Latest news with #economicRelief
Yahoo
3 days ago
- Business
- Yahoo
3 Ways Not Lowering Interest Rates Soon Could Hurt American's Wallets
President Trump is demanding for interest rates to be cut, but Federal Reserve Chairman Jerome Powell isn't budging. Jobs in the private sector rose only by 37,000 in May 2025, which is the lowest job creation has been in over two years, CNBC reported and Trump wants the Fed to take action. To help get Americans financial relief, Trump is urging Powell to cut rates and is publicly calling on him to do so. On his Truth Social account he wrote, 'ADP NUMBER OUT!!! 'Too Late' Powell must now LOWER THE RATE. He is unbelievable!!! Europe has lowered NINE TIMES! [sic]' Trending Now: For You: Though, Powell has not caved to political pressure and Trump has further expressed his disappointment. The current Fed interest rate is 4.25% to 4.50%, according to the Federal Reserve Bank of New York and mortgage rates are 6.85% per the Federal Reserve Bank of St. Louis and Powell so far is holding have been feeling the financial strain for years due to inflation and now Trump's tariffs, so not lowering the interest could hit hard — here's how below. One of the biggest things people put on hold during economic uncertainty are houses. With higher interest rates, affording a home is more challenging.'The longer rates stay elevated, the more financial pressure builds across the board,' said Shmuel Shayowitz, president and chief lending officer with Approved Funding. 'We are already seeing it in housing, where affordability is at its lowest in generations.' Check Out: Most people borrow money when purchasing a home and higher interest rates discourage potential many homebuyers'High interest rates mean they can afford to buy less house because they're paying more in interest,' Melanie Musson, finance expert with said. 'Low interest rates mean they can buy a bigger house.' Interest rates impact everything from credit cards to car loans and people tend to put big decisions on hold when rates are too high, which means people aren't spending and the economy can slow down. 'High rates compress household budgets and delay critical financial decisions, such as buying a home or refinancing debt,' Shayowitz said. 'If rates remain high for too long, the burden shifts from fighting inflation to slowing growth and limiting opportunities. When launching a new business, it's common practice to take out a loan to cover start up costs, but higher interests can deter someone from opening a new business. 'If someone wants to take out a loan to start a business, they'll have to allocate more of their budget to paying the interest, so they'll only be able to afford a lower principal amount,' Musson explained. 'Higher interest rates mean more subdued growth both personally and in the business world,' she added. While Powell has the authority to reduce the interest rates, there are several reasons the Fed is not at this time, according to experts. 'When the economy is coming out of a period of high inflation, the Fed typically hesitates to lower interest rates too quickly because they don't want to re-ignite inflation,' said Eric Mangold, certified wealth strategist (CWS) and founder of Argosy Wealth Management. 'But if the interest rates are lower, then lending prices for consumers would be less. It's the balance they need to find to make sure prices are stable, and inflation is kept to a normal target,' he explained. Trump's tariffs are also playing a factor in Powell's decision, according to Musson. 'Powell is concerned about the effect that tariffs will have on inflation and since the Fed's goal is to get inflation to 2%, they don't want to lower interest rates because that could increase inflation,' she said. In Trump's post, he noted that Europe has lowered the interest rate several times, but the Fed's decision is based on the U.S. only — not other countries. 'They've been burned before by acting too early. But the U.S. economy is now flashing mixed signals: job growth is slowing, credit markets are tightening, and consumer spending is softening,' Shayowitz said. 'At some point, holding rates too high becomes a greater threat than inflation itself. We're nearing that point,' he added. Lowering interest rates are one way of easing financial tensions for Americans, and while Trump has been vocal about wanting them down, is he right? Both sides have valid points. 'Mortgage activity is frozen, small business lending is down, and credit delinquencies are on the rise. Rate cuts are warranted — the only question is timing,' Shayowitz said. 'The Fed must walk a fine line between protecting its credibility and responding to genuine economic stress. But this isn't about politics — it's about momentum. Right now, the economic engine is slowing, and rate relief would be beneficial,' he added. While reducing rates would encourage economic growth during a time when jobs are down and Americans aren't spending as much due to inflated prices, on the flip side, higher inflation is a concern. 'As a consumer, I'd like to see lower interest rates; at the same time, I would like to avoid high inflation because that's worse in the long run,' Musson said. Only time will tell what will happen, but Shayowitz said even dropping the rates by a modest amount would send a strong signal to markets and consumers. 'From a housing and mortgage standpoint, even a 50 to 75 basis point drop would unlock a wave of activity that has been sidelined, not just from homebuyers, but also from homeowners looking to move, refinance, or invest,' he explained. Editor's note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on More From GOBankingRates Mark Cuban Warns of 'Red Rural Recession' -- 4 States That Could Get Hit Hard 10 Cars That Outlast the Average Vehicle Warren Buffett: 10 Things Poor People Waste Money On This article originally appeared on 3 Ways Not Lowering Interest Rates Soon Could Hurt American's Wallets Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
