Fed Governor Kugler: Inflation Risks Remain Elevated, Rate Cuts Likely to Be "Far Off"

Remarks of Officials

Summary:

Federal Reserve Governor Adriana Kugler indicated that the Fed may continue holding the policy rate at its current level "for some time", as inflation continues to face important upside risks. The labor market has largely rebalanced, and wage growth is not a primary driver of inflationary pressures.

On March 7, Kugler delivered a speech in Portugal, highlighting key points:

Productivity gains drive recovery. The United States has experienced a relatively swift economic recovery, with productivity gains playing a crucial role. Unlike European countries that implemented "job retention" policies, the U.S. leveraged its unemployment insurance (UI) system to facilitate labor reallocation to more productive sectors. This approach enhanced overall economic efficiency. Additionally, the flexibility of the U.S. labor market has accelerated the integration of new immigrants into the workforce, further boosting economic growth.

While global inflation rates have declined from their pandemic peaks, certain price pressures remain. In the U.S., housing inflation has eased but remains elevated, and core goods prices have risen since mid-2024. This trend is concerning, as long-term deflation in goods prices has historically offset price increases in other categories, thereby containing overall inflation. There is also considerable uncertainty about the inflationary effects of tariff policies implemented during the Trump administration.

U.S. consumer expectations for inflation over the next year and the next five to ten years have increased from the end of last year. In response, the Federal Reserve decided in January to maintain the federal funds rate target range at 4.25%–4.50%, and may keep it at this level for an extended period to ensure inflation remains under control.

The U.S. labor market has largely returned to equilibrium. In the United States, the V/U ratio ratio went from the all-time high of 2 in early 2022 to 1.1 in January 2025, which is currently below the average observed in 2019, just before the pandemic. Wage growth has moderated in line with productivity gains, helping to contain inflation while ensuring labor market stability. In contrast, slower labor market integration of new immigrants in Europe, due to policy differences, has reduced the downward pressure on wage growth and may contribute to stickier inflation.

Given the lingering upside risks to inflation, the Fed may continue holding the policy rate at its current level "for some time".

Kugler's Speech

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Warren Takunda

Stocks

London stocks were set to gain at the open on Monday following heavy losses last week.

The FTSE 100 was called to open around 25 points higher.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said: "Last week was packed with tariff uncertainty and weak economic data. Friday’s jobs figures - the first set of jobs data of the new Trump era so far marked by mass firings at federal agencies - resulted in a weaker-than-expected NFP print, a higher-than-expected unemployment rate and a lower-than-expected participation rate.

"The only bright spots from Friday’s data were the higher-than-expected rise in manufacturing payrolls and the slower-than-expected wages growth on an annual basis. The latter could help tame additional inflationary pressures from tariffs in the US along with the waning consumer confidence and spending, and help the Federal Reserve (Fed) support the US economy navigate through agitated waters. But inflation will be crucial to determine the extent of Fed support.

"This week, the US CPI update will be closely watched. rising inflation expectations keep the Fed doves on the sidelines. Activity on Fed funds futures hints that the Fed won’t be able to cut the rates before its June meeting - if it cuts at all this year. Fed’s Powell said on Friday that the US economy continues to ‘be in a good place.’ But the recession bets are rising, and the latest forecasts point at a sharp drop in economic growth in Q1."

In corporate news, Assura said it was minded to recommend an improved, £1.61bn cash takeover proposal from investment firms KKR and Stonepeak.

The consortium has offered 49.4p per share, which is 2.9% increase on the previous proposal of 48p per share.

Assura siad: "Having carefully considered the possible cash offer with its advisers and consulted with the company's major shareholders extensively following the announcement of a possible offer on 14 February 2025, the board has indicated to the consortium that, should a firm offer be made on the financial terms set out above, it would be minded to recommend such an offer to Assura shareholders, subject to the agreement of the other terms of the offer."

Elsewhere, Deliveroo said it had decided to exit its Hong Kong operations through a sale of certain assets to Foodpanda and the closure of other assets.

Deliveroo Hong Kong has nominated liquidators to manage closure of the Hong Kong business and the remainder of its assets "in the most efficient way possible", it said.

The company said in a statement: "There are several dynamics specific to the Hong Kong market which led the board to consider strategic options and, given the group's commitment to disciplined capital allocation, determine that it would not serve shareholders' best interests to continue to operate in Hong Kong."

Deliveroo Hong Kong's platform will remain live until 7 April.

Great Portland Estates said it had secured its largest fully managed deal to date, letting more than 11,500 sq ft of office space to FTSE 100 retailer Next in central London on a five-year term.

No financial details were disclosed.

Source: Sharecast

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FED

Remarks of Officials

On March 7, Fed Chairman Powell delivered a speech at the U.S. Monetary Policy Forum in New York, the key points of which are summarized below:

The U.S. economy exhibits overall resilience. Despite prevailing uncertainties, the U.S. economy demonstrates robust performance. The fourth quarter of 2024 saw a GDP annual growth rate of 2.3%, primarily driven by strong consumer spending. However, recent data suggests a potential moderation in consumer expenditure, coupled with heightened uncertainty among businesses and households regarding the economic outlook.

The labor market remains robust. Although February's non-farm payrolls added only 151,000 jobs, falling short of economists' expectations, the U.S. has averaged 191,000 new jobs per month since September of the previous year. The unemployment rate has remained within a narrow band of 3.9% to 4.2%, indicating a stable and balanced labor market. Currently, the U.S. unemployment rate is at a low of 4.1%, with wage growth exceeding inflation and trending towards a sustainable pace. The labor market's supply and demand dynamics are approaching equilibrium, no longer posing a significant inflationary pressure.

The inflation data exhibits monthly volatility, with recent months showing elevated figures. However, Fed officials are closely monitoring the shifts in trade, immigration, fiscal policies, and regulatory frameworks under the Trump administration, refraining from overreacting to short-term fluctuations. An improvement in inflation rates within housing services and non-housing services is anticipated in the forthcoming months.

Overall, the Fed has adopted a "wait-and-see" approach concerning tariffs and inflation, emphasizing the need to avoid premature interest rate cuts until more comprehensive information is available. Despite the potential for tariffs to elevate inflation, their impact remains uncertain, prompting the Fed to maintain an observational stance. Meanwhile, the optimistic outlook of U.S. Treasury Secretary Bessent contrasts with the Fed's cautious position, underscoring the divergence among policymakers. The Fed's decisions will remain a focal point for market scrutiny, contingent upon the implementation of tariff policies and the clarification of economic data in the future.

Powell's Speech

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FastBull Featured

Daily News

[Quick Facts]

1. US, Ukraine teams to hold talks in Saudi Arabia on 11th.

2. Germany's CDU/CSU and SPD explore forming a coalition government, but the fiscal plan is severely criticized by other parties.

3. The US has not extended Iraq's exemption from sanctions for energy imports from Iran.

4. Investment banks cut expectations for the magnitude of the ECB's interest rate cuts.

5. Democrats oppose GOP plan for continuing resolution.

6. Canada's next prime minister: Tariffs stay until U.S. shows Canada respect!

7. The US February nonfarm payrolls: The job market may enter a "bumpy period".

8. Kugler: Inflation risks are tilted to the upside, interest rates may remain unchanged for a long time.

9. Powell says the Fed is in no hurry to adjust rates amid Trump's policy shift.

[News Details]

US, Ukraine teams to hold talks in Saudi Arabia on 11th

Ukrainian President Volodymyr Zelensky said on Thursday he would travel to Saudi Arabia on Monday for a meeting with Saudi Crown Prince Mohammed bin Salman ahead of talks later in the week with US officials. On the 11th, a Ukrainian delegation composed of senior officials such as the head of the Presidential Office, foreign minister, and defense minister will stay in Saudi Arabia to hold talks with the US delegation. Zelenskyy emphasized that Ukraine is fully committed to constructive dialogue and looks forward to discussing and reaching agreements on necessary decisions and steps. Ukraine has been seeking peace since the first second of the war. Realistic solutions are already on the negotiating table. The key is to take prompt and effective actions.

Germany's CDU/CSU and SPD explore forming a coalition government, but the fiscal plan is severely criticized by other parties

The CDU/CSU and the Social Democratic Party (SPD), which ranked first and third respectively in the votes in the German Bundestag elections, completed exploratory talks on forming a coalition government on the 8th and announced a key policy position paper agreed upon by both sides, taking a step forward in forming a new "grand coalition" government. However, the above policy paper has been severely criticized by other parties, especially the policies on lifting debt limits, increasing military spending, and social security expenditures. Since the passage of major proposals still requires the support of other parties, the current differences may indicate that the next government will face resistance in advancing policies.

