Latest news with #StephenMiran
Japan Times
4 days ago
- Business
- Japan Times
The Fed needs to tread carefully with this strange dollar
The U.S. economy hasn't seen tariffs like these in around 80 years. Given the lack of recent precedent, the Federal Reserve is right to wait on more evidence that consumer prices aren't spiking before proceeding with interest rate cuts. There's another reason to tread carefully in these uncertain times: The extremely unusual behavior of the U.S. dollar. Many economists — including Council of Economic Advisers Chair Stephen Miran — expected the buck to strengthen when U.S. President Donald Trump implemented tariffs. In an essay published last November, Miran wrote that the exchange rate was "more likely than not' to appreciate alongside an improving trade balance, as it did during Trump's first trade war in 2018 and 2019. The so-called currency offset was critical to his view that the new duties wouldn't necessarily be passed through to consumers, at least not entirely. Treasury Secretary Scott Bessent made the same point during his confirmation hearings. Bafflingly, the dollar actually weakened for reasons that are still hotly debated (more on that shortly.) The U.S. dollar Index has declined by 6.8% since just before the "Liberation Day' tariffs unveiled on April 2 and it's down about 10% in 2025, the worst year-to-date performance in at least a quarter century. The median forecaster surveyed by Bloomberg expects the greenback to depreciate further over the next year or so. All else equal, you might expect the upward pressure on U.S. consumer prices to be even worse than tariffs alone would suggest. In the past, for a given move in developed nation currencies, economists have identified long-run pass-through into import prices on the order of 60%. (Estimates were around 40% for the U.S. specifically.) But pass-through is highly context-dependent and all else is never equal. So far, measures of consumer inflation remain relatively tame, either because the transmission will take time to materialize; retailers are "eating' the higher costs in the form of narrower margins; or because the doomsayers were just plain wrong. Realistically, it could even be some combination of the three. Given that range of possibilities, it's prudent to wait for the data to tell the story, exactly as Fed Chair Jerome Powell is currently planning. This is much to the chagrin of Trump, who regrettably insists that he can have tariffs and expeditiously lower policy rates too. In an ill-advised effort to get his way, he's exerting extraordinary public pressure on the independent central bank and its outgoing chair. So why is the dollar weakening in the first place? In the heat of the April selloff, many of us interpreted it as a sign of cracks in America's "exorbitant privilege.' The idea was that the U.S. — with the world's deepest and most liquid markets — had long occupied a special place at the center of the global financial system. That special status meant that we probably had a slightly stronger currency and relatively lower borrowing costs than would otherwise have been the case. When the the dollar weakened alongside rising borrowing costs after April 2, an argument advanced in market commentary and academia was that haphazard policymaking was eroding the American brand in the eyes of the world. Another somewhat related argument was tied to capital flows. At the time of the tariff announcement, investors around the world were extremely exposed to U.S. equities, thanks in part to the remarkable outperformance of the U.S.'s mega-cap growth stocks, known as the Magnificent 7. From the start of 2020 until March 2025, the S&P 500 Index had outperformed the rest of the developed world's equity markets by more than two-to-one. Global investors had piled into the stocks to get a piece of the action, often through unhedged positions. The hasty unwind of some holdings briefly created a macroeconomically significant wave of outflows. Plausible as these theories may be in explaining that wild week or so in early April, it's far from clear that the narratives around cracks in U.S. exorbitant privilege and equity outflows are still reasons to bet against the dollar going forward. As far as the former is concerned, America's brand may suffer additional damage from Trump's overt threats to Fed independence. But we're talking about a very nuanced change: a move from an extraordinarily special status in global markets to just very special. In practice, there's still no viable alternative to U.S. debt and its currency. European debt markets lack our market depth and China lacks our transparency, while Bitcoin is as volatile as a tech stock. Meanwhile, a solid streak of Treasury auctions has more or less ended the debate about caution among overseas investors. In the U.S. equity market, the panic is in the rearview mirror. Since bottoming on April 8, the S&P 500 has returned to all-time highs and is again outperforming the rest of the developed world's markets. The story isn't over, though. While the dollar hasn't weakened much more from its April lows, the durability of the move makes it more likely that currency weakness will have a meaningful impact on the economy, including consumer prices. In recent weeks, the greenback seems to have resumed its typical correlation with Treasury yields, opening the door to further declines if markets begin to price in significant rate cut expectations. That's why the Fed needs to proceed with extreme caution. Policymakers shouldn't lower borrowing costs and implicitly weaken the exchange rate until they can be sure that higher consumer prices aren't already in train. Without question, they should hold rates at their July meeting and the inflation data would need to stay quite tame to justify a cut at the subsequent meeting in September, at least in the absence of a labor market deterioration. The tariff experiment, coupled with the shock exchange-rate reaction, is an event study unlike any other in recent memory and the stewards of stable prices can't take anything for granted. Even if prices do jump, it's still possible that the uptick won't lead to a lasting increase in the rate of inflation and the Fed can eventually get on with easier monetary policy. But at this point, the responsible option is to wait and see how it plays out in the data. Jonathan Levin is a columnist focused on U.S. markets and economics. He is a CFA charterholder.
