ECB's Schnabel: Greater Caution Is Needed in Adjusting Policy

Remarks of Officials

Summary:

Global market expectations for long-term interest rates have fundamentally shifted, and central banks need to adapt to the new inflationary environment and respond with appropriate policy responses.

Isabel Schnabel, Member of the Executive Board of the European Central Bank (ECB), spoke at the Bank of England Conference in London on February 25, 2025, as follows:

The global economic growth potential is undergoing a structural adjustment. In recent years, factors such as geopolitical fragmentation, climate change and labor shortages are having a profound impact on economic growth patterns. Whereas in the past the global economy suffered from a "savings glut", which led to low long-term interest rates, the current trend of widening fiscal deficits and central bank balance sheet normalization is driving a "bond glut", which in turn is raising long-term real interest rates. Current long-term real interest rates in the euro area are already much higher than in most of the period following the 2008 financial crisis, suggesting that growth may face new constraints and that the economic environment ahead will be different from that of the past decade.

High inflation risks remain, and the global economy has departed from the prolonged low-inflation environment of the past. The recent spike in inflation may have permanently altered consumer and business expectations, making it easier for businesses to pass on cost increases to consumers and thus exacerbating inflation stickiness. In addition, global supply chain adjustments, the trend towards de-globalization and uncertainty in energy markets could create long-term upward inflationary pressures.

Labor shortages coexist with structural changes. In recent years, the global balance between labor supply and demand has shifted, with some industries experiencing chronic labor shortages. Population ageing, changes in immigration policies and labor market adjustments brought about by technological change are likely to affect future job market conditions. In addition, the structural tightening of the labor market is still likely to exert long-term pressure on wages and the level of inflation, a trend that central banks will need to monitor closely.

Overall, the global economy is currently undergoing profound changes and central banks need to adapt to the new situation. The post-pandemic economic environment has been different from that of the past decade, and the rise in the level of long-term real interest rates is likely to be a persistent trend. Therefore, central banks need to be more cautious in adjusting their policies, keep a constant watch on the dynamics of the global market, and take appropriate measures when necessary to ensure the long-term stable development of the economy.

ECB's Schnabel

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Daily News

[Quick Facts]

Israel: Hamas faces three options—disarmament, extended ceasefire, or resumption of war.

Barkin: Maintaining moderately restrictive stance is reasonable.

Trump directs government to consider possible tariffs on copper.

Schnabel: Caution on rate cuts; neutral rate likely higher.

ECB's Stournaras: It is too early to discuss pausing cuts.

[News Details]

Israel: Hamas faces three options—disarmament, extended ceasefire, or resumption of war

On Tuesday, Israeli government officials stated that once the first phase of the ceasefire agreement in Gaza is completed, with all detained personnel transferred, Hamas will face three options. First, it can accept Israel's conditions, including disarmament and relinquishing administrative control over Gaza. Second, it can continue releasing detainees to extend the ceasefire. Third, it can end the ceasefire and resume full-scale war.

Barkin: Maintaining moderately restrictive stance is reasonable

Richmond Federal Reserve President Thomas Barkin emphasized that the U.S. economy is in good shape, with a solid labor market and the dissipation of recession fears. However, significant uncertainties persist, making it difficult to make major adjustments to monetary policy in the near term. Barkin highlighted the need to observe how these uncertainties evolve and how the economy reacts.

Barkin acknowledged that the U.S. economy has been making progress in suppressing inflation but warned of potential risks that could push prices upward. Factors such as changes in global supply chains, a declining U.S. population and labor force, and rising budget deficits due to an aging population and increased defense spending could potentially lead to a resurgence in inflation. If such a scenario materializes, the Federal Reserve may need to consider rate hikes to counteract rising prices. However, he cautioned that the outlook remains uncertain, and policymakers must remain vigilant. Barkin suggested that the U.S. central bank's benchmark policy rate should stay restrictive until it is more certain that inflation is returning to its 2% target.

