Latest news with #economicOutlook
Bloomberg
2 days ago
- Business
- Bloomberg
Logan Signals It May Be Quite Some Time Before Fed Adjusts Rates
Federal Reserve Bank of Dallas President Lorie Logan signaled it may take a while before officials know how the economy will respond to tariffs and other policy changes and thus how they should adjust interest rates. In prepared remarks for an event in Waco, Texas on Thursday, Logan outlined a variety of risks to the economic outlook.
New York Times
4 days ago
- Business
- New York Times
Fed ‘Well Positioned' to Wait on Rate Cuts Even as Economic Risks Rise, Minutes Show
Ahead of the Federal Reserve's meeting this month, investors were still holding out hope that the central bank would soon restart the interest rate cuts that it put on pause in January. But minutes from that gathering underscore how wedded officials were to their wait-and-see approach amid extreme uncertainty about the economic outlook. A record of the Fed's May 6-7 meeting, released on Wednesday, highlighted the overwhelming support among officials to hold off on cutting rates until they had more clarity about President Trump's policies and how the economy was responding to whipsawing tariffs, tax cuts, immigration restrictions and other cornerstones of his administration's agenda. 'Participants agreed that with economic growth and the labor market still solid and current monetary policy moderately restrictive, the Committee was well positioned to wait for more clarity on the outlooks for inflation and economic activity,' the minutes said. Uncertainty about the outlook had become 'unusually elevated,' officials concluded, 'making it appropriate to take a cautious approach until the net economic effects of the array of changes to government policies become clearer.' The meeting took place just before some of the most aggressive tariffs against China were temporarily rolled back, a move that helped to ease fears that Americans would soon face shortages and that the economy was headed for a much more substantial downturn. Even as Mr. Trump has announced trade agreements with some countries, he has ratcheted up tensions with others, including threatening 50 percent tariffs on imports from the European Union last week before delaying them days later. Officials concluded at the May meeting that the tariff increases at that point had been 'significantly larger and broader than they had anticipated,' the minutes said. Mr. Trump's tariffs, many of which are still in place on all of the country's major trading partners, are broadly expected to slow growth while raising inflation. That is a tricky combination that risks the Fed's having to make a difficult call about whether it should focus on taming price pressures or protecting the labor market. Further complicating the outlook, U.S. government bond markets have seized up in recent weeks as Republicans try to push through a bill that would significantly raise the deficit by slashing taxes without significantly cutting spending. The minutes indicated that officials discussed the possibility of 'difficult trade-offs if inflation proves to be more persistent while the outlooks for growth and employment weaken.' The risk of that outcome had risen, according to the account of the discussion. The Fed's staff at the time warned that a recession was 'almost as likely' as its forecast for subdued growth and higher unemployment. The Fed is not facing any economic trade-off just yet, bolstering officials' confidence that they can afford to be patient about rate cuts. At the May meeting, Jerome H. Powell, the Fed chair, went so far as to say there was 'no cost' to the central bank's waiting to make a move. Layoffs are still low, as businesses have opted against making big decisions about their work forces and longer-term investments given the constant flux of policy positions originating from the White House. Some companies, like Walmart, have warned that they may soon be forced to pass along tariff-related price increases to customers. If Americans — already under strain after years of high inflation — cut back on spending, that would deal a blow to businesses. The fear is that companies would then be forced to slash jobs in order to reduce costs. A drop in demand may end up limiting the extent to which tariff-related price increases morph into a persistent inflation problem. But Fed officials, scarred from misdiagnosing the post-pandemic inflation surge, do not want to again underestimate the potential for it to flare up again. Some officials expressed concern that expectations about inflation over a longer time horizon could begin to 'drift upward, which could put additional upward pressure on inflation,' the minutes said. Given this fear, the Fed has set a high bar for rate cuts: clear evidence that the economy is weakening. Traders in federal funds futures markets now see at least one quarter-point cut this year. Around the May meeting, they had thought the Fed would move three times.
