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Yahoo
20 minutes ago
- Yahoo
Loss of central bank independence could lead to instability, IMF warns
By Andrea Shalal (Reuters) -The International Monetary Fund on Tuesday warned that any loss of central bank independence could undermine efforts to keep inflation expectations in check, potentially triggering a wave of financial, monetary and macroeconomic instability. The IMF hammered home that message in an update to its World Economic Outlook, released Tuesday, and in a separate interview with IMF chief economist Pierre-Olivier Gourinchas. In the update, the IMF said the current economic climate of prolonged trade tensions and uncertainty over evolving tariffs heightened the need for robust policies to safeguard financial stability and ensure central bank independence. In some cases, if tariff shocks resulted in disruptive movements in foreign exchange and risk premiums, it said it might be suitable for countries to implement temporary foreign exchange interventions or capital flow management measures. "Crucially, the ambiguous and volatile landscape also requires clear and consistent messaging from central banks and the protection of central bank independence, not only in legal terms, but also in practice," the global lender said. U.S. President Donald Trump has repeatedly exhorted the U.S. Federal Reserve to cut interest rates while questioning the leadership and continued tenure of Chair Jerome Powell, whose term at the Fed's helm is due to end in May 2026. Those statements have unsettled markets, worried about a loss of the longstanding principle of Fed independence. The two men sparred over cost overruns on a Fed renovation project on Friday, as Trump repeated his call for lower rates. Asked about Trump's efforts to push Powell out of office, Gourinchas underscored the importance of maintaining central bank independence to keep inflation expectations anchored. "This is really a core plank for macroeconomic stability overall. That's one of the hard learned lessons of the last 40 years," the IMF chief economist told Reuters in an interview, without mentioning the Fed specifically. "We have a very, very clear message on this - it's very important to keep central bank independence and to implement it," he said. Central bank independence was foundational to macroeconomic frameworks in both advanced and emerging economies, he said. Despite the recent era of large price increases from 2021 to 2024, markets and consumers maintained confidence in policymakers' determination to keep inflation in check over the medium term, averting a broad de-anchoring of inflation expectations. "They think that someone is at the helm, someone is in the driving seat and is going to implement monetary policy to achieve price stability," he said. "That's the credibility." Should that credibility become called into question or threatened, the link from inflation to inflation expectations would become "much more brittle," he said. Inflation could rise again suddenly due to myriad shocks, and if people did not trust central banks to do their jobs, inflation expectations would start rising, triggering wage increases, which would beget higher prices, higher interest rates and ultimately a need to "crash the economy." "So now you have macroeconomic instability. You have monetary instability and you have financial instability," he said, underscoring the need to ensure consumers and financial markets were certain that central banks would act on their own. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
20 minutes ago
- Yahoo
3 Ways a Trump-Powell Faceoff Could Affect Your Wallet This Summer
Tensions are heating up again between President Donald Trump and Federal Reserve Chair Jerome Powell. Trump wants lower interest rates and Powell has so far not caved into his demands, which has drawn sharp criticism from the president. As of July 2025, the interest rate range is 4.25% to 4.50%, which has been holding steady since Trump took office, and it doesn't appear Powell has plans to reduce rates right now. Trending Now: Try This: In a June 2025 Federal Reserve press release, the Fed acknowledged that inflation is 'somewhat elevated,' but stated the economy is in a stable state, as unemployment 'remains low,' and the labor market is 'solid.' However, the main reason the Fed hasn't lowered the rates is because of Trump's tariff policies. While attending the European Central Bank Forum on Central Banking, Powell said, 'In effect, we went on hold when we saw the size of the tariffs, and essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs,' per CNBC. While Trump and Powell are at a standstill, here's how it could impact your money. Credit Cards Household budgets have been stretched over the last few years due to the pandemic and inflation, which has caused many to heavily rely on credit cards to survive, CivicScience reported. As of the first quarter of this year, Americans owe a collective $1.18 trillion in credit card debt, according to the Federal Reserve Bank of New York, and higher interest rates make it more challenging to get debt under control. 'If Powell keeps rates high to fight inflation, credit card APRs stay painfully elevated,' said Danny Ray, founder of PinnacleQuote. 'That means every balance you carry costs you more, and minimum payments stretch families even thinner.' He added, 'Over time, that eats away at savings and slows down spending power, especially for middle- and lower-income Americans.' Check Out: Mortgage Rates and Home Affordability Higher interest rates mean homebuyers and owners pay more or don't buy because it's unaffordable. 'For example, a family looking to buy a $350,000 home could pay hundreds more each month compared to a lower-rate environment,' Ray said. 