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Axios
31-07-2025
- Business
- Axios
The Fed thinks the economy is just fine, and won't budge on inflation risks
The central debate over monetary policy right now is whether America's economic waters are fundamentally calm or hazards just beneath the surface demand urgent rate-cutting action. The big picture: Federal Reserve chair Jerome Powell and the majority of his colleagues are in the former camp, as was evident in Wednesday's news conference. Powell rejected the idea that there are simmering problems — including underlying labor market weakness — caused by too-high interest rates that haven't fully revealed themselves. And three years into the Fed's war on post-pandemic inflation, its leaders do not believe they have fully won — even before accounting for the likelihood of more tariff-driven inflation showing up in the numbers in the months ahead. The upshot: Don't count on lower interest rates unless clearer evidence emerges that elevated rates are doing meaningful damage to the economy. State of play: A dozen or so times in Powell's news conference Wednesday, he deflected the notion that the economy is weaker than it appears due to elevated interest rates. "The economy is not performing as though restrictive policies were holding it back," Powell said at one point. He added later that "if you look at the labor market, what you see is, by many, many statistics, the labor market is ... still in balance." He seemed prepared for the possibility that headline job growth will falter in the months ahead as immigration policy causes less labor supply — arguing that against that backdrop, it's more important to watch the unemployment rate, which has been steady this year. Driving the news: New data out Thursday morning supports Powell's view of underlying stability and ongoing inflation risk. Personal income and outlays each rose a solid 0.3% in June, per the Commerce Department. But the Personal Consumption Expenditures Price Index favored by the Fed ticked up to 2.6% over the last 12 months, from 2.4% in May. The number of Americans filing unemployment insurance claims remained low last week, at 218,000, the Labor Department said. The other side: Two Fed governors dissented Wednesday, the first time that has happened since 1993. In a speech two weeks ago, one of them, Christopher Waller, laid out his case for cutting rates — and emphasized subtle warning signs that monetary policy is too tight. Waller said that "while the labor market looks fine on the surface, once we account for expected data revision, private-sector payroll growth is near stall speed, and other data suggest the downside risks to the labor market have increased." He said that based on current conditions, the Fed's policy stance should be neutral — neither stimulating nor slowing activity — which implies rates around 3%, not the current level just below 4.5%. Of note: Trump administration officials are also arguing for interest rate cuts, arguing that the economy is booming and that this means rate cuts are justified.
Axios
30-07-2025
- Business
- Axios
The GDP report's case for rate cuts
Here's some irony for you: In the details of Wednesday's GDP report, you can find a solid case for Federal Reserve interest rate cuts. However, it's the opposite of what President Trump blasted out Wednesday morning. Why it matters: Despite a robust headline number, underlying domestic demand looked strikingly soft in Q2 — and the softness was driven in significant part by interest rate-sensitive sectors bearing the brunt of Fed policy. Meanwhile, inflation was well-contained. Driving the news: Overall GDP rose at a 3% annual rate in the April-through-June quarter, the Commerce Department said, bouncing back after contracting in Q1. The major driver of the swings was an import surge in Q1, as companies sought to get ahead of tariffs. Imports fell back to normal levels in Q2, which, in the arithmetic of GDP, created a surge. Trump noted the GDP gain was "WAY BETTER THAN EXPECTED!" on Truth Social and said that Fed chair Jerome Powell "MUST NOW LOWER THE RATE." Yes, but: Underlying private-sector demand grew at the slowest pace in more than two years — and contraction in both the residential and commercial construction sectors was a reason why. It suggests that the Fed's policy of keeping rates elevated is unnecessarily dragging down overall growth. By the numbers: Real final sales to private domestic purchasers — which excludes the effects of trade and inventory swings, as well as government spending —rose at only a 1.2% rate in Q2, the weakest since the end of 2022. That figure, a measure of underlying private-sector demand, rose at a 1.9% rate in Q1 and was up 3% for the full year 2024. It was held down in Q2 in significant part by contractions in residential investment (which fell at a 4.6% annual rate) and investment in business structures (which fell at a 10.3% annual rate). Both those sectors contracted in Q1 as well. Homebuilders and commercial construction executives have complained about high interest rates as a headwind. Of note: The Personal Consumption Expenditures Price Index, the Fed's preferred inflation measure, rose at only a 2.1% annual rate in Q2, which is awfully close to the Fed's 2% goal. That said, core PCE inflation, which better captures underlying inflation trends, clocked somewhat higher at 2.5%. Between the lines: An economy with below-trend underlying demand, where rate-sensitive sectors are ailing, paired with near-target inflation, is the textbook story of an economy in which interest rates should no longer be in restrictive territory. The case for delaying rate cuts hinges on projections of what will happen to inflation trends in the future as the impact of tariffs filters through to consumer prices. What they're saying: "The policy takeaway here is that the economy is growing well below the 1.8% long term trend which will lead to a policy change at the Federal Reserve once they get a sense of where inflation is on the back of tariff induced inflation," wrote RSM chief economist Joe Brusuelas in a note.
