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CTV News
14-07-2025
- Business
- CTV News
Why Trump's push for a 1% Fed policy rate could spell trouble for U.S. economy
U.S. President Donald Trump shakes hands with Federal Reserve board member Jerome Powell in the Rose Garden of the White House in Washington, on Nov. 2, 2017. (Alex Brandon / AP) U.S. President Donald Trump says the U.S. Federal Reserve should set its benchmark interest rate at one per cent 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 two per cent target, the super-low interest rates Trump seeks could easily backfire if investors in the US$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. (Editing by Dan Burns and Paul Simao)
Yahoo
04-07-2025
- Business
- Yahoo
How Crypto's Most Boring Token Became the U.S. Treasury's $200 Billion Lifeline – And Why It Could Hit $2 Trillion
Benzinga and Yahoo Finance LLC may earn commission or revenue on some items through the links below. Major banks are scrambling to launch stablecoins as digital tokens emerge as an unexpected lifeline for U.S. Treasury markets The crypto world's most boring investment might just become Wall Street's most important player. Stablecoins—digital tokens pegged to the dollar—are quietly positioning themselves as a crucial buyer of U.S. government debt, potentially absorbing hundreds of billions in Treasury securities over the next decade. Stablecoins now account for roughly $200 billion in Treasury and repo market investments—about 80% of the $256 billion stablecoin market, according to Reuters. Don't Miss: — no wallets, just price speculation and free paper trading to practice different strategies. Grow your IRA or 401(k) with Crypto – . At last week's Money Fund Symposium in Boston, State Street Global Advisors CEO Yie-Hsin Hung highlighted the growing influence of stablecoins across traditional financial markets.' 'But here's the kicker,' Hung noted. 'Stablecoins are growing fast, and most likely, will outpace the growth of Treasury supply.' The mechanics are surprisingly straightforward. When Circle, the company behind USDC stablecoin, sees demand for its tokens increase by $10 billion, it must purchase $10 billion in Treasuries to maintain the crucial 1:1 peg to the dollar. It's a simple equation that's creating a powerful feedback loop. This timing couldn't be better for the U.S. Treasury. With expectations of up to $1 trillion in new government debt issuance by year-end, participants are desperately searching for reliable buyers. Enter stablecoins: a growing class of investors that must buy Treasuries by design, not choice. 'If they do indeed squeeze this supply balloon on Treasuries and rely on the front end of the curve for debt issuance, we think that one of the justifications is that all this demand coming from stablecoins gives Treasury Secretary Scott Bessent cover to make that shift to the shorter end,' explained Mark Cabana, head of U.S. rates strategy at BofA Securities. Trending: New to crypto? on Coinbase. The demand from traditional finance is reaching fever pitch. Adam Ackermann, head of portfolio management at Paxos, said he's fielding calls from the world's largest banks with an urgent message: 'I need a stablecoin in eight weeks. How can we get one?' This corporate rush intensified after the U.S. Senate passed the GENIUS Act recently—landmark legislation creating a regulatory framework for stablecoins. While the Republican-controlled House still needs to pass its version before reaching President Doanld Trump's desk, the bill's advancement has unleashed pent-up institutional demand. Standard Chartered estimates the stablecoin market could explode from today's $256 billion to $2 trillion by 2028 if the legislation becomes law. That would represent roughly $1.6 trillion in additional Treasury demand—a massive injection into government debt markets. But not everyone is celebrating this digital gold rush. Ackermann, despite being in the business of issuing stablecoins, is sounding a cautionary note: 'What's somewhat concerning is we're just at this fever pitch right now. It's great for the industry, but we need to start to put some guardrails on things.' His concern reflects broader questions about what happens when crypto markets experience their inevitable volatility. If stablecoin demand suddenly contracts, will Treasury markets face an equally dramatic reduction in buying pressure? There's also the concentration risk. Currently, just two companies—Circle and Tether—dominate the stablecoin landscape. A regulatory crackdown or operational issue at either could ripple through Treasury markets in unpredictable investors, this trend presents both opportunities and considerations: Treasury Impact: Increased stablecoin demand could provide a floor for short-term Treasury prices, potentially benefiting money market funds and short-duration bond strategies. Crypto Correlation: The deeper integration between stablecoins and Treasury markets could create new transmission channels between crypto volatility and traditional fixed income. Regulatory Risk: The entire thesis depends on favorable regulation. Any setbacks to stablecoin legislation could dramatically alter the demand dynamics. Long-term Sustainability: While $200 billion represents less than 2% of the overall Treasury market today, BofA's Cabana expects stablecoins to become 'an incremental demand source over the next three to five, certainly 10 years.' The convergence of crypto innovation and traditional finance is creating unexpected solutions to age-old problems. Stablecoins may have started as a niche crypto product, but they're evolving into a critical piece of U.S. debt market infrastructure. Whether this represents a sustainable solution or a new source of systemic risk remains to be seen. What's certain is that the boring world of government debt just got a lot more interesting—and potentially a lot more volatile. Read Next: Named a TIME Best Invention and Backed by 5,000+ Users, Kara's Air-to-Water Pod Cuts Plastic and Costs — Image: Shutterstock This article How Crypto's Most Boring Token Became the U.S. Treasury's $200 Billion Lifeline – And Why It Could Hit $2 Trillion originally appeared on 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
CNA
02-07-2025
- Business
- CNA
Dollar wallows near 3-1/2-year low as Fed easing, Trump bill in focus
TOKYO :The U.S. dollar hunkered near its lowest since February 2022 against major peers on Wednesday, as traders considered dovish hints from Federal Reserve Chair Jerome Powell, along with the potential impact of President Donald Trump's spending bill. The greenback was pinned near its weakest since September 2021 on the euro, and was close to its lowest since January 2015 versus the Swiss franc. Powell reiterated on Tuesday at the European Central Bank's annual conference in Sintra, Portugal, that the Fed is taking a patient approach to further interest rate cuts. But he did not rule out a reduction at this month's meeting, saying everything depends on incoming data. That raises the stakes for the monthly non-farm payrolls report on Thursday. Indications of labour market resilience in the U.S. JOLTS figures overnight saw the dollar rise off Tuesday's lows. The dollar index, which measures the currency against six major counterparts, edged up slightly to 96.744, but did not stray far from the overnight low of 96.373. Markets are also keeping a close watch on Trump's massive tax-and-spending bill, which could add $3.3 trillion to the national debt. The bill, which was passed by the U.S. Senate, will return to the House for final approval. "The confirmation that this is an increase in issuance, an increase in government spending well beyond its means, is not necessarily good news for the Treasury market, and it's arguably one of the reasons the dollar's going down," said Rodrigo Catril, a strategist at National Australia Bank. Also weighing on the U.S. currency has been Trump's continued attacks on Powell, putting Fed independence in the spotlight. On Monday, the president sent the Fed Chair a list of global central bank key rates adorned with handwritten commentary, saying the U.S. rate should be between Japan's 0.5 per cent and Denmark's 1.75 per cent, and telling him he was "as usual, 'too late.'" The greenback held steady at 0.7917 Swiss franc, after dipping as low as 0.7873 franc in the previous session. The euro weakened slightly to $1.1791, but remained close to the overnight peak of $1.1829. Sterling was flat at $1.3739, sitting just below Tuesday's high of $1.3787, a level last seen in October 2021. The dollar made up a little ground against Japan's currency, adding 0.2 per cent to 143.68 yen, following the prior session's 0.4 per cent slide. "My base case remains for the greenback to slowly but steadily grind lower over time, as confidence in the idea of monetary policy independence continues to be eroded," Michael Brown, a strategist at Pepperstone, wrote in a client note.
Zawya
02-07-2025
- Business
- Zawya
Dollar wallows near 3-1/2-year low as Fed cuts, Trump bill in focus
TOKYO: The U.S. dollar hunkered near the lowest since February 2022 against major peers on Wednesday, as traders considered dovish hints from Federal Reserve Chair Jerome Powell, along with the potential impact of President Donald Trump's spending bill. The greenback was pinned near its weakest since September 2021 on the euro, and was at its lowest since January 2015 versus the Swiss franc. Powell reiterated on Tuesday at the European Central Bank's annual conference in Sintra, Portugal that the Fed is taking a patient approach to further interest rate cuts, but didn't rule out a reduction at this month's meeting, saying everything depends on incoming data. That raises the stakes for the monthly non-farm payrolls report on Thursday. Indications of labour market resilience in the U.S. JOLTS figures overnight saw the dollar rise off Tuesday's lows. The dollar index, which measures the currency against six major counterparts, edged up slightly to 96.677, but didn't stray far from the overnight low of 96.373. Markets are also keeping a close watch on Trump's massive tax-and-spending bill, which could add $3.3 trillion to the national debt. The bill, which was passed by the U.S. Senate, will return to the House for final approval. "The confirmation that this is an increase in issuance, an increase in government spending well beyond its means, is not necessarily good news for the Treasury market, and it's arguably one of the reasons the dollar's going down," said Rodrigo Catril, a strategist at National Australia Bank. Also weighing on the U.S. currency has been Trump's continued attacks on Powell, putting Fed independence in the spotlight. On Monday, the President sent the Fed Chair a list of global central bank key rates adorned with handwritten commentary saying the U.S. rate should be between Japan's 0.5% and Denmark's 1.75%, and telling him he was "as usual, 'too late.'" The greenback held steady at 0.7906 Swiss franc, after dipping as low as 0.7873 franc in the previous session. The euro was flat at $1.1802, sticking close to the overnight peak of $1.1829. Sterling edged up slightly to $1.37435, approaching Tuesday's high of $1.3787, a level last seen in October 2021. The dollar made up a little ground against the yen, adding 0.1% to 143.59 yen, following the prior session's 0.4% slide. (Reporting by Kevin Buckland Editing by Shri Navaratnam)
CNA
02-07-2025
- Business
- CNA
Dollar wallows near 3-1/2-year low as Fed cuts, Trump bill in focus
TOKYO :The U.S. dollar hunkered near the lowest since February 2022 against major peers on Wednesday, as traders considered dovish hints from Federal Reserve Chair Jerome Powell, along with the potential impact of President Donald Trump's spending bill. The greenback was pinned near its weakest since September 2021 on the euro, and was at its lowest since January 2015 versus the Swiss franc. Powell reiterated on Tuesday at the European Central Bank's annual conference in Sintra, Portugal that the Fed is taking a patient approach to further interest rate cuts, but didn't rule out a reduction at this month's meeting, saying everything depends on incoming data. That raises the stakes for the monthly non-farm payrolls report on Thursday. Indications of labour market resilience in the U.S. JOLTS figures overnight saw the dollar rise off Tuesday's lows. The dollar index, which measures the currency against six major counterparts, edged up slightly to 96.677, but didn't stray far from the overnight low of 96.373. Markets are also keeping a close watch on Trump's massive tax-and-spending bill, which could add $3.3 trillion to the national debt. The bill, which was passed by the U.S. Senate, will return to the House for final approval. "The confirmation that this is an increase in issuance, an increase in government spending well beyond its means, is not necessarily good news for the Treasury market, and it's arguably one of the reasons the dollar's going down," said Rodrigo Catril, a strategist at National Australia Bank. Also weighing on the U.S. currency has been Trump's continued attacks on Powell, putting Fed independence in the spotlight. On Monday, the President sent the Fed Chair a list of global central bank key rates adorned with handwritten commentary saying the U.S. rate should be between Japan's 0.5 per cent and Denmark's 1.75 per cent, and telling him he was "as usual, 'too late.'" The greenback held steady at 0.7906 Swiss franc, after dipping as low as 0.7873 franc in the previous session. The euro was flat at $1.1802, sticking close to the overnight peak of $1.1829. Sterling edged up slightly to $1.37435, approaching Tuesday's high of $1.3787, a level last seen in October 2021. The dollar made up a little ground against the yen, adding 0.1 per cent to 143.59 yen, following the prior session's 0.4 per cent slide.
