Latest news with #HowardSchneider
Reuters
3 days ago
- Business
- Reuters
Econ World Podcast: 'Shadow Fed chair'
Follow on Apple or Spotify. Listen on the Reuters app. The world's most important central bank is at the center of a succession drama. Host Carmel Crimmins talks to Dan Burns, Americas economics editor, and Federal Reserve correspondent Howard Schneider about the possibility of a central banker in-waiting, and what that would mean for the global economy. *This podcast was updated to fix a missed question by Carmel at the 17:40 minute mark. Further Listening The dollar Independence Budget deficits
Yahoo
3 days ago
- Business
- Yahoo
Explainer-Why Trump's push for a 1% Fed policy rate could spell trouble for US economy
By Howard Schneider WASHINGTON (Reuters) -U.S. President Donald Trump says the Federal Reserve should set its benchmark interest rate at 1% to lower government borrowing costs, allowing the administration to finance the high and rising deficits expected from his spending and tax-cut bill. Trump should be careful what he wishes for. A Fed policy rate that low is not typically a sign that the U.S. is the "hottest" country in the world for investment, as Trump has said. It is usually a crisis response to an economy in serious trouble. The U.S. economy isn't in that kind of trouble now. But with near-full employment, ongoing economic growth and inflation above the U.S. central bank's 2% target, the super-low interest rates Trump seeks could easily backfire if investors in the $36 trillion Treasury market saw such a move as meaning the Fed had caved to political pressure and cut rates for the wrong reasons. Congress tasked the Fed with maintaining stable prices and full employment, not making deficit spending cheap, and slashing rates in the current environment could well reignite inflation. "I am not necessarily convinced that ... if the Fed tomorrow decided we are cutting to 1%, that this would have the traditional impact on long-term interest rates. The bond market fear would be that inflation would reignite and essentially we would have a loss of Fed independence and a de-anchoring of inflation expectations," said Gregory Daco, chief economist at EY-Parthenon. Though there is "scope to ease" from the current 4.25%-4.50% range, it is nothing like the magnitude of cuts Trump envisions, he said. Daco, noting the unemployment rate is 4.1%, the economy is growing around 2% and inflation is about 2.5%, said: "From a data perspective there is not anything to suggest the need for an immediate and substantial lowering." IS 1% NORMAL? A 1% Fed policy rate has not been uncommon in the last quarter of a century, but is no sign of good times, coinciding with joblessness of 6% or higher. Former President George W. Bush governed at a time when the rate was 1%. It occurred shortly after the U.S. invaded Iraq in 2003 and at the end of a string of Fed rate cuts following the dot-com crash and the September 11, 2001, attacks on the U.S. Former President Barack Obama inherited a near-zero Fed policy rate when he took office in January 2009. He also inherited a global financial crisis. Trump himself got the same near-zero interest rate treatment from the Fed in the last months of his first term in the White House - when the COVID-19 pandemic shut down the economy. WHAT THE FED CONTROLS, AND DOESN'T While hugely influential, the Fed has limited tools to influence the economy in normal times. U.S. central bankers meet typically eight times a year to set what is called the federal funds rate. Only banks borrow overnight at that rate, but it is a benchmark for other credit, influencing everything from corporate debt to home mortgages, consumer credit cards, and Treasury yields. Perhaps as importantly, it shapes expectations about where rates are headed. While closely correlated with the Fed's policy rate, those other rates are not set directly by the central bank. There's always a spread, including for what's been top of mind for Trump: the interest rate on U.S. Treasuries. SUPPLY, DEMAND AND RISK Global trading across an array of markets ultimately determines those other rates. A foreign pension fund's demand for Treasuries or mortgage-backed securities, for instance, influences what Americans pay for a mortgage or the U.S. government pays to finance its operations. Supply and demand are critical. U.S. government debt supply is determined by spending and tax levels set by the president and Congress. The federal government typically spends more each year than what it receives in tax collections and other revenue, and Treasury covers that annual deficit with borrowed money, issuing securities due in as few as 30 days to as long as 30 years. All things equal, larger deficits and more accumulated debt mean higher interest rates. Deficits and debt are expected to rise following the passage in Congress earlier this month of Trump's "One Big Beautiful Bill Act." On the demand side, the U.S. enjoys a privileged position that holds down government borrowing costs since it is still considered a relatively risk-free investment with plenty of supply, deep and well-functioning markets and a history of strong institutions and legal norms. Current returns above 4% are particularly attractive for large pension funds or retirees who want income while being assured their investment is safe. But, like any borrower, the U.S. government must pay a premium for the risk an investor takes on. Locking up money in a 10-year Treasury note means other opportunities are foregone. Rates of interest, inflation and economic growth