Asharq Al-Awsat
24-07-2025
- Business
- Asharq Al-Awsat
Dollar Holds Steady after ECB Leaves Rates Alone, Tariffs and Fed in Focus
The dollar traded sideways against the euro on Thursday after the European Central Bank held rates steady, and was wedged between prospects for higher Japanese rates that supported the yen and worries about political risk after Sunday's elections. The European Central Bank left interest rates steady at 2%, as expected, on Thursday, taking a break after a year of policy easing to wait for clarity over Europe's future trade relations with the United States, Reuters reported. "The view that the ECB is probably on hold here is probably gaining a bit more traction. We've trimmed expectations for the cuts in September to certainly less than 50/50," said Shaun Osborne, chief foreign exchange strategist at Scotiabank in Toronto. The Japanese central bank's deputy governor, Shinichi Uchida, said Tuesday's trade deal with Washington had reduced economic uncertainty, comments that fuelled optimism in the market about the potential resumption of interest rate hikes. Analysts believe the yen will face persistent headwinds after Sunday's upper house election, with the opposition considering a no-confidence motion. The European Union is nearing a deal that would impose a broad 15% tariff on EU goods, diplomats said. The rate, which could also extend to cars, would mirror the framework agreement the United States struck with Japan. "The ECB faces a challenge that is quantitatively different from the BoJ's," said Thierry Wizman, global forex and rates strategist at Macquarie Group. "The euro has appreciated by far more than the JPY so far in 2025, meaning that the disinflationary impulse from US import tariffs may be greater in the EU than in Japan, or the ECB may suspect as much," he added. PMI data showed fragility in France following budget-cut proposals there, but also resilience in Germany and other parts of the euro zone. Data showed that German business activity continued to grow marginally in July. "As of now, there has been very little tariff impact on the hard data," said Mohit Kumar, economist at Jefferies. ECONOMIC FALLOUT Meanwhile, risk assets rallied as the trade deals eased fears over the economic fallout of a global trade war. Next week the Federal Open Market Committee meets and is expected to leave rates where they are as policy makers wait for the expected impact from tariffs on inflation and growth to show up. A number of US employment releases next week culminate with Friday's big June payrolls report, while the July Personal Consumption Expenditures Price Index and the first revision to 2nd quarter Gross Domestic Product could also move markets. "A lot of event risk next week and not just from the Fed, we've got a lot of data next week as well, so that's probably going to shape expectations to some extent for September," Osborne said. The euro was 0.17% firmer at $1.1786, not far from $1.1830 it hit earlier this month, which marked its strongest level in more than three years. Against the yen, the dollar was 0.07% weaker at 146.39, and hit a fresh 2-week low earlier in the session at 145.86. Olivier Korber, forex strategist at Societe Generale, expects the yen to strengthen further, citing support from the trade deal and prospects for higher interest rates. Ishiba denied on Wednesday he had decided to quit after a source and media reports said he planned to announce his resignation to take responsibility for a bruising upper house election defeat. Currencies mostly shrugged off news that US President Donald Trump, a vocal critic of Federal Reserve Chair Jerome Powell, will visit the central bank on Thursday, a surprise move that escalates tensions between the administration and the Fed. The dollar index, which measures the greenback against a basket of six currencies including the euro and yen, was off 0.03% at 97.17. In cryptocurrencies, bitcoin gained 0.33% to $118,391.37. Ethereum rose 2.14% to $3,647.18.