Reuters
4 days ago
- Business
- Reuters
Fed minutes saw rising inflation, jobless risks as of May meeting
WASHINGTON, May 28 (Reuters) - U.S. Federal Reserve officials at their last meeting acknowledged they could face "difficult tradeoffs" in coming months in the form of rising inflation alongside rising unemployment, an outlook buttressed by Fed staff projections of increased risks of a recession, according to newly released minutes of the May 6-7 session. The combination of inflation and unemployment rising in tandem would leave central bank officials forced to decide whether to prioritize fighting inflation with tighter monetary policy or cutting interest rates to support growth and employment. "Almost all participants commented on the risk that inflation could prove to be more persistent than expected," as the economy adapted to higher import taxes proposed by the Trump administration. "Participants noted that the (Federal Open Market) Committee might face difficult tradeoffs if inflation proves to be more persistent while the outlooks for growth and employment weaken," the minutes said. "Participants agreed that uncertainty about the economic outlook had increased further, making it appropriate to take a cautious approach until the net economic effects of the array of changes to government policies become clearer." The prospect of rising unemployment and higher inflation was outlined in staff briefings that projected a "markedly" higher inflation rate this year due to the impact of tariffs and a job market "expected to weaken substantially" with the unemployment rate rising above long-run estimates of full employment by the end of this year and remaining there for two years. The results of the May meeting and the more detailed account of it reflected in the minutes have since been overtaken by U.S. President Donald Trump's decision to delay the most aggressive tariffs, in particular the 145% levy on Chinese imports that threatened to grind a large share of global commerce to a halt. The shift caused many analysts to lower recessions risks that Fed staff as of early May had considered "almost as likely as the baseline" of slowing but continued growth. But in theory those stiff tariffs are only on hold until July pending negotiations over final tax rates that have kept Fed officials and business executives in the dark about the economic landscape they may face in the next few months. The uncertainty still felt today was also the watchword at the meeting in early May, when the Fed decided to hold the benchmark policy rate steady in the 4.25% to 4.5% range. In a press conference after the meeting, Fed Chair Jerome Powell indicated the central bank was effectively sidelined until the Trump administration finalizes its tariff plans and the impact on the economy becomes clearer, a view reiterated by Powell and other Fed policymakers in the weeks since. As of early May officials also noted that volatility in bond markets in the weeks before the meeting "warranted monitoring," and noted that a change in the U.S. dollar's safe-haven status, along with rising Treasury bond yields, "could have long-lasting implications for the economy." The Fed next meets on June 17-18, when the central bank will release new projections from policymakers about their outlook for inflation, employment and economic growth in coming months and years, and the projected interest rate they feel would be appropriate. At their March meeting the median projection among policymakers was for two quarter point interest rate cuts by the end of 2025.
Bloomberg
5 days ago
- Business
- Bloomberg
BOK Poised to Cut Rate Ahead of Election as Risks Deepen
The Bank of Korea is widely expected to lower its benchmark interest rate Thursday, just days ahead of a pivotal presidential election, as the central bank steps up its efforts to shield a sputtering economy from risks stemming largely from Donald Trump's tariffs. All 21 economists surveyed by Bloomberg see the central bank cutting borrowing costs for the second time this year by a quarter-percentage point to 2.5%. In April, Governor Rhee Chang-yong said all six board members were open to lowering the rate within three months, an early signal that action would likely take place at the May meeting. The bank is also expected to cut its growth forecasts again as Trump's levies cast a shadow over the economic outlook.
Wall Street Journal
5 days ago
- Business
- Wall Street Journal
German Consumer Confidence Edges Higher Despite Tariff Uncertainty
Consumer sentiment in Germany improved a little as wage expectations grew and views of the economic outlook calmed, despite the uncertainty provoked by President Trump's tariff policies, a monthly survey said Tuesday. The consumer-climate index published by research groups GfK and the Nuremberg Institute for Market Decisions ticked up for a third straight month to minus 19.9 in June's forecast, 0.9 points higher than in May. Economists polled by The Wall Street Journal expected the measure a little stronger, at minus 19.6.