Following three consecutive rate cuts in the second half of 2024, Federal Reserve officials have generally expressed caution regarding the timing of further rate cuts. They cited stubborn inflation data, a strong underlying economy, and uncertainties surrounding President Trump's economic policies as reasons to remain patient with further rate adjustments.

Trump directs government to consider possible tariffs on copper

In his latest move targeting global trade norms, President Donald Trump has ordered a new investigation into potential tariffs on copper imports, aiming to revitalize U.S. copper production. Copper is a critical material for electric vehicles, military hardware, semiconductors, and a wide range of consumer goods.

Trump signed a directive instructing Secretary of Commerce Lutnick to initiate a national security investigation under Section 232 of the Trade Expansion Act of 1962. The same legal provision was used during Trump's first term to impose a 25% global tariff on steel and aluminum.

A White House official stated that any potential tariff rates would be determined by the investigation, adding that Trump prefers tariffs over quotas. According to U.S. data, the countries most affected by potential U.S. copper tariffs would be Chile, Canada, and Mexico, which are the top suppliers of refined copper and copper products. The official also noted that forecasts based on demand for electric vehicles and artificial intelligence suggest a future copper shortage.

Schnabel: Caution on rate cuts; neutral rate likely higher

European Central Bank Executive Board member Isabel Schnabel has warned that the ECB should proceed cautiously with further interest rate cuts, as current borrowing costs may already be near a level that no longer restrains economic activity. She emphasized that the so-called neutral rate, which neither stimulates nor restricts growth, has likely increased in recent years. The Eurozone's economic stagnation does not necessarily indicate that monetary policy is still suppressing expansion. She has warned that the ECB should proceed cautiously with further interest rate cuts. The data show the degree of restriction has significantly diminished, to a point where policymakers can no longer confidently assert that monetary policy remains restrictive. She said, "I'm no longer sure whether it is still restrictive. What I'm saying is I'm no longer sure whether it is still restrictive."

ECB's Stournaras: It is too early to discuss pausing cuts

Yannis Stournaras, the Governor of the Bank of Greece and a member of the ECB Governing Council, stated on Tuesday that the ECB's monetary policy continues to restrain economic activity, necessitating further easing. "I don't think the next meeting is the appropriate time to discuss a pause in rate cuts. We are still in restrictive territory," he said. Given the current information, Stournaras expects interest rates to reach 2% by the fall of this year, which he believes could be the terminal rate.

Stournaras' remarks are a clear response to the recent calls from ECB Executive Board member Isabel Schnabel, who suggested that the timing to halt rate cuts may be near. However, Schnabel's view appears to be in the minority within the 26-member ECB Governing Council. As inflation continues to trend downward toward the 2% target and the Eurozone economy remains sluggish, most members support further policy easing.

[Today's Focus]

UTC+8 15:00 Germany March GfK Consumer Confidence Index

UTC+8 00:30 Speech by Bank of England Monetary Policy Committee Member Dhingra

UTC+8 01:00 Speech by Atlanta Fed President Raphael Bostic

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Cohen

Economic

Forex

The New Zealand Dollar (NZD) is facing slight downward pressure against the US Dollar (USD) and could dip further, though it’s unlikely to fall clearly below 0.5715. If it does break that support, reaching 0.5790 is doubtful. In the short term, analysts expected the NZD to move between 0.5735 and 0.5770, which it did—hitting both levels before closing at 0.5733, down 0.17%. The downward momentum has slightly increased, suggesting the NZD might edge lower today. However, any drop is expected to stay above 0.5715. This mild pressure will likely hold if the NZD remains below 0.5760, with minor resistance at 0.5745.

NZDUSD – D1 Timeframe

After breaking above the 50-day moving average, the price action on the daily timeframe chart of NZDUSD proceeded to overshoot the previous high, creating a new higher high in the process. The momentum from the breakout has waned, giving rise to the ongoing retracement move. The expectation is that the confluence region of the drop-base-rally demand zone and the 50-day moving average would provide adequate support for a bullish continuation.