Reuters
24-07-2025
- Business
- Reuters
Subdued dollar firms after ECB leaves rates alone; tariffs and Fed in focus
July 24 (Reuters) - The dollar traded sideways versus the euro on Thursday after the European Central Bank held rates steady, and was confined to a tight range against the yen as prospects for higher Japanese rates offset worries about political risk after Sunday's elections. The greenback showed fractional gains late in a subdued U.S. session, with investors girding for a busy news flow next week. The European Central Bank left its policy rate at 2%, as expected, on Thursday, taking a break after a year of policy easing to wait for clarity over Europe's future trade relations with the United States. "The view that the ECB is probably on hold here is probably gaining a bit more traction. We've trimmed expectations for the cuts in September to certainly less than 50/50," said Shaun Osborne, chief foreign exchange strategist at Scotiabank in Toronto. The Japanese central bank's deputy governor, Shinichi Uchida, said Tuesday's trade deal with Washington had reduced economic uncertainty, comments that fuelled optimism in the market about the potential resumption of interest rate hikes. Analysts believe the yen will face persistent headwinds after Sunday's upper house election, with the opposition considering a no-confidence motion. The European Union is nearing a deal that would impose a broad 15% tariff on EU goods, diplomats said. The rate, which could also extend to cars, would mirror the framework agreement the United States struck with Japan. "The ECB faces a challenge that is quantitatively different from the BoJ's," said Thierry Wizman, global forex and rates strategist at Macquarie Group. "The euro has appreciated by far more than the JPY so far in 2025, meaning that the disinflationary impulse from U.S. import tariffs may be greater in the EU than in Japan, or the ECB may suspect as much," he added. PMI data showed fragility in France following budget-cut proposals there, but also resilience in Germany and other parts of the euro zone. Data showed that German business activity continued to grow marginally in July. "As of now, there has been very little tariff impact on the hard data," said Mohit Kumar, economist at Jefferies. Meanwhile, risk assets rallied as the trade deals eased fears over the economic fallout of a global trade war. Next week the Federal Open Market Committee meets and is expected to leave rates where they are as policy makers wait for the expected impact from tariffs on inflation and growth to show up. Traders are now pricing in a 60% chance of a quarter point September rate cut, according to CME's FedWatch tool. A number of U.S. employment releases next week culminate with Friday's big June payrolls report, while the July Personal Consumption Expenditures Price Index and the first revision to 2nd quarter Gross Domestic Product could also move markets. "A lot of event risk next week and not just from the Fed, we've got a lot of data next week as well, so that's probably going to shape expectations to some extent for September," Osborne said. The euro was last off 0.03% $1.1766, near the $1.1830 high from earlier this month, which marked its strongest level in more than three years. Against the yen , the dollar was 0.27% firmer at 146.88, having hit a two-week low earlier in the session at 145.86. Olivier Korber, forex strategist at Societe Generale, expects the yen to strengthen further, citing support from the trade deal and prospects for higher interest rates. Japanese Prime Minister Shigeru Ishiba denied on Wednesday he had decided to quit after a source and media reports said he planned to announce his resignation to take responsibility for a bruising upper house election defeat. Currencies mostly shrugged off news that U.S. President Donald Trump, a vocal critic of Federal Reserve Chair Jerome Powell, will visit the central bank on Thursday, a surprise move that escalates tensions between the administration and the Fed. The dollar index , which measures the greenback against a basket of six currencies including the euro and yen, rose 0.17% to 97.36. In cryptocurrencies, bitcoin rose 1.17% to $119,376.30. Ethereum rose 4.62% to $3,735.62.