Japan Times
16-05-2025
- Business
- Japan Times
Don't overreact to the consumption tax debate
As Japan prepares for an Upper House election this summer, a, if not the, key issue in the campaign will be the consumption tax. Economic uncertainty in combination with rising prices are squeezing the budgets of households, businesses and the government. The focus of domestic debate to ease those pressures is the consumption tax. A growing number of parties and politicians are pressing for relief, most typically in the form of a reduction in the current levy — 10% for most items and 8% for food products. Proposals include across the board cuts, fixed temporary reductions for particular items such as food or gas, or even suspension or cancellation of the tax. The ruling Liberal Democratic Party and the government of Prime Minister Shigeru Ishiba remain committed to the current plan, however, while debating aid for households in the form of subsidies. The government's claim that it must be fiscally responsible is sound. Japan's government debt is substantial and cuts to the tax are more politically expedient than economic necessity. That does not mean that households do not need aid or assistance; rather, the case is for smart, targeted efforts that help those most in need without blowing a hole in the national budget. The consumption tax has weighed heavily on Japanese politics. It was first proposed in the late 1970s to ease financial strains as the provision of social services outstripped government revenues. That suggestion alone was enough, argue political analysts, to cost the LDP its majority in the 1979 general election. A 3% levy was eventually introduced a decade later in 1989 — after one false start two years earlier — and it was raised to 5%, the first in what was anticipated to be a gradual but steady increase in the tax. That increase contributed to the loss of the LDP's majority in the Upper House in 1998 and the resignation of then Prime Minister Ryutaro Hashimoto. The Democratic Party of Japan took power in 2009 on a platform that promised, among other things, a freeze on taxes. In 2010 then Prime Minister Naoto Kan proposed raising the tax rate to 10%, which yielded a crushing defeat for his party in the next election and the plans were abandoned. A 2012 agreement with the LDP, then in the opposition, to raise the consumption tax to 10% to help pay for burgeoning social services costs contributed to the DPJ's defeat in elections later that year. That agreement endured however and the consumption tax went from 5% to 8% in 2014. Yet even formidable Prime Minister Shinzo Abe twice delayed the scheduled hike to 10% during his second term in office out of concern for the electoral consequences. Finally, in October 2019 the consumption tax increased to 10% for most items, with food (and a few others) remaining at 8%. Meanwhile, financial demands on the government have mounted as society ages, prime ministers promise child care and defense budgets swell. Japan's government debt as a percentage of gross domestic product in 2023 was 195%, the highest share among major advanced economies. That is why government officials agree with Chief Cabinet Secretary Yoshimasa Hayashi, who warned last week that 'The government does not think it is appropriate to lower that tax rate,' noting that 'it's an important funding source for the social security system for all generations.' That position is a striking contrast — some say political suicide — when opposition parties are all calling for some relief in taxes. The Constitutional Democratic Party of Japan, the main opposition party, has proposed lowering the consumption tax on foodstuffs to zero for one year. Ishin no Kai wants to reduce the tax on foodstuffs to zero for two years and the Democratic Party for the People calls for cutting the tax to 5% across the board. Even Komeito, the junior partner in the ruling coalition with the LDP, wants some relief, although it hasn't endorsed a specific proposal. The LDP is divided, however. A substantial number of its members are worried about their political vulnerability. Sixty-nine LDP lawmakers signed a petition calling for eliminating the consumption tax on foodstuffs, and that combined with pressure from Komeito could yield a softening of the party's hard line. While there may be some political logic to the call for accommodation, — and other governments have done so — the party should not bend. Once reduced, it will be extremely difficult to raise — or more properly, restore — the consumption tax to its previous level and Japan's fiscal difficulties will be compounded. In the fiscal 2025 budget, the tax accounted for nearly one-third (32%) of government tax revenue. According to one estimate, eliminating the tax on foodstuffs would boost nominal and real gross domestic product by approximately 0.43% a year — but yield a tax shortfall of about ¥5 trillion ($33.8 billion). That does not mean that households don't need some form of help. Consumers are being squeezed. The Bank of Japan anticipates that prices will continue to rise, the product of labor shortages, disruptions to global trade resulting from the U.S. tariff policies and shortages of some products, like rice. But the virtuous cycle — in which rising prices lead to rising wages — that Japan has enjoyed in recent years is now threatened by that same uncertainty. The