Mint
6 days ago
- Business
- Mint
The US dollar is behaving strangely: The Fed had better wait and watch
Next Story Jonathan Levin The weakening of the US dollar, contrary to the expectations of Stephen Miran and Scott Bessent, needs the central bank's attention. Coupled with lags in the impact of tariffs on retail prices, it puts the Federal Reserve in a tricky spot. The Fed should hold its policy rate; a cut could be bad news In an ill-advised effort to get his way, US President Donald Trump exerting extraordinary public pressure on the independent central bank and its outgoing chair, Jerome Powell. Gift this article The US economy hasn't seen tariffs like these in around 80 years. Given the lack of recent precedent, the Federal Reserve is right to wait on more evidence that consumer prices aren't spiking before proceeding with interest rate cuts. There's another reason to tread carefully in these uncertain times: The extremely unusual behaviour of the US dollar. The US economy hasn't seen tariffs like these in around 80 years. Given the lack of recent precedent, the Federal Reserve is right to wait on more evidence that consumer prices aren't spiking before proceeding with interest rate cuts. There's another reason to tread carefully in these uncertain times: The extremely unusual behaviour of the US dollar. Many economists—including Council of Economic Advisors Chair Stephen Miran—expected the buck to strengthen when President Donald Trump implemented tariffs. In an essay published last November, Miran wrote that the exchange rate was 'more likely than not" to appreciate alongside an improving trade balance, as it did during Trump's first trade war in 2018 and 2019. The so-called currency offset was critical to his view that the new duties wouldn't necessarily be passed through to consumers, at least not entirely. Treasury Secretary Scott Bessent made the same point during his confirmation hearings. Bafflingly, the dollar actually weakened for reasons that are still hotly debated (more on that shortly.) The US Dollar Index has declined by 6.8% since just before the 'Liberation Day" tariffs unveiled on April 2, and it's down about 10.4% in 2025, the worst year-to-date performance in at least a quarter century. The median forecaster surveyed by Bloomberg expects the greenback to depreciate further over the next year or so. All else equal, you might expect the upward pressure on US consumer prices to be even worse than tariffs alone would suggest. In the past, for a given move in developed nation currencies, economists have identified long-run pass-through into import prices on the order of 60%. (Estimates were around 40% for the US specifically.) But pass-through is highly context-dependent, and all else is never equal. So far, measures of consumer inflation remain relatively tame, either because the transmission will take time to materialize; retailers are 'eating" the higher costs in the form of narrower margins; or because the doomsayers were just plain wrong. Realistically, it could even be some combination of the three. Given that range of possibilities, it's prudent to wait for the data to tell the story, exactly as Fed Chair Jerome Powell is currently planning. This is much to the chagrin of Trump, who regrettably insists that he can have tariffs and expeditiously lower policy rates too. In an ill-advised effort to get his way, he's exerting extraordinary public pressure on the independent central bank and its outgoing chair. So why is the dollar weakening in the first place? In the heat of the April selloff, many of us interpreted it as a sign of cracks in America's 'exorbitant privilege." The idea was that the US—with the world's deepest and most liquid markets—had long occupied a special place at the center of the global financial system. That special status meant that America probably had a slightly stronger currency and relatively lower borrowing costs than would otherwise have been the case. When the dollar weakened alongside rising borrowing costs after April 2, an argument advanced in market commentary and academia was that haphazard policymaking was eroding the American brand in the eyes of the world. Another somewhat related