Latest news with #USeconomy
Reuters
2 hours ago
- Business
- Reuters
Conditions as loose as 2021 call into question more Fed cuts
LONDON, July 24 (Reuters) - Amid all the mounting political pressure on the Federal Reserve to resume cutting interest rates, Chair Jay Powell is already overseeing the loosest financial conditions in the U.S. economy since before the central bank started hiking early in 2022. To be sure, the complicated debate about the Fed's next move includes many opinions on a host of issues, including the potential inflationary effect of tariffs, the impact of immigration curbs on wages and job growth, high mortgage rates and lofty government funding costs. The Fed's own modeling suggests that its policy is still moderately "restrictive" relative to where long-run neutral rates should be, mainly because inflation is still above target, the jobless rate is near historic lows and real economic growth has rebounded from a first-quarter hiccup. However, the Chicago Fed's national index of broad financial conditions in the U.S. economy has fallen to its lowest level in more than three years, suggesting financing in the economy is more than ample. The index captures a blizzard of financial inputs from short- and long-term interest rates to equity and energy prices. The likely culprits for its decline include the rebound in U.S. stock markets from April lows back to record highs, the dollar's plunge this year and crude oil prices running at a year-on-year decline of some 20% since April. There are many other indexes of financial conditions, of course, but they mostly tell a similar story. Goldman Sachs' U.S. equivalent is back down to where it was late last year, just a whisker from its three-year low. One takeaway from these readings is that despite trade uncertainty and sticky borrowing costs, the overall economy is doing just fine and has enough financial oxygen to continue chugging along, perhaps even a bit too much given the above-target inflation rate. And, if so, the Fed's current policy stance may be less restrictive than it appears on the surface, even before slashing rates further as demanded daily by President Donald Trump. In the U.S. economy today, both jobs and cash holdings appear plentiful. Business confidence has also rebounded after taking a sharp knock from the April tariff shock, a trend that July business surveys are likely to confirm this Thursday. U.S. household deposits clocked in at $4.46 trillion at the end of the first quarter, less than $100 billion below the record peak of 2022. Cash-like money market fund assets, meanwhile, hit a record of $7.1 trillion earlier this month. And U.S. stocks still continue to push further into record-high territory, with retail investors seen as key drivers of demand. Even frothier parts of the U.S. market, such as "meme stocks" and crypto tokens, are back in vogue. Resuming rate cuts at this juncture could add significant fuel to that rekindled fire, an argument for using caution in doing so. For all the focus on borrowing costs and credit as key metrics of spending, the "wealth effect" of rising stocks is powerful. Some estimates show a "wealth effect" from investments added as much as 1% to U.S. consumer spending last year. This was driven by the more than 20% of households with direct stock ownership and the over 50% with retirement accounts. Trump's argument that Fed rates are too high and should be cut by more than three percentage points to 1% hinges variously on the idea that high mortgage rates are preventing people from buying houses and that U.S. government borrowing costs are too high. Indeed, the likely hefty schedule of Treasury bill sales expected over the coming year may be the key reason for the White House's urgency. So regardless of what political pressure is brought to bear, and even if tariffs don't prove inflationary, the Fed may struggle to justify steep rate cuts in this environment. The opinions expressed here are those of the author, a columnist for Reuters -- Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. Follow ROI on LinkedIn. Plus, sign up for my weekday newsletter, Morning Bid U.S.
South China Morning Post
a day ago
- Business
- South China Morning Post
In debt-bloated US, stablecoin a new financial weapon in the making
Imagine a 500lbs man. Eighty per cent body fat. His arteries are clogged, his heart is on the blink. A doctor tells him to do 100 burpees a day to save his life. It's not bad advice – burpees are great for losing weight – but let's be honest. The man can't even kneel, let alone jump. The method isn't wrong. It's just impossible. That man is the US economy. And the debt – all US$36.65 trillion of it – is the fat. Let's cut through the noise. Recent headlines have been about the supposed feud between Elon Musk and US President Donald Trump. Sure, the friction is real, and their political interests don't quite align any more. But the real story isn't personal. It's structural. It's about how the world's most powerful nation – obese with debt – is quietly looking for a cheat code. It's not going to be austerity. Trump, with his 'big, beautiful' spending plans , has no interest in cutting back. Even if government departments miraculously shaved off a trillion dollars annually, that would barely cover the interest on the debt. Fiscal discipline isn't on the menu. The patient has no intention of dieting – he just wants a miracle drug. And here's where things get interesting. The US government may be exploring a new financial weapon: the stablecoin
Bloomberg
2 days ago
- Business
- Bloomberg
Bessent Calls For Review of Fed's Building Renovations
Good morning. The US Treasury secretary calls for a review of the Federal Reserve's renovation of its headquarters. The Bank of England is said to be considering shelving plans for a digital pound. And Victoria Beckham's fashion company is on the road to profitability. Listen to the day's top stories. US Treasury Secretary Scott Bessent said there should be review of the Federal Reserve's decision to renovate its headquarters. The central bank should conduct an internal examination of its non-monetary policy operations given the 'significant mission creep,' he posted on X.
Yahoo
5 days ago
- Business
- Yahoo
Dollar gets reprieve as US economy shrugs off tariffs
The dollar has steadied after the worst start to the year since 1973, as the resilience of the US economy prompts some investors to back
Yahoo
5 days ago
- Business
- Yahoo
Fed officials grow more outspoken—and split—over interest rate cuts
Federal Reserve governor Christopher Waller called for a July rate cut again on Friday. Other Fed officials like New York Fed president John Williams and Boston president Susan Collins said July was too early to lower rates because the extent of inflation from tariffs wasn't clear yet. As the U.S. economy navigates that hazy outlook, Fed officials are trying to figure out whether to cut rates to avoid a rise in unemployment or to maintain them because tariffs could lead to more inflation. A consensus on interest rate cuts is becoming elusive. Federal Reserve officials are having a hard time agreeing on what lies ahead for the U.S. economy in a time of unprecedented tariffs, a straining debt ceiling, and political upheaval. Throughout the spring, the Fed was mostly in agreement there was no rush to cut interest rates. The central bank was content to wait and see how exactly President Donald Trump's tariff policy would impact the economy. A series of revised forecasts in the aftermath of the tariffs called for lower growth and rising inflation. But the details themselves were still debated: How high would inflation go? How long would it last? Would businesses layoff employees if growth stalls? Now, three months on from the early-April tariff announcement, Fed officials are starting to formulate their own answers to those questions. Among the most dovish officials are Fed Board governors Michelle Bowman and Christopher Waller, who believe rate cutting should begin as early as this month. In two public appearances on Thursday and Friday, Waller called for rate cuts to start at the Fed's meeting on July 29-30. Others like John Williams, president of the Federal Reserve Bank of New York, and Susan Collins, president of the Federal Reserve Bank of Boston, see a July rate cut as too early because there is still the possibility of further inflation over the course of the year. These two schools of thought don't just differ on the timing of rate cuts, but on what is the larger threat to the economy: mass layoffs or soaring inflation. Those in Waller and Bowman's camp fear middling growth will cause the U.S. to flatline, forcing businesses to cut costs, including by shedding employees. On the other hand, those who favor holding rates believe a cut would only exacerbate the accelerating inflation they see as likely, if not certain. The prevailing view is that the Fed will keep interest rates steady at its upcoming meeting. The CME FedWatch tool sees a 95% chance of a rate hold at the upcoming meeting. On Friday in an interview with Bloomberg TV, Waller outlined the case for a rate cut he saw as necessary to push a teetering labor market toward safety. The labor market's solid headline numbers masked a weakening in the private sector, Waller argued. The latest Bureau of Labor Statistics report from June outpaced expectations, with the U.S. adding 147,000 jobs and an unemployment rate of 4.1%. An earlier report that specifically tracks the private sector showed it had lost 33,000 jobs in June. Waller said he wanted the Fed to act now, before the labor market turned for the worse. 'If you're walking on a lake and the ice is frozen, it sounds safe but when you start hearing cracks—and that's what I feel like—it's too late once you go through the ice,' Waller said. 'So you've got to start prepping in advance before you have that happen.' Waller's more hawkish colleagues are wary of cutting rates and loosening monetary policy at a time they believe it should remain restrictive. Inflation started to creep up in June, according to the Consumer Price Index report released this week. Prices rose 2.7% over the last 12 months, an uptick from 2.4% in May. The most recent CPI also showed early signs tariffs were pushing prices higher. Consumer staples like clothes, toys, and electronics, which are the exact sorts of products that rely heavily on foreign manufacturing, all saw their prices increase. 'For items that are more exposed to higher tariffs…price increases so far this year have been well above what one would expect based on past trends,' Williams said on Wednesday. Few dispute prices will rise because of tariffs. The split is over whether they will persist or smooth out quickly. Most economists argue any increases are only now starting to show up in the economic data because many companies had stockpiled inventory anticipating the tariffs. Textbook economics would suggest tariffs only lead to a one-time price shock. At the same time, the Trump administration's goal with its signature tariff policy has been to rewrite the rules of global commerce, making for little historical precedent to guide Fed officials and economists. Waller preferred to look through the inflation risk. 'With inflation near [the Fed's 2%] target and the upside risks to inflation limited, we should not wait until the labor market deteriorates before we cut the policy rate,' he said on Thursday. The Fed's debates about monetary policy come against a bellicose political backdrop, in which the central bank's traditional independence is eroding. Earlier this week, there were multiple reports Trump was preparing to fire Fed chair Jerome Powell, with whom he disagrees with for not lowering interest rates. Markets tanked on the news. They then shot back up when Trump denied the report. Members of the administration are also laying the groundwork for a series of political attacks over the $2.5 billion renovations to the Federal Reserve's Eccles Building in Washington D.C. Certain White House officials said they believe the cost overruns on the project and Powell's testimony about some of the building's planned design features may amount to mismanagement and cause for termination. The acrimony—albeit one-sided—between the White House and the Fed adds a new dimension to what might otherwise be ordinary internal policy deliberations. 'Comments coming from Fed officials suggest the Federal Open Markets Committee is cleaving, with a vocal side arguing for rate cuts to begin now, and another side (including Jay Powell) still wanting a delay,' Macquarie global rates strategist Thierry Wizman wrote in a note on Friday. 'It could evolve into a split along political lines, with one side swayed by political motives, and the need to accommodate fiscal policy, at the expense of adherence to the price-stability mandate.' But while politicians like Trump have waded into the Fed—once considered taboo—the central banks officials have not crossed the line themselves. Powell declines to answer all questions about Trump or his policies. On Thursday when Waller was asked if he'd spoken to any White House officials about possibly succeeding Powell, he gave a one word answer: 'Nope.' Williams brushed off the D.C. machinations. 'We've got a job to do,' he said. This story was originally featured on 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