NZDUSD – H4 Timeframe

The 4-hour timeframe chart of NZDUSD shows that the daily timeframe demand zone doubles as the trough of a bullish SBR pattern, with the presence of an FVG, 100-period moving average support, 76% Fibonacci retracement level support, and liquidity at the previously induced low. The expected outcome in this scenario is bullish, with an initial target at the BSL (Buy-Side Liquidity) at the recent high.

Analyst’s Expectations:

Direction: Bullish

Target- 0.57713

Invalidation- 0.56004

Source: ACTIONFOREX

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Owen Li

Commodity

WTI oil price fell below psychological $70 support on Tuesday and hit the lowest levels in two months.

Oil was down nearly 3% on renewed fears about the global economy and lower demand after the latest economic data showed that German economy contracted for the second straight quarter and US consumer confidence declined at the fastest pace since mid-2021.

Strong concerns among investors were also fueled by US tariffs on imports, as President Trump signaled that initially delayed tariffs on imports from Canada and Mexico, will be implemented according to the schedule – at the beginning of next month.

Tariffs on China’s goods imports further contribute to negative outlook, as this would directly fuel inflation, while consequences of trade war would be significant.

Negative fundamentals continue to sour the sentiment and raise pressure on oil prices.

Sustained break below $70/$69.90 supports (psychological / Fibo 76.4% of $66.98/$79.35 rally) to further firm bearish stance and risk dip towards weekly base at $67.00/66.30 zone (Oct/Dec 2024).

Broken $70 zone reverted to solid resistance which should ideally cap.

Res: 69.79; 70.00; 70.83; 71.44
Sup: 68.44; 67.70; 66.98; 66.54

Source: ACTIONFOREX

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Glendon

Economic

The United States has been running fiscal deficits for decades, spending more than it earns in revenue. This practice has become a defining feature of the nation’s economic policy, sparking debates about sustainability, economic growth, and the burden on future generations. But how long has the U.S. been in the red, and what does it mean for the economy? Let’s take a closer look.

A Brief History of U.S. Fiscal Deficits

The U.S. federal government has run fiscal deficits for most of its modern history. While surpluses have occurred occasionally, they are the exception rather than the rule. Here’s a timeline of key moments:

Early Years (18th–19th Century): The U.S. often ran deficits during wars, such as the Revolutionary War and the Civil War, but returned to surpluses during peacetime.

The Great Depression (1930s): Deficit spending became a tool for economic recovery under President Franklin D. Roosevelt’s New Deal programs.

Post-World War II (1940s–1970s): Deficits were common, driven by Cold War military spending and social programs like Medicare and Medicaid.

The 1980s–1990s: Tax cuts under President Reagan and increased defense spending led to large deficits, though the Clinton administration achieved a brief surplus in the late 1990s.

21st Century: The 2008 financial crisis, the COVID-19 pandemic, and tax cuts under Presidents Bush, Obama, and Trump have fueled record-breaking deficits.

Why Does the U.S. Run Deficits?

Fiscal deficits occur when government spending exceeds revenue, and the U.S. has relied on this approach for several reasons:

Economic Stimulus: During recessions, deficit spending can boost economic activity by funding infrastructure projects, unemployment benefits, and other programs.

Wars and Defense: Military conflicts, from World War II to the War on Terror, have required significant spending.

Social Programs: Programs like Social Security, Medicare, and Medicaid are costly but politically popular.

Tax Cuts: Reductions in tax rates, such as those in 2001 and 2017, have reduced government revenue.

Political Challenges: Raising taxes or cutting spending is often unpopular, making deficits an easier short-term solution.

The Impact of Persistent Deficits

While deficits can stimulate growth in the short term, persistent deficits have long-term consequences:

National Debt: Chronic deficits contribute to the national debt, which now exceeds $34 trillion.