argument was tied to capital flows. At the time of the tariff announcement, investors around the world were extremely exposed to US equities, thanks in part to the remarkable outperformance of the US's mega-cap growth stocks, known as the Magnificent 7. From the start of 2020 until March 2025, the S&P 500 Index had outperformed the rest of the developed world's equity markets by more than two-to-one. Global investors had piled into the stocks to get a piece of the action, often through unhedged positions. The hasty unwind of some holdings briefly created a macroeconomically significant wave of outflows. Plausible as these theories may be in explaining that wild week or so in early April, it's far from clear that the narratives around cracks in US exorbitant privilege and equity outflows are still reasons to bet against the dollar going forward. As far as the former is concerned, America's brand may suffer additional damage from Trump's overt threats to Fed independence. But we're talking about a very nuanced change: a move from an extraordinarily special status in global markets to just very special. In practice, there's still no viable alternative to US debt and its currency. European debt markets lack America's market depth and China lacks the US's transparency, while Bitcoin is as volatile as a tech stock. Meanwhile, a solid streak of Treasury auctions has more or less ended the debate about caution among overseas investors. In the US equity market, the panic is in the rearview mirror. Since bottoming on April 8, the S&P 500 has returned to all-time highs and is again outperforming the rest of the developed world's markets. The story isn't over, though. While the dollar hasn't weakened much more from its April lows, the durability of the move makes it more likely that currency weakness will have a meaningful impact on the economy, including consumer prices. In recent weeks, the greenback seems to have resumed its typical correlation with Treasury yields, opening the door to further declines if markets begin to price in significant rate cut expectations. That's why the Fed needs to proceed with extreme caution. Policymakers shouldn't lower borrowing costs and implicitly weaken the exchange rate until they can be sure that higher consumer prices aren't already in train. Without question, they should hold rates at their July meeting, and the inflation data would need to stay quite tame to justify a cut at the subsequent meeting in September, at least in the absence of a labour market deterioration. The tariff experiment, coupled with the shock exchange-rate reaction, is an event study unlike any other in recent memory, and the stewards of stable prices can't take anything for granted. Even if prices do jump, it's still possible that the uptick won't lead to a lasting increase in the rate of inflation, and the Fed can eventually get on with easier monetary policy. But at this point, the responsible option is to wait and see how it plays out in the data. ©Bloomberg The author is a columnist focused on US markets and economics. Topics You May Be Interested In Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
Bloomberg
7 days ago
- Business
- Bloomberg
The Fed Needs to Tread Carefully With This Strange Dollar
The US economy hasn't seen tariffs like these in around 80 years. Given the lack of recent precedent, the Federal Reserve is right to wait on more evidence that consumer prices aren't spiking before proceeding with interest rate cuts. There's another reason to tread carefully in these uncertain times: The extremely unusual behavior of the US dollar. Many economists — including Council of Economic Advisors Chair Stephen Miran — expected the buck to strengthen when President Donald Trump implemented tariffs. In an essay published last November, Miran wrote that the exchange rate was 'more likely than not' to appreciate alongside an improving trade balance, as it did during Trump's first trade war in 2018 and 2019. The so-called currency offset was critical to his view that the new duties wouldn't necessarily be passed through to consumers, at least not entirely. Treasury Secretary Scott Bessent made the same point during his confirmation hearings.