'In fact, it prices many first-time buyers out entirely, forcing them to rent longer, often at inflated rates.' Risk of Inflation Inflation is slowly cooling and has dropped a bit. In January the rate was 3%, and as of June the inflation rate was 2.7%, but the Fed is worried about rates rising again. 'We need to be cautious if rates drop too quickly, we risk reigniting inflation, which could drive prices up and actually push many buyers out of the market, even with lower monthly payments,' said Peter Diamond, a federally licensed tax, accounting, real estate, and structure and certified bankability Expert®. Why Cutting Interest Rates Is Needed According to Diamond, Trump has a valid point for pushing the Fed to slash rates, but doesn't agree with the president's numbers. 'Trump is calling for 2% lower, which I think is excessive, but even 0.5 to 1% lower will have a big impact on the economy,' he said. Cutting rates would be beneficial in several ways, Diamond explained. 'Cheaper debt and mortgages are a win for the economy and everyday Americans — lower interest rates mean more affordable housing and business investment,' he added. 'Yes, it could stoke inflation and push asset prices higher, but honestly our rates aren't sky-high by historical standards. The rates peak from previous cycles like the 5.25% to 5.50% range we saw in mid-2024, and nothing compared to the 1980s.' While Trump and Powell face off, the middle-class suffers, according to Ray. 'Above all, uncertainty like this rattles the economy and keeps average folks stuck waiting and worrying instead of building wealth,' he said. 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 3 Luxury SUVs That Will Have Massive Price Drops in Summer 2025 3 Reasons Retired Boomers Shouldn't Give Their Kids a Living Inheritance (And 2 Reasons They Should) 7 Things You'll Be Happy You Downsized in Retirement This article originally appeared on 3 Ways a Trump-Powell Faceoff Could Affect Your Wallet This Summer Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Gizmodo
21 minutes ago
- Gizmodo
Josh Hawley Wants to Send Out Rebate Checks So Americans Can ‘Benefit' From Trump's Tariffs
President Trump's tariffs have generated around 20 billion dollars in revenue for the U.S. government, although it's worth noting that a vast majority of this wealth has been derived from import duties on American businesses. In other words, Americans are paying the federal government (many critics have noted that tariffs are just taxes by another name) for the pleasure of doing business with foreign exporters. For the fiscally confused, the New York Times recently wrote an explainer on tariffs, breaking down how the money has been flowing from American businesses to the federal government. 'Tariffs are paid by the companies that import the goods,' the newspaper notes. 'The revenue from U.S. tariffs is paid by U.S. importers to the U.S. Treasury Department.' Critics of Trump's policy have also noted that by bilking U.S. corporations for revenue, the administration is just asking for those companies to pass on the costs to consumers, which is almost certain to drive up the cost of laptops, cars, video games, smartphones, graphic cards, and countless other consumer goods for American consumers. To make up for all that (or, as he has put it, to allow Americans to 'benefit' from this weird new system), Sen. Josh Hawley (R-Missouri) now wants to send you a (presumably one-time) $600 check in the mail. The congressman introduced legislation on Monday that has been compared to the CARES Act—the large bill passed during Trump's first term that distributed money to Americans during the pandemic. NBC reports: The program would be set up as a refundable tax credit, with the government sending checks this year should the bill advance through Congress and get Trump's signature. The bill would ensure that the amount provided to each adult and dependent child is at least $600. It also allows for a larger rebate per person should tariff revenue exceed projections. 'Like President Trump proposed, my legislation would allow hard-working Americans to benefit from the wealth that Trump's tariffs are returning to this country,' Hawley said, in a statement shared with the media. Hawley's bill appears to be based on something Trump said during a recent press conference. When asked by a journalist about the tariffs, Trump said: 'We have so much money coming in, we're thinking about a little rebate, but the big thing we want to do is pay down debt. But we're thinking about a rebate.' It's unclear how any of this makes sense. If I'm following things correctly, the situation is this: The administration has found a new revenue source in the form of import duties, imposed (mostly) on American businesses to ostensibly 'pay down debt' but, at the very same time, the government is also apparently willing to create a stimulus program for hundreds of millions of Americans (the likes of which will, you know, ostensibly cost a lot of money and, while benefiting Americans, also be paid for by them). It should be remembered that the covid stimulus program (which was also a $600 check in the mail) is remembered as a hugely costly federal program that significantly contributed to the national debt and fanned the flames of inflation. Just doing some back-of-the-napkin math, if every American received a stimulus check for $600, the total cost would come out to roughly $205,000,000. That's just slightly higher than the total estimated revenue from tariffs for the year. I am not an economist, but something about this whole formula seems to defy basic logic. In fact, the only way I can make it make sense is if Hawley's 'rebate' goes the way of Elon Musk's 'DOGE dividend,' and, after some good press, fails to ever materialize.