Interest Payments: As debt grows, so do interest payments, diverting funds from other priorities like education or infrastructure.

Inflation Risk: Excessive borrowing can lead to inflation if not managed carefully.

Future Generations: High debt levels may burden future taxpayers, limiting their economic opportunities.

Can the U.S. Sustain Its Deficits?

The U.S. has maintained deficits for so long because of its unique position in the global economy. The dollar’s status as the world’s reserve currency allows the U.S. to borrow at low interest rates. However, this advantage isn’t guaranteed forever. Rising debt levels and political gridlock over fiscal policy could eventually undermine confidence in the U.S. economy.

Conclusion

The U.S. has been running fiscal deficits for most of its modern history, using them as a tool to fund wars, stimulate growth, and support social programs. While deficits have played a crucial role in shaping the nation’s economy, their long-term sustainability remains a pressing question. As policymakers grapple with these challenges, understanding the history and impact of deficits is essential for making informed decisions about the future.

To stay updated on all economic events of today, please check out our Economic calendar

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Glendon

Economic

China’s economy has undergone a remarkable transformation over the past few decades, evolving from a largely agrarian society to the world’s second-largest economy. But what exactly is driving this growth, and what challenges lie ahead? From manufacturing prowess to technological innovation, let’s explore the key factors shaping China’s economic engine.

1. Manufacturing and Exports

China is often referred to as the "world’s factory," and for good reason. Its manufacturing sector is the backbone of its economy, producing everything from electronics to textiles. Key drivers include:

Low Labor Costs: For decades, China’s vast workforce and low wages made it a global hub for manufacturing.

Export-Oriented Growth: China’s focus on exporting goods to international markets has fueled its economic rise, with the U.S. and Europe being major trading partners.

Infrastructure Development: Massive investments in ports, roads, and railways have streamlined production and distribution.

However, rising labor costs and competition from other low-cost countries like Vietnam and Bangladesh are challenging China’s dominance in manufacturing.

2. Government Policies and Investment

The Chinese government plays a central role in shaping the economy through policies and investments. Key initiatives include:

Five-Year Plans: These blueprints outline economic goals, such as boosting innovation, reducing pollution, and improving infrastructure.

State-Owned Enterprises (SOEs): Government-controlled companies dominate key sectors like energy, telecommunications, and banking.

Belt and Road Initiative (BRI): This global infrastructure project aims to strengthen trade routes and expand China’s influence.

While these policies have driven growth, they also raise concerns about debt sustainability and the efficiency of state-led investments.

3. Technological Innovation

China is no longer just a manufacturing powerhouse—it’s also a leader in technology. Key areas of growth include:

E-Commerce: Companies like Alibaba and JD.com have revolutionized retail, making China the world’s largest e-commerce market.

Artificial Intelligence (AI): China is investing heavily in AI, aiming to become a global leader by 2030.

5G and Telecommunications: Huawei and other Chinese firms are at the forefront of 5G technology.

However, U.S.-China tensions and restrictions on technology exports pose challenges to China’s tech ambitions.

4. Domestic Consumption

As China’s middle class expands, domestic consumption is becoming a key driver of economic growth. Rising incomes have led to increased spending on goods, services, and entertainment. The government is also pushing for a shift from an export-driven economy to one fueled by domestic demand.

5. Urbanization

China’s rapid urbanization has been a major economic driver. Millions of people have moved from rural areas to cities, creating demand for housing, infrastructure, and services. Megacities like Shanghai and Shenzhen are hubs of economic activity, but urbanization also brings challenges like pollution and inequality.

Challenges Facing China’s Economy

Despite its impressive growth, China faces several challenges:

Debt Levels: High corporate and local government debt could pose risks to financial stability.

Aging Population: China’s one-child policy has led to a shrinking workforce and an aging population, straining social services.