The US has not extended Iraq's exemption from sanctions for energy imports from Iran

According to reports, the US has not renewed an exemption that allows Iraq to buy electricity from Iran as one of the measures to exert economic pressure on Tehran. The report cited an unnamed US State Department spokesman as saying that this decision ensures that Iran does not receive "any degree of economic or financial relief" because US President Trump still maintains a "maximum pressure" campaign on the country. Trump said he has written to the Iranian leadership, urging the country to start negotiations. Iranian Supreme Leader Ayatollah Ali Khamenei said that Iran will refuse to negotiate as long as the US continues its "maximum pressure" campaign.

Investment banks cut expectations for the magnitude of the ECB's interest rate cuts

In the coming week, investors will keep looking at the impact of Germany's huge fiscal impulse and the plan to increase defense spending. Germany's large-scale fiscal stimulus plan has led to a significant increase in German bond yields. Investors are particularly interested in how fiscal expansion will affect economic growth and inflation in Europe, and how this will impact the ECB's monetary policy. After the ECB cut the deposit rate by 25 basis points to 2.50% this week, Vanguard and Alliance Bernstein have already predicted smaller interest rate cuts. Vanguard currently expects only one more interest rate cut this year, and Alliance Bernstein's revised forecast for the ECB's policy rate by the end of 2025 is 2%, higher than the previous forecast of 1.75%.

Democrats oppose GOP plan for continuing resolution

On March 8 local time, members of the Democratic leadership in the US House of Representatives said they plan to vote against the House Republican spending plan released earlier that day, calling the plan a "reckless cut" to US spending programs. Sources said that Democratic House Minority Leader Hakeem Jeffries, Democratic Whip Katherine Clark, and Democratic Caucus Chair Pete Aguilar said in a joint statement that the Republican House's partisan appropriation bill " recklessly cuts healthcare, nutritional assistance and $23 billion in veterans benefits."

Canada's next prime minister: Tariffs stay until U.S. shows Canada respect!

Canada's ruling Liberal Party announced on the 9th that Mark Carney was elected the new leader of the party by a landslide. Carney will succeed current Prime Minister Justin Trudeau as Canada's prime minister and form a new cabinet.

Carney said in his victory speech on the same day that in the face of threats from US President Trump and a more divided and dangerous world, people are worried about Canada's future. Carney said that Trump is trying to weaken Canada's economy. Trump has imposed unreasonable tariffs on Canada. He is attacking Canadian families, workers, and businesses, and Canada cannot let him succeed. The Canadian government is implementing retaliatory tariffs until the US shows Canada respect and makes a credible and reliable commitment to free and fair trade with Canada.

Carney also said that the Americans want Canada's resources, water, land, and even the country. If the US succeeds, they will destroy Canada's way of life. Healthcare is a big business in the US, but in Canada, it is a right.

The US February nonfarm payrolls: The job market may enter a "bumpy period"

The number of new jobs added in the US in February, announced last Friday, was 151,000, showing a slight recovery compared to the initial value in January but lower than market expectations. In addition, the number of new jobs added in January was revised downward, and the average number of new jobs added in the past three months was 199,700, showing a slight decline compared to the previous reading. Structurally, private services are still the main part of current new jobs, but employment in the leisure and hospitality industry has decreased for two consecutive months. Meanwhile, employment in the government sector has also continued to decline. Overall, the US job market showed some softening.

The unemployment rate was approximately 4.1%, rising more than expected compared to January, which may indicate that the impact of deporting illegal immigrants on the US labor market has shown. First, the decrease in the labor force population may be related to some illegal immigrants leaving the labor market. Second, the decline in the unemployment rates of blacks and Asians may be related to some people filling the job vacancies left by illegal immigrants. Compared with January, the proportion of permanent unemployed and re-employed people increased significantly in February, while the proportion of temporarily unemployed and those who left their jobs decreased. The trend is the same as that of the January data, indicating a continuous decline in the current labor market.

Average hourly earnings increased by 4.0% YoY and 0.3% MoM, up 0.2% and down 0.1% respectively compared to January. Considering the slight rebound in the current unemployment rate and the continuously low level of working hours, there is a high probability that the subsequent wage growth rate will continue to decline, and the supporting role for the continuous upward movement of household consumption