Latest news with #softlanding
Wall Street Journal
03-07-2025
- Business
- Wall Street Journal
Careful What You Wish For on Jobs
🔎 This is an online version of Spencer's Markets A.M. newsletter. Get investing insights in your inbox each weekday by signing up here—it's free. 📧 Remember the 'soft landing?' Media mentions of that happy economic scenario peaked a month before last year's U.S. election, according to research service Factiva. Market turbulence stoked by trade and actual wars has been the big story since then, but the surprisingly good performance of stocks and bonds since April borrows from the old script: the economy slowing just enough so the Fed can cut rates, but not too much.
Bloomberg
02-07-2025
- Business
- Bloomberg
BOE's Taylor Calls for Three More Rate Cuts in 2025
00:00 You've been in the job for a year. What's been the biggest difference? Well, thank you, Francine. It's supposed to be here. It is coming up on a year. And I think that's causing me to reflect, especially here in a breezy center, that the the economic winds have been shifting. So the way I would describe the evolution of my outlook and my thinking is I, I think a year ago, as in many central banks, the the view was that we were on track for a soft landing. We'd had a burst of high inflation rates and rates have been elevated to counteract that with high interest rates in the past, you would have normally expected some kind of slowdown in the economy, but that kind of damage wasn't happening. So there was a lot of optimism around that and I think a sense that we were progressing back towards target without undue economic damage. Now, things have shifted. I think I would say now that soft landing is at risk in my view. We've seen the economy slowing down in the UK, inflation in terms of core measures coming back towards target. There is a bump in 2025, which we're going to talk about, I'm sure. But now my worry is when we get into 2026, we're coming back to Target. But the danger could be overshooting to the other side, where we end up with the economy below capacity and inflation potentially undershooting. So I think that that's the sort of now. Yeah. And Alan, you've been very clear that you think we're so far away, away from where you think the neutral rate is. So would you go to bigger cuts? I don't think bigger cuts are necessarily needed or desirable, but I think, you know, we only meet eight times a year. So there's a kind of integer problem. You've got so many cuts you can do in a year. The market has interpreted, you know, gradual to mean once a quarter. But if you feel that a slightly faster easing might be needed, if you're worried about mounting downside risks, then you need to get an extra cut in somewhere if you think maybe five cuts are needed. So, you know, it could come at different points depending on how the centre of the committee moves. Will you vote for a 50 basis point cut again? Well, I'm not going to prejudge my vote. I think everything has to be taken into consideration afresh, each meeting. So as everyone likes to say, we're not on a preset path. It's it almost doesn't need to be said, but you have to look at the data afresh each time. And we're going to be getting new information on the trajectory of inflation. We're coming out with a new forecast in August. We're going to have more information about where wage settlements are landing, which is a particularly important indicator for me and for the rest of the committee. So I think we're going to look at that and each time. How much do you worry about the labour market and it actually deteriorating quickly? We've seen signs in certain data. Yeah, I think we're starting to see cracks there. So the unemployment rate is rising in a new forecast, latest forecast, it's going to top out at around 5%. Vacancy to unemployment ratio has been coming down very steadily. It was tight a year ago. That's another big change. And Steph, to judgment now is that we've got some labour markets like. So I think we're in a point now where we've got slack in the economy, we've got an output gap. And so I'm comfortable there that the underlying inflationary pressures in terms of the demand and supply balance and I am tipping the other way. So I think that's helping the disinflation process along quite helpfully in inflation though, do worry about second round effects. I mean, again, there's there's concern about what happens after the trade negotiations in the next couple of weeks and months. Right. So I think I'd maybe separate that into into three little chunks. I know you've got a lot to go through, but I'll go with the rule of three here. So second round effects, I worry about those most with energy, right. So energy is a key input. It's it's well at the chain in terms of you know, it's upstream from a lot of things. It's an input used in many other sectors. So the energy shock look back at the history of the last 50 years, what's taken us away from Target the most. It's been two big energy shocks in the seventies and now. And so second round effects that are a big worry, something like food, it's more of a final product. I don't worry about the transmission through the input output structure of the economy, but you worry more there about does it dislodge inflation expectations. So I think the key to me though, is to focus on expectations measures. They don't always disagree. Households, financial markets, businesses say different things, but I think that's that's maybe less of a concern than if we have an energy shock. But given that I mean, there was a because of the energy shock, is there, you know, a worry that actually you have the deteriorating labour market, but also inflation going through a tough time in the next couple of months? Yeah. So this was really why I was kind of a little bit in a wait and see mode in the start of the year. In the first quarter, the first two meetings I was hit with a lot of new data. The hump became apparent. A lot of that was from administered prices, so it wasn't really something predictable out of the demand. And supply balance in the economy. It was news about electricity, about water, about Texas, about any number of things. Those stick around. Once they're in, they're in for 12 months. But we're fairly comfortable at the moment saying when that 12 month period comes to an end, they're going to start to fall off in 2026. So I think is that as we get more comfortable and more data came in and the underlying measures, particularly the wage inflation I mentioned, we started to see wage settlements which were coming in absolutely in line with our agents PACE survey as we went through 2025 over the last few months, I felt more comfortable that that disinflation process is intact and it's progressing as I would have expected. I need to ask you about Katy, because we had a hint yesterday from Governor Bailey that we may be getting a smaller overall balance sheet run off in the next year or two because of constraint liquidity at the end of the curve at the long end curve. Do you think sticking to the £100 billion run off would actually be too rapid? Well, as the governor mentioned, we're about to go into the review of that actually starts this week. And I'm going to spend two months poring over the figures, thinking about the situation and the context matters. We're in a different place than we were a year ago. So that has to be taken into consideration. I mean, the broader context here is that we're transitioning to a different regime in the long run with liquidity coming through repo rather rather than through outright asset purchases. And that should be a gradual transition, and that's what we have in mind. So I think that destination hasn't changed. But just as we said a moment ago, with the right decision not being on a preset path, I don't think one should think of the q t being on a preset path either. So it's a very much alive decision and I think we have to look look at the context, liquidity in the market, how does it interact with monetary policy? We're voting as the Monetary Policy Committee. Do we think asset purchases and sales are perfect substitutes for bank rate? That may not be strictly true. Not without a lot of, you know, very special assumptions. So I think all of that is going to be taken into consideration.