Yahoo
23-07-2025
- Business
- Yahoo
Trump talks of new August tariff date and looks for more trade deals
The Trump administration is stepping up pressure on trading partners to quickly make new deals before a Wednesday deadline, when the president's 90-day so-called 'reciprocal' tariff deadline is set to expire. The United States plans to start sending letters on Monday warning countries that higher tariffs could kick in on 1 August. That furthers the uncertainty for businesses, consumers and America's trading partners, and questions remain about which countries will be notified, whether anything will change in the days ahead and whether President Donald Trump will once more push off imposing the rates. Trump and his top trade advisers say he could extend the time for dealmaking but they insist the administration is applying maximum pressure on other nations. Kevin Hassett, director of the White House National Economic Council, told CBS' 'Face the Nation' on Sunday that Trump would decide when it was time to give up on negotiations. 'The United States is always willing to talk to everybody about everything,' Hassett said. 'There are deadlines, and there are things that are close, so maybe things will push back past the deadline or maybe they won't. In the end the president is going to make that judgment.' Stephen Miran, the chair of the White House Council of Economic Advisers, likewise said countries negotiating in good faith and making concessions could 'sort of, get the date rolled'. The tariffs on the table The steeper tariffs that Trump announced on 2 April threatened to overhaul the global economy and lead to broader trade wars. A week later, after the financial markets had panicked, the US administration suspended most of the higher taxes on imports for 90 days just as they were about to take effect. The negotiating window until 9 July has led to announced deals only with the United Kingdom and Vietnam. Trump imposed elevated tariff rates on dozens of nations that run meaningful trade surpluses with the US, and a 10% baseline tax on imports from all countries in response to what he called an economic emergency. Many economists nonetheless fear that Trump's tariffs have the potential to raise inflation, stalling interest rate cuts and therefore hindering growth. There are separate 50% tariffs on steel and aluminum and a 25% tariff on autos. Since April, few foreign governments have set new trade terms with Washington as the Republican president demanded. Trump told reporters on Friday that his administration might be sending out letters as early as Saturday to countries spelling out their tariff rates if they did not reach a deal, but noted that the US would not start collecting those taxes until 1 August. On Sunday, he said he would send out letters from Monday to foreign governments, reflecting planned tariffs for each. 'Could be 12, could be 15,' he added. 'We've made deals also,' Trump told reporters before heading back to the White House from his home in New Jersey. 'So we'll get to have a combination of letters, and some deals have been made.' He and his advisers have declined to say which countries would receive the letters. Treasury Secretary Scott Bessent rejected the idea that 1 August was a new deadline and declined to say what might happen on Wednesday. 'We'll see," Bessent said on CNN's State of the Union. "I'm not going to give away the playbook.' He said the US was 'close to several deals', and predicted several big announcements over the next few days. He gave no details. "I think we're going to see a lot of deals very quickly,' Bessent said. Related President Trump says he'll set unilateral tariff rates within weeks BRICS group slams tariffs and Iran conflict at summit in Brazil Targeting BRICS nations Later Sunday, Trump vowed to impose more tariffs against the BRICS bloc of developing nations, which had condemned tariffs increases at its summit in Brazil. Trump said in a post on his social media platform that any country aligning itself with what he termed 'the Anti-American policies of BRICS' would be levied an added 10% tariff. Trump has announced a deal with Vietnam that would allow US goods to enter the country duty-free, while Vietnamese exports to the US would face a 20% levy. That was a decline from the 46% tax on Vietnamese imports he proposed in April — one of his so-called reciprocal tariffs targeting dozens of countries with which the US runs a trade deficit. There are a number of factors behind the trade deficits the US is running but the strength of the dollar, which makes imports cheaper for Americans, is notably driving up demand for cheap, foreign goods. Asked if he expected to reach deals with the European Union or India, Trump said on Friday that 'letters are better for us' because there are so many countries involved. 'We have India coming up and with Vietnam, we did it, but much easier to send a letter saying, 'Listen, we know we have a certain deficit, or in some cases a surplus, but not too many. And this is what you're going to have to pay if you want to do business in the United States.' Canada, however, will not be one of the countries receiving letters, Trump's ambassador, Pete Hoekstra, said on Friday after trade talks between the two countries recently resumed. 'Canada is one of our biggest trading partners,' Hoekstra told CTV News in an interview in Ottawa. 'We're going to have a deal that's articulated." Canadian Prime Minister Mark Carney has said he wants a new deal in place by 21 July or Canada will increase trade countermeasures. Hoekstra would not commit to a date for a trade agreement and said that even with a deal, Canada could still face some tariffs. But 'we're not going to send Canada just a letter,' he said. Error in retrieving data Sign in to access your portfolio Error in retrieving data
Bloomberg
09-07-2025
- Business
- Bloomberg
Miran Says There's No Evidence to Show Tariffs Have Been Inflationary
Stephen Miran, White House Council of Economic Advisers Chairman, says there's been no evidence to show that President Donald Trump's tariffs have been inflationary. He says the copper tariffs will help the US produce more of the metal domestically. He speaks on "Bloomberg Open Interest." (Source: Bloomberg)