BOJ has lowered its forecast for the Japanese economy and has warned that the outlook could change further and some officials worry about the prospect of stagflation — a stagnant economy that suffers inflation nonetheless. While providing a stable source of revenue — such taxes are largely unaffected by economic cycles — the consumption tax weighs most heavily on low-income earners. Prime Minister Ishiba has acknowledged fiscal and political reality by noting that 'It's important to take generous measures for those who are truly in need while taking responsibility for the next generation.' Targeted measures are thus key, which rules out sweeping cuts in the consumption tax. Putting money in the pockets of those individuals and their families through subsidies, for example, may not provide economic stimulus — economists worry that payments would be saved, not spent — but they would ease the pain. Having lost its majority in Lower House elections last year, the government, the LDP and its junior partner Komeito, fear a similar outcome in the summer Upper House vote (or a worse outcome if Ishiba decides to call a snap double election). Relief for besieged consumers is important but so too is avoiding the image of pandering to voters. The public wants and needs a thoughtful government that rejects populism and focuses on the national interest — not just the need to win votes. A plan that balances the need to help households with attention to deficits will win that support. The Japan Times Editorial Board
Daily Mail
08-05-2025
- Business
- Daily Mail
Relief for struggling Brits with Bank of England poised to cut interest rates TODAY in bid to kick-start stalling economy
Struggling Brits are set for relief today with the Bank of England poised to cut interest rates. The Monetary Policy Committee is widely expected to reduce the level from 4.5 per cent in its latest decision just after noon. Most economists are predicting a quarter point fall - but others believe there could be a bigger move as alarm at the stalling economy outweighs short-term inflation pressures. It is the first time the MPC has acted since Donald Trump threw the world into chaos with his so-called 'Liberation Day' tariff announcements last month. Since then stock markets have crashed and global growth forecasts have been downgraded - throwing Labour's spending plans into turmoil. Rachel Reeves has been warned she faces a £60billion black hole in the government's books, with fears of more tax hikes or spending cuts this Autumn. Ministers have been talking up the benefit to Brits of interest rates coming down, easing the stress on mortgage payers. Wage rises are also running higher than inflation. The anticipated announcement of a Transatlantic trade pact this afternoon could offer another glimmer of hope for Keir Starmer, coming after a wide-ranging deal was struck with India earlier this week. Threadneedle Street's decision, along with quarterly economic forecasts, will be delayed by two minutes due to the silence marking 80 years since VE Day. Kallum Pickering, chief economist for Peel Hunt, said the 'highly uncertain economic backdrop' would encourage policymakers to intervene by cutting rates on Thursday. 'Although UK economic momentum has picked up appreciably since last December, and has surprised to the upside relative to depressed Bank expectations, rising global growth worries linked to the US's erratic and risky tariff policies pose fresh risks,' he said. Economists will be paying close attention to the MPC's forecasts for inflation and economic growth, which some said could both be downgraded. This could 'provide a strong signal that policymakers are prepared to step up the pace of future rate cuts' in order to boost the economy, according to Mr Pickering. Laith Khalaf, head of investment analysis at AJ Bell, said tariffs had caused a 'massive reappraisal of the future path of UK interest rates'. 'As things stand, markets are focusing on the collateral damage to the UK economy rather than the potential for a trade war to ignite inflation once again,' he said. 'The effects of trade tariffs, once imposed, are highly unpredictable and could unleash both inflationary and deflationary forces.' Sandra Horsfield, an economist for Investec, said it is a 'near-certainty' that the Bank will reduce borrowing costs, with most participants in the financial markets pricing in a rate cut. 'The new question now though for the MPC to consider is how the US trade policy shifts have changed the outlook for UK inflation,' Ms Horsfield said. 'What makes this month's decision easy is that virtually everything has pointed in the direction of lower UK inflation pressure.' Inflation has fallen in recent months, which is likely to indicate to policymakers that interest rates – which are used as a tool to control inflation – can continue to come down. Headline CPI inflation slowed to 2.6 per cent in March, from 2.8% in February, according to the latest official data. Crucially the rate of services inflation – a metric closely watched by the Bank of England – fell to 4.7 per cent from 5 per cent. There is speculation that countries such as China will respond to US tariffs by re-routing exports, potentially resulting in lower prices for UK consumers. A weaker US dollar and falling oil prices could also put downward pressure on inflation. Europe's central bank cut interest rates last month, and said 'exceptional uncertainty' over trade policy meant future rate decisions would have to be taken on a meeting-by-meeting basis. However, there is little sign of interest rates falling in the US soon, despite Donald Trump publicly demanding action from the US Federal Reserve.