Irish Times
20-06-2025
- Business
- Irish Times
The Central Bank's hard-landing scenario: corporate tax crashes, budget deficit balloons to €18bn
For obvious reasons, officials in Ireland can't use the term 'soft landing'. It was trotted out so regularly, so erroneously in the late 2000s when the economy was hurtling towards the hardest of hard landings that it has become synonymous with the opposite. If the Central Bank told us the Irish economy was in for a 'soft landing' from the current US tariff debacle, people would panic. Perhaps in reaction to the misplaced optimism of the Celtic Tiger era, we now seem to have an inherent bias towards highlighting negative scenarios. READ MORE [ US tariffs could punch €18bn hole in public finances, Central Bank warns Opens in new window ] We were certainly prepared for a bigger assault from Brexit than the one we actually got. Some call it 'catastrophising', but regulators should take a sober view on things. In an article published alongside its latest quarterly bulletin, the Central Bank lays out three possible scenarios for how US tariffs and greater US protectionism might impact the economy here. In its baseline scenario, which involves 20 per cent tariffs on European Union goods going into the US from the third quarter of this year, with pharmaceuticals and semiconductors exempt, the economy grows by 2 per cent this year, in terms of modified domestic demand, and 2.1 per cent on average in 2026 and 2027, while the State continues to run a budget surplus out to 2030. Even if it won't say it, this is the regulator's 'soft landing' scenario. In a more adverse scenario with pharmaceuticals and semiconductors getting hit by 20 per cent tariffs and with the EU retaliating with 20 per cent tariffs of its own, growth is slower and the budget surplus shrinks to less than 1 per cent. But what grabbed the headlines was the Central Bank 'extreme scenario' which involves the State losing the entire windfall element of its corporate tax base, which is due to peak at €17 billion in 2026, alongside a 20 per cent reduction in multinational investment 'and a corresponding loss of export market share'. [ Rent pressure zone changes will be 'painful' for tenants, Central Bank warns Opens in new window ] This scenario would see the Government's healthy budget surplus – it was €8.9 billion last year – flip to a budget deficit of more than 4 per cent of national income by 2030, equivalent to €17.7 billion. While there are lots of caveats – the scenario assumes the Government takes no corrective action and continues to make contributions to the two long-term savings funds – such an outcome would pitch us back into another period of austerity. It also highlights how much the State's coffers have become intertwined with the financial fortunes of a small number of US multinationals. 'This could be considered a somewhat extreme scenario as it incorporates a loss of all excess CT [corporate tax] by 2030 along with weaker economic activity, but it is illustrative of a key vulnerability for Ireland relating to the future path of the foreign-owned capital stock,' it said. Central Bank director of economics and statistics Robert Kelly denied he was painting too bleak a picture, saying the bank's worst-case scenario did not envisage the possibility of a big multinational firm leaving the jurisdiction because of tariffs or changes to US tax law, which has been the fear since the corporate tax boom started more than a decade ago. The nightmare scenario for Ireland would be for an Apple or an Intel to up sticks and leave. Despite the threat hanging over Ireland's economic model, there are several reasons to believe that corporate tax receipts, which hit a record €28 billion last year (excluding the Apple tax money), will continue to increase in the medium term. For one, the biggest corporate taxpayers here are in the tech and pharmaceutical sectors, both at present exempt from US tariffs. The Irish Fiscal Advisory Council (IFAC) also expects receipts from the business tax to rise by about €5 billion from 2026 onwards as additional revenue from the new minimum tax rate of 15 per cent over and above the State's headline rate of 12.5 per cent flows into the Exchequer. Big multinationals with a turnover above €750 million have been liable to pay the higher rate since 2024, but are not due to make their initial payments under the new rate until the middle of next year. This is expected to boost tax receipts here by an additional €3 billion next year and €2 billion in 2027. Despite the US signalling its intention to withdraw from the Organisation for Economic Co-operation and Development (OECD) -brokered deal to establish a minimum global rate, tax authorities here and elsewhere are pushing ahead with it. Several big taxpayers here have been availing of generous tax-cutting capital allowances which are due to run out, meaning they will be liable to pay more tax – another factor likely to drive receipts. Some of the frothier predictions suggest corporate tax receipts here could grow to €40 billion and say we should be saving a lot more than the current allocations to the State's savings funds. The windfall has also coincided with a worrying increase in Government spending, over and above what IFAC deems sustainable. It might be that the bigger threats facing the Irish economy are coming from within – housing, government spending, energy security, the high cost of doing business – rather than those emanating from abroad.
