Fed poised to hold off on rate cuts, defying Trump
With Trump's on-again, off-again tariff approach—and the levies' lagged effects on inflation—Fed officials want to see economic data from this summer to gauge how prices are being affected.
When mulling changes to interest rates, the central bank—which meets on Tuesday and Wednesday—seeks a balance between reining in inflation and the health of the jobs market. But the bank's data-dependent approach has enraged the Republican president, who has repeatedly criticized Fed Chair Jerome Powell for not slashing rates further, calling him a 'numbskull' and 'moron.'
Most recently, Trump signaled he could use the Fed's $2.5 billion renovation project as an avenue to oust Powell, before backing off and saying that would be unlikely. Trump visited the Fed construction site on Thursday, making a tense appearance with Powell in which the Fed chair disputed Trump's characterization of the total cost of the refurbishment in front of the cameras.
But economists expect the Fed to look past the political pressure at its policy meeting.
'We're just now beginning to see the evidence of tariffs' impact on inflation,' said Ryan Sweet, chief US economist at Oxford Economics. 'We're going to see it (too) in July and August, and we think that's going to give the Fed reason to remain on the sidelines,' he told AFP.
Since returning to the presidency in January, Trump has imposed a 10 percent tariff on goods from almost all countries, as well as steeper rates on steel, aluminum and autos. The effect on inflation has so far been limited, prompting the US leader to use this as grounds for calling for interest rates to be lowered by three percentage points. Currently, the benchmark lending rate stands at a range between 4.25 percent and 4.50 percent. Trump also argues that lower rates would save the government money on interest payments, and floated the idea of firing Powell. The comments roiled financial markets.
'Powell can see that the administration floated this trial balloon' of ousting him before walking it back on the market's reaction, Sweet said. 'It showed that markets value an independent central bank,' the Oxford Economics analyst added, anticipating Powell will be instead more influenced by labor market concerns. Powell's term as Fed chair ends in May 2026.
Analysts expect to see a couple of members break ranks if the Fed's rate-setting committee decides for a fifth straight meeting to keep interest rates unchanged. Sweet cautioned that some observers may spin dissents as pushback on Powell but argued this is not necessarily the case.
'It's not out-of-line or unusual to see, at times when there's a high degree of uncertainty, or maybe a turning point in policy, that you get one or two people dissenting,' said Nationwide chief economist Kathy Bostjancic. Fed Governor Christopher Waller and Vice Chair for Supervision Michelle Bowman have both signaled openness to rate cuts as early as July, meaning their disagreement with a decision to hold rates steady would not surprise markets.
Bostjancic said that too many dissents could be 'eyebrow-raising,' and lead some to question if Powell is losing control of the board, but added: 'I don't anticipate that to be the case.'
For Sweet, 'the big wild card is the labor market.' There has been weakness in the private sector, while the hiring rate has been below average and the number of permanent job losers is rising. 'There are some fissures in the labor market, but they haven't turned into fault lines yet,' Sweet said. If the labor market suddenly weakened, he said he would expect the Fed to start cutting interest rates sooner. –AFP
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Kuwait Times
an hour ago
- Kuwait Times
Modi faces oppn fury after Trump's 25% tariff threat
NEW DELHI: Indian opposition parties criticized the government on Thursday, describing US President Donald Trump's threat of a 25 percent tariff as a diplomatic failure for New Delhi, while the rupee currency tumbled and equity indexes slid in response to the news. The 25 percent rate would single out India more harshly than other major trading partners, and threatens to unravel months of talks, undermining one of Washington's strategic partners in the region, viewed as a counterbalance to China. Trump said the tariff on imports from India would start from Friday, in addition to an unspecified penalty for Russian dealings and involvement in the BRICS grouping of nations. In response, the government of Prime Minister Narendra Modi said it was studying the implications of Trump's remarks and was dedicated to securing a fair trade deal. 'This development reflects a broader collapse of foreign policy under the Modi government,' a lawmaker of the main opposition Congress party said in a notice to the lower house of parliament, asking for a discussion on the matter. The debate would focus on the 'government's economic and diplomatic failure in preventing the imposition of 25 percent US tariffs plus penalties on Indian exports,' the notice added. Commerce Minister Piyush Goyal was expected to brief the lower house later on Thursday, his office said. 'I don't care what India does with Russia,' Trump said in a Truth Social post on Thursday, adding, 'They can take their dead economies down together, for all I care.' Russia remained India's top oil supplier during the first six months of 2025, accounting for 35 percent of overall supplies. Economists warned the steep tariff could hurt India's manufacturing ambitions and trim up to 40 basis points off economic growth in the financial year to March 2026. India's benchmark equity indices, the Nifty 50 and BSE Sensex, fell as much as 0.9 percent each in early trade before paring losses and trading flat. The rupee was trading down 0.2 percent at 87.6175 after touching its lowest in more than five months earlier in the day. India has received a 'raw deal', said Priyanka Kishore, an economist at Asia Decoded. 'While further trade talks may bring the tariff rate down, it appears unlikely that India will secure a significantly better outcome than its eastern neighbors,' she added. That would raise questions about India's relative appeal as a China plus one destination, she said, referring to a strategy of diversifying supply chains through manufacturing outside China to reduce geopolitical and operational risks. Trade talks continued, Trump said on social media, however, as nations face a Friday deadline to strike deals on reciprocal tariffs or have a US tariff slapped on their exports. The US levy on India exceeds those agreed by some other nations in deals with the Trump administration. For example, the tariff on Vietnam is set at 20 percent and on Indonesia at 19 percent, with levies of 15 percent on Japanese and European Union exports. On Wednesday, Trump said Washington had reached a trade deal with India's arch-rival Pakistan that Islamabad said would lead to lower tariffs on its exports, but neither side has yet revealed the agreed rate. Since India's short but deadly conflict with Pakistan in May, New Delhi has been unhappy about Trump's closeness with Islamabad and has protested, casting a shadow over trade talks. Despite former public displays of bonhomie between Trump and Modi, India has taken a slightly harder stance against the United States in recent weeks. Trump has repeatedly taken credit for the India-Pakistan ceasefire he announced on social media on May 10, but India disputes his claim that it resulted from his intervention and trade threats. 'The government has destroyed our economic policy, has destroyed our defense policy, has destroyed our foreign policy,' opposition leader Rahul Gandhi told reporters. — Reuters The United States, the world's largest economy, now has a trade deficit of $45.7 billion with India, the fifth largest. Trump's announcement and the lack of clarity on the penalty have created 'considerable uncertainty', said Krishan Arora, a partner at consultants Grant Thornton Bharat. 'India is also actively realigning its position in global supply chains through deeper trade and investment linkages with other countries - an effort that must now accelerate to reduce long-term vulnerabilities,' Arora said. -- Reuters
Kuwait Times
5 hours ago
- Kuwait Times
Trump issues new ultimatum to Russia
Deadline shortened to '10 or 12 days' • Ukraine welcomes Trump's stance on Russia TURNBERRY, Scotland: US President Donald Trump set a new deadline on Monday of 10 or 12 days for Russia to make progress toward ending the war in Ukraine or face consequences, underscoring frustration with Russian President Vladimir Putin for the 3-1/2-year-old conflict. Trump has threatened both sanctions on Russia and buyers of its exports unless progress is made. The fresh deadline suggests the US president is prepared to move forward on those threats after previous hesitation to do so. Speaking in Scotland, where he is holding meetings with European leaders and playing golf, Trump said he was disappointed in Putin and shortening a 50-day deadline he had set on the issue earlier this month. 'I'm going to make a new deadline of about ... 10 or 12 days from today,' Trump told reporters during a meeting with British Prime Minister Keir Starmer. 'There's no reason in waiting... We just don't see any progress being made.' There was no immediate comment from the Kremlin. Ukraine welcomed the statement. Andriy Yermak, President Volodymyr Zelenskiy's chief of staff, thanked Trump in a social media post for 'standing firm and delivering a clear message of peace through strength.' Trump, who has expressed annoyance also with Zelensky, has not always followed tough talk about Putin with action, citing what he deems a good relationship that the two men have had previously. On Monday, Trump indicated he was not interested in more talks with Putin. He said sanctions and tariffs would be used as penalties for Moscow if it did not meet Trump's demands. 'There's no reason to wait. If you know what the answer is going to be, why wait? And it would be sanctions and maybe tariffs, secondary tariffs,' Trump said. 'I don't want to do that to Russia. I love the Russian people.' Ukraine had proposed a summit between Putin and Zelensky before the end of August, but the Kremlin has said that timeline was unlikely and that a meeting could only happen as a final step to clinch peace. Russia's foreign ministry said on Saturday that if the West wanted real peace with Ukraine, it would stop supplying Kyiv with weapons. Trump has repeatedly voiced exasperation with Putin for pursuing attacks on Ukraine despite US efforts to end the war. Trump has played up successes in other parts of the world where the United States has helped to broker peace agreements and has been flattered by some leaders who suggest he should be given the Nobel Peace Prize. 'I'm disappointed in President Putin,' Trump said on Monday. 'I'm going to reduce that 50 days that I gave him to a lesser number because I think I already know the answer what's going to happen.' Trump, who is also struggling to achieve a peace deal in Gaza, has touted his role in ending conflicts between India and Pakistan as well as Rwanda and Congo. Before returning to the White House in January, Trump campaigned on a promise to end Russia's conflict with Ukraine in a day. 'We thought we had that settled numerous times, and then President Putin goes out and starts launching rockets into some city like Kyiv and kills a lot of people in a nursing home or whatever,' Trump said. 'And I say that's not the way to do it.' — Reuters
Arab Times
8 hours ago
- Arab Times
Pakistan and US reach a trade deal to develop oil reserves and reduce tariffs
ISLAMABAD, July 31, (AP):The United States and Pakistan reached a trade agreement expected to allow Washington to help develop Pakistan's largely untapped oil reserves and lower tariffs for the South Asian country, officials from both nations said Thursday. Officials did not specify where the exploration would take place, but most of Pakistan's reserves are believed to be in the insurgency-hit southwestern province of Balochistan, where separatists say the province's natural resources are being exploited by the central government in Islamabad. "We have just concluded a deal with the country of Pakistan, whereby Pakistan and the United States will work together on developing their massive oil reserves,' U.S. President Donald Trump wrote on his Truth Social platform. "We are in the process of choosing the oil company that will lead this partnership,' Trump added. "Who knows, maybe they'll be selling oil to India someday!' Total U.S. trade with Pakistan was an estimated $7.3 billion in 2024, according to the Office of the United States Representative, which said on its website that U.S. exports to Pakistan in 2024 were $2.1 billion, up 4.4% ($90.9 million) from 2023. U.S. imports from Pakistan totaled $5.1 billion in 2024, up 4.9% ($238.7 million) from 2023, it said. There was no immediate comment from the Baloch nationalists and separatist groups. Balochistan has long been the center of violence mostly blamed on groups including the outlawed Balochistan Liberation Army, or BLA, which the U.S. designated a terrorist organization in 2019. Separatists in Balochistan have opposed the extraction of resources by Pakistani and foreign firms and have targeted Pakistani security forces and Chinese nationals working on multibillion-dollar projects related to the China-Pakistan Economic Corridor. Oil reserves are also thought to exist in the southern Sindh, eastern Punjab and northwestern Khyber Pakhtunkhwa provinces. Pakistan's Prime Minister Shehbaz Sharif welcomed the "long-awaited' deal and thanked Trump for playing a key role in finalizing it. Pakistan had been pursuing a trade agreement since May, when Trump mediated a ceasefire between Pakistan and India following an escalation triggered by Indian airstrikes on Pakistani territory in response to the killing of 26 tourists in Indian-controlled Kashmir. Pakistan's Finance Ministry said in a statement early Thursday the agreement aims to boost bilateral trade, expand market access, attract investment and foster cooperation in areas of mutual interest. The breakthrough came during a meeting in Washington between Pakistani Finance Minister Muhammad Aurangzeb and senior U.S. officials, including Commerce Secretary Howard Lutnick and Trade Representative Ambassador Jamieson Greer. The deal includes a reduction in reciprocal tariffs, particularly on Pakistani exports to the U.S., the statement from the ministry said. "The agreement enhances Pakistan's access to the U.S. market and vice versa,' it said. The agreement is also expected to spur increased U.S. investment in Pakistan's infrastructure and development projects, it added.