Trade Tensions: Ongoing disputes with the U.S. and other countries could disrupt trade and investment.

Environmental Issues: Rapid industrialization has caused severe pollution, prompting the government to prioritize green initiatives.

The Future of China’s Economy

China’s economy is at a crossroads. While it continues to grow, the focus is shifting from quantity to quality. The government is prioritizing sustainable development, technological self-reliance, and reducing inequality. Whether China can navigate these challenges while maintaining its growth trajectory remains to be seen.

To stay updated on all economic events of today, please check out our Economic calendar

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Glendon

Economic

Choosing the right stock broker is one of the most important decisions you’ll make as an investor. Whether you’re a beginner or a seasoned trader, the right broker can help you achieve your financial goals, while the wrong one can lead to frustration and unnecessary costs. With so many options available, how do you pick the best one? Here’s a comprehensive guide to help you make an informed decision.

1. Understand Your Needs

Before diving into the options, assess your investment goals and trading style. Ask yourself:

Are you a long-term investor or an active trader?

Do you need access to international markets or just domestic ones?

Are you interested in stocks, ETFs, mutual funds, or other assets like options and cryptocurrencies?

Your answers will help narrow down the type of broker that suits you best.

2. Check for Regulation and Security

Always choose a broker that is regulated by a reputable authority, such as the Securities and Exchange Commission (SEC) in the U.S. or the Financial Conduct Authority (FCA) in the UK. Regulation ensures the broker adheres to strict standards, protecting your funds and personal information. Additionally, look for brokers that offer two-factor authentication (2FA) and encryption to safeguard your account.

3. Compare Fees and Commissions

Brokers make money through fees, and these can vary widely. Key fees to consider include:

Trading Commissions: Some brokers charge per trade, while others offer commission-free trading.

Account Fees: Look for maintenance fees, inactivity fees, or minimum balance requirements.

Withdrawal Fees: Check if there are costs for transferring funds out of your account.

Even small fees can add up over time, so choose a broker with a transparent and competitive fee structure.

4. Evaluate the Trading Platform

The trading platform is your gateway to the markets, so it should be user-friendly and reliable. Key features to look for include:

Ease of Use: A clean, intuitive interface is essential, especially for beginners.

Research Tools: Access to real-time data, charts, and analysis can help you make informed decisions.

Mobile Access: A robust mobile app allows you to trade on the go.

Many brokers offer demo accounts, so take advantage of these to test the platform before committing.

5. Assess Customer Support

Reliable customer support is crucial, especially if you’re new to trading. Look for brokers that offer:

Multiple Contact Options: Phone, email, and live chat support.

Availability: 24/7 support is ideal, but at least ensure they’re available during market hours.

Responsiveness: Read reviews to gauge how quickly and effectively they resolve issues.

6. Consider Investment Options

Different brokers offer access to different markets and assets. If you’re interested in diversifying your portfolio, choose a broker that provides:

Stocks, ETFs, and Mutual Funds: Essential for most investors.

Options and Futures: For more advanced traders.

International Markets: If you want to invest globally.

Cryptocurrencies: For those interested in digital assets.

7. Look for Educational Resources

If you’re a beginner, educational resources can be invaluable. Many brokers offer:

Tutorials and Webinars: To help you learn the basics of trading.

Market Analysis: Insights and research reports to guide your decisions.

Glossaries and FAQs: To clarify trading terms and concepts.

8. Read Reviews and Testimonials

Finally, take the time to read reviews and testimonials from other users. Look for feedback on:

Platform Reliability: Are there frequent outages or technical issues?

Customer Service: Are users satisfied with the support they receive?

Overall Experience: Would users recommend the broker to others?

Conclusion

Picking the right stock broker requires careful consideration of your needs, fees, platform features, and customer support. By taking the time to research and compare options, you can find a broker that aligns with your investment goals and helps you navigate the markets with confidence. Remember, the best broker for someone else may not be the best for you—so choose wisely!

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