for business conditions, personal finances, incomes, inflation, and labor markets all continued to deteriorate this month,' Joanne Hsu, director of the university's survey, said in a statement. Consumer sentiment has plummeted more than 30% since December 'amid growing worries about trade war,' Hsu said. The slump is 'pervasive and unanimous across age, income, education, geographic region and political affiliation,' she said. Several economists believe the outlook for the economy is unusually murky, Waller said. 'Given that there is still so much uncertainty about how trade policy will play out and how businesses and households will respond, I have struggled, like many others I have talked with, to fit these varying possibilities into a single coherent view of the outlook,' he said. Yet there are causes for some optimism, Waller said, noting that price pressures probably eased in March before the flare-up in tariffs. Core PCE likely rose less than 0.1% last month for an annual gain of 2.7%, he said. 'The new tariffs are hitting an economy in good standing, which leaves me encouraged that households and businesses would continue to spend and hire during trade negotiations that lead to substantially reduced import tariffs and possibly remove barriers to U.S. exporters over time,' he said. Sign in to access your portfolio
Yahoo
29-01-2025
- Business
- Yahoo
Odds of U.S. recession declining: NABE economists
The U.S. economy entered 2025 with a steady hand, according to the National Association of Business Economics, a group of the nation's leading economists, with the chance of a prolonged slowdown falling. "The odds of a recession continue to diminish according to panelists, with the downside risks largely tied to uncertainty over the implementation and timing of policy proposals from the new administration" said NABE President Emily Kolinski Morris, CBE, global chief economist, Ford Motor Company, in the group's January Business Conditions Survey taken from Dec. 30, 2024, to Jan. 13, 2025. President Donald Trump, who took office a week ago, hit the ground running, rolling out a series of pro-business executive orders tied to making the U.S. more open to cryptocurrency, easing energy restrictions and freezing the hiring of federal workers as his DOGE, Department of Government Efficiency arm, assesses areas to cut waste. Additionally, he announced a $500 billion investment from OpenAI, Softbank and Oracle to expand artificial intelligence in the U.S. He is also threatening tariffs against Canada, Mexico and China. Still, inflation remains a headwind. While 65% of NABE's economists see prices stable over the next three months, 35% expect price increases, an uptick from 28% polled in October. The consumer price index last month rose 2.9% annually and 0.4% vs. November. Core CPI, which excludes volatile food and energy, rose 3.2% annually. Inflation is well below its 9.1% peak in July 2022 but still above the Federal Reserve's preferred 2% goal. Read On The Fox Business App Inflation Rises 2.9% In December, In Line With Expectations Trump Blasts Bofa, Reignites Debanking Controversy Trump, during his remote appearance before the World Economic Forum marking his return to office, blamed the Biden administration for high inflation. "Over the past four years, our government racked up $8 trillion in wasteful deficit spending and inflicted nation wrecking energy restrictions, crippling regulations and hidden taxes like never before. The result is the worst inflation crisis in modern history, and sky-high interest rates for our citizens and even throughout the world, food prices and the price of almost every other thing known to mankind went through the roof," Trump told attendees in Davos, Switzerland. He also took a jab at Fed Chair Jerome Powell. "I'll demand that interest rates drop immediately. And likewise, they should be dropping all over the world. Interest rates should follow us," he said. Policymakers are expected to leave rates unchanged at the conclusion of the two-day meeting Wednesday, according to the CME's FedWatch Tool, which tracks the probability of rate moves. That will keep the Federal Funds Rate between 4.25%-4.50%. On Thursday, GDP for the fourth quarter is seen rising 3%, in line with the 3.1% reported in the third article source: Odds of U.S. recession declining: NABE economists