CNA
24-07-2025
- Business
- CNA
Subdued dollar firms after ECB leaves rates alone; tariffs and Fed in focus
The dollar traded sideways versus the euro on Thursday after the European Central Bank held rates steady, and was confined to a tight range against the yen as prospects for higher Japanese rates offset worries about political risk after Sunday's elections. The greenback showed fractional gains late in a subdued U.S. session, with investors girding for a busy news flow next week. The European Central Bank left its policy rate at 2 per cent, as expected, on Thursday, taking a break after a year of policy easing to wait for clarity over Europe's future trade relations with the United States. "The view that the ECB is probably on hold here is probably gaining a bit more traction. We've trimmed expectations for the cuts in September to certainly less than 50/50," said Shaun Osborne, chief foreign exchange strategist at Scotiabank in Toronto. The Japanese central bank's deputy governor, Shinichi Uchida, said Tuesday's trade deal with Washington had reduced economic uncertainty, comments that fuelled optimism in the market about the potential resumption of interest rate hikes. Analysts believe the yen will face persistent headwinds after Sunday's upper house election, with the opposition considering a no-confidence motion. The European Union is nearing a deal that would impose a broad 15 per cent tariff on EU goods, diplomats said. The rate, which could also extend to cars, would mirror the framework agreement the United States struck with Japan. "The ECB faces a challenge that is quantitatively different from the BoJ's," said Thierry Wizman, global forex and rates strategist at Macquarie Group. "The euro has appreciated by far more than the JPY so far in 2025, meaning that the disinflationary impulse from U.S. import tariffs may be greater in the EU than in Japan, or the ECB may suspect as much," he added. PMI data showed fragility in France following budget-cut proposals there, but also resilience in Germany and other parts of the euro zone. Data showed that German business activity continued to grow marginally in July. "As of now, there has been very little tariff impact on the hard data," said Mohit Kumar, economist at Jefferies. ECONOMIC FALLOUT Meanwhile, risk assets rallied as the trade deals eased fears over the economic fallout of a global trade war. Next week the Federal Open Market Committee meets and is expected to leave rates where they are as policy makers wait for the expected impact from tariffs on inflation and growth to show up. Traders are now pricing in a 60 per cent chance of a quarter point September rate cut, according to CME's FedWatch tool. A number of U.S. employment releases next week culminate with Friday's big June payrolls report, while the July Personal Consumption Expenditures Price Index and the first revision to 2nd quarter Gross Domestic Product could also move markets. "A lot of event risk next week and not just from the Fed, we've got a lot of data next week as well, so that's probably going to shape expectations to some extent for September," Osborne said. The euro was last off 0.03 per cent $1.1766, near the $1.1830 high from earlier this month, which marked its strongest level in more than three years. Against the yen, the dollar was 0.27 per cent firmer at 146.88, having hit a two-week low earlier in the session at 145.86. Olivier Korber, forex strategist at Societe Generale, expects the yen to strengthen further, citing support from the trade deal and prospects for higher interest rates. Japanese Prime Minister Shigeru Ishiba denied on Wednesday he had decided to quit after a source and media reports said he planned to announce his resignation to take responsibility for a bruising upper house election defeat. Currencies mostly shrugged off news that U.S. President Donald Trump, a vocal critic of Federal Reserve Chair Jerome Powell, will visit the central bank on Thursday, a surprise move that escalates tensions between the administration and the Fed. The dollar index, which measures the greenback against a basket of six currencies including the euro and yen, rose 0.17 per cent to 97.36.