may all change in that span, and investors want compensation for those risks. With the Fed policy rate as a starting point, all of those factors are piled on in the form of a "term premium." Intangibles, like trust in a country's institutions, also matter. When Trump's threats to fire Fed Chair Jerome Powell intensified in April, yields rose and the president backed off - a sign that global markets have an important vote in central bank independence. IS FED POLICY OUT OF LINE? Trump recently sent Powell a handwritten note with a list of central bank rates and penciled in where he thought the Fed's policy rate should be, near the bottom. U.S. central bank policymakers say it would be risky to cut rates until it is clear that Trump's new tariffs - many already imposed and more still to come - aren't going to stoke inflation. Central bankers often refer to policy formulas or rules that relate their inflation target to incoming and forecasted economic data to point to an appropriate interest rate. None suggest a Fed policy rate as low as Trump wants. 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
18-06-2025
- Business
- Yahoo
Fed set to hold rates steady as Middle East crisis, tariffs cloud outlook
By Howard Schneider WASHINGTON (Reuters) -The Federal Reserve is expected to keep interest rates unchanged on Wednesday as its policymakers assess signs of a cooling economy and the risk of higher inflation from U.S. import tariffs and the escalating crisis in the Middle East. Since setting its benchmark interest rate in the current 4.25%-4.50% range in December, the Fed has watched the economic outlook grow cloudier, particularly after President Donald Trump returned to power in January and quickly overhauled U.S. trade policy by announcing sharply higher levies on imported goods. While many of the tariffs have been delayed, the issue is unresolved and on the radar of U.S. central bank officials. Oil prices also have risen after Israel's attack last week on Iran, and subsequent missile exchanges by the two regional foes, while data on the job market, retail sales, and other aspects of the U.S. economy suggests growth may be weakening. Fed officials have said they want clarity on the economy's path towards either higher inflation or weaker growth before giving much new guidance on interest rates, but so far the prospect of both rising prices and slowing employment remains a possibility. A National Association for Business Economics survey released on Monday showed economists expect 2025 GDP growth to ebb to 1.3%, down from the 1.9% projected in early April, with inflation ending the year at 3.1%, a percentage point higher than the reading in April and well above the Fed's 2% target. Respondents said the unemployment rate, which was 4.2% in May, would end this year at 4.3% before beginning a steady rise to 4.7% in early 2026. 'PARALYZED BY TRUMP'S UNCERTAINTY' With risks to both the Fed's inflation and employment goals and the unresolved questions around Trump's policy plans, investors expect the central bank to be anchored where it is for perhaps months to come, with no further rate cuts until September. Trump has demanded an immediate reduction in borrowing costs. The U.S. central bank cut rates three times in 2024. "The Fed's revealed preference is to be paralyzed by Trump's uncertainty. Central bankers are always a conservative bunch, and with risks to both sides of their mandate, the bias is to wait and see if the next few months will resolve their dilemma. Meanwhile, the president ain't happy," Dario Perkins, an economist at TS Lombard, wrote in an analysis of where the Fed stands in relation to the current economic data and what Trump wants the central bank to do. The Fed will release its policy statement alongside policymakers' updated economic and interest rate projections at 2 p.m. EDT (1800 GMT) on Wednesday following the end of its latest two-day meeting. Fed Chair Jerome Powell will hold a press conference half an hour later. Michael Feroli, chief U.S. economist at JP Morgan, said he did not expect any substantive changes in the policy statement, with recent job growth still solid, inflation remaining above the Fed's target, and uncertainty elevated. Policymakers' projections, however, will provide an updated sense of how they expect the economy to evolve in coming months, and how monetary policy may need to respond. The last round of projections in March showed they expected the Fed to deliver two quarter-percentage-point rate cuts by the end of 2025, a view that matches current market pricing. 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
13-06-2025
- Business
- Yahoo
Fed expected to keep rates steady as tariff risks outweigh inflation data
By Howard Schneider WASHINGTON (Reuters) -The Federal Reserve is widely expected to hold interest rates steady next week, with investors focused on new central bank projections that will show how much weight policymakers are putting on recent soft data and how much risk they attach to unresolved trade and budget issues. The release of a series of inflation readings has eased concern that the tariffs imposed by President Donald Trump would translate quickly into higher prices, while the latest monthly employment report showed slowing job growth - a combination that, all things equal, would put the Fed closer to resuming its rate cuts. Trump has demanded the U.S. central bank lower its benchmark overnight interest rate immediately by a full percentage point, a dramatic step that would amount to an all-in bet by the Fed that inflation will fall to its 2% target and stay there regardless of what the administration does and even with dramatically looser financial conditions. Yet the president's push to rewrite the rules of global trade remains a work in progress. Since the Fed's last policy meeting in May, the administration delayed until next month a threatened round of global tariffs that central bank officials worry could lead to both higher inflation and slower growth if implemented; trade tensions between the U.S. and China have eased but not been resolved; and the terms of a massive budget and tax bill under consideration in Congress are far from settled. When Fed officials issued their last set of quarterly projections in March, anticipating two quarter-percentage-point rate cuts this year, Fed Chair Jerome Powell noted the role that inertia can play in moments when the outlook is so unclear that "you just say 'maybe I'll stay where I am,'" a sentiment that may last as long as the tariff debate remains unresolved. "Recent Fed commentary has reinforced a wait-and-see approach, with officials signaling little urgency to adjust policy amid increased uncertainty around the economic outlook," Gregory Daco, chief economist at EY-Parthenon, wrote in the run-up to the Fed's June 17-18 meeting. Daco said he anticipates the median rate projection among the Fed's 19 policymakers to still show two rate cuts in 2025, with an overall tone of "cautious patience" and "little in the way of forward guidance" given the uncertainty weighing on households and businesses. That view aligns roughly with what investors in contracts tied to the Fed's policy rate currently expect, though pricing shifted towards a possible third rate cut this week after data showed consumer and producer prices both increased less than expected in May. While year-over-year inflation measured by the Fed's preferred Personal Consumption Expenditures Price Index is around half a percentage point above the central bank's target, recent data show it running close to 2% for the past three months once the more volatile food and energy components are excluded. The unemployment rate, meanwhile, has remained at 4.2% for the past three months. 'BECOMING INCREASINGLY CLEAR' The Fed's policy rate was set in the current 4.25%-4.50% range in December when the U.S. central bank cut it by a quarter of a percentage point in what officials at the time expected would be a steady series of reductions in borrowing costs spurred by slowing inflation. The trade policy Trump pursued after he returned to office on January 20, however, raised the risk of higher inflation and slower growth, an outcome that would put the Fed in the uncomfortable position of having to choose whether to focus on keeping inflation at its 2% target or supporting the economy and sustaining low unemployment. The risk of that worst-of-both-worlds outcome has eased since the early spring, when Trump's "Liberation Day" slate of global tariffs caused a market backlash and led to widespread forecasts of a U.S. recession before the president backed down. In its most recent analysis, Goldman Sachs analysts lowered the odds of a recession to around 30% and said they now see a bit less inflation and slightly higher growth this year. Yet that analysis did not prompt a shift in the investment bank's Fed rate outlook, which currently expects higher inflation numbers over the summer to sideline the central bank until December. The Fed itself may see its median rate projection fall to a single quarter-percentage-point cut this year if only due to the passage of time, noted Tim Duy, chief U.S. economist at SGH Macro Advisors. With three fewer months in the year to make changes in policy and so many major issues outstanding, "if the Fed retained two cuts ... it would have more confidence in those two cuts than in March," Duy wrote. "But ... participants have less confidence in rate cuts since 'Liberation Day,' and that should be reflected" in the new projections. It would only take two officials to change their outlooks for the Fed's projected rate reductions to shift more toward next year. There's another scenario, one in which the weak pass-through from tariffs to inflation is due to weakening demand as consumers pay more for imported goods by cutting back on services, a dynamic that may already be developing. The retail sales report for May, which is due to be released next week ahead of the Fed meeting, may provide insight into that issue. But Citi economists say they think weakening demand will keep inflation down, lead to rising unemployment, and prompt the central bank to cut rates faster than expected, beginning in September and continuing at each meeting from there into 2026. "Tariffs may eventually boost some goods prices, but the broad-based slowing in core services inflation will make this a one-time price increase," the Citi analysts wrote. "Markets have yet to internalize that softer demand will lead to cooler inflation but also to rising unemployment ... The path to Fed rate cuts is becoming increasingly clear." 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
13-06-2025
- Business
- Yahoo
Fed expected to keep rates steady as tariff risks outweigh inflation data
By Howard Schneider WASHINGTON (Reuters) -The Federal Reserve is widely expected to hold interest rates steady next week, with investors focused on new central bank projections that will show how much weight policymakers are putting on recent soft data and how much risk they attach to unresolved trade and budget issues. The release of a series of inflation readings has eased concern that the tariffs imposed by President Donald Trump would translate quickly into higher prices, while the latest monthly employment report showed slowing job growth - a combination that, all things equal, would put the Fed closer to resuming its rate cuts. Trump has demanded the U.S. central bank lower its benchmark overnight interest rate immediately by a full percentage point, a dramatic step that would amount to an all-in bet by the Fed that inflation will fall to its 2% target and stay there regardless of what the administration does and even with dramatically looser financial conditions. Yet the president's push to rewrite the rules of global trade remains a work in progress. Since the Fed's last policy meeting in May, the administration delayed until next month a threatened round of global tariffs that central bank officials worry could lead to both higher inflation and slower growth if implemented; trade tensions between the U.S. and China have eased but not been resolved; and the terms of a massive budget and tax bill under consideration in Congress are far from settled. When Fed officials issued their last set of quarterly projections in March, anticipating two quarter-percentage-point rate cuts this year, Fed Chair Jerome Powell noted the role that inertia can play in moments when the outlook is so unclear that "you just say 'maybe I'll stay where I am,'" a sentiment that may last as long as the tariff debate remains unresolved. "Recent Fed commentary has reinforced a wait-and-see approach, with officials signaling little urgency to adjust policy amid increased uncertainty around the economic outlook," Gregory Daco, chief economist at EY-Parthenon, wrote in the run-up to the Fed's June 17-18 meeting. Daco said he anticipates the median rate projection among the Fed's 19 policymakers to still show two rate cuts in 2025, with an overall tone of "cautious patience" and "little in the way of forward guidance" given the uncertainty weighing on households and businesses. That view aligns roughly with what investors in contracts tied to the Fed's policy rate currently expect, though pricing shifted towards a possible third rate cut this week after data showed consumer and producer prices both increased less than expected in May. While year-over-year inflation measured by the Fed's preferred Personal Consumption Expenditures Price Index is around half a percentage point above the central bank's target, recent data show it running close to 2% for the past three months once the more volatile food and energy components are excluded. The unemployment rate, meanwhile, has remained at 4.2% for the past three months. 'BECOMING INCREASINGLY CLEAR' The Fed's policy rate was set in the current 4.25%-4.50% range in December when the U.S. central bank cut it by a quarter of a percentage point in what officials at the time expected would be a steady series of reductions in borrowing costs spurred by slowing inflation. The trade policy Trump pursued after he returned to office on January 20, however, raised the risk of higher inflation and slower growth, an outcome that would put the Fed in the uncomfortable position of having to choose whether to focus on keeping inflation at its 2% target or supporting the economy and sustaining low unemployment. The risk of that worst-of-both-worlds outcome has eased since the early spring, when Trump's "Liberation Day" slate of global tariffs caused a market backlash and led to widespread forecasts of a U.S. recession before the president backed down. In its most recent analysis, Goldman Sachs analysts lowered the odds of a recession to around 30% and said they now see a bit less inflation and slightly higher growth this year. Yet that analysis did not prompt a shift in the investment bank's Fed rate outlook, which currently expects higher inflation numbers over the summer to sideline the central bank until December. The Fed itself may see its median rate projection fall to a single quarter-percentage-point cut this year if only due to the passage of time, noted Tim Duy, chief U.S. economist at SGH Macro Advisors. With three fewer months in the year to make changes in policy and so many major issues outstanding, "if the Fed retained two cuts ... it would have more confidence in those two cuts than in March," Duy wrote. "But ... participants have less confidence in rate cuts since 'Liberation Day,' and that should be reflected" in the new projections. It would only take two officials to change their outlooks for the Fed's projected rate reductions to shift more toward next year. There's another scenario, one in which the weak pass-through from tariffs to inflation is due to weakening demand as consumers pay more for imported goods by cutting back on services, a dynamic that may already be developing. The retail sales report for May, which is due to be released next week ahead of the Fed meeting, may provide insight into that issue. But Citi economists say they think weakening demand will keep inflation down, lead to rising unemployment, and prompt the central bank to cut rates faster than expected, beginning in September and continuing at each meeting from there into 2026. "Tariffs may eventually boost some goods prices, but the broad-based slowing in core services inflation will make this a one-time price increase," the Citi analysts wrote. "Markets have yet to internalize that softer demand will lead to cooler inflation but also to rising unemployment ... The path to Fed rate cuts is becoming increasingly clear." 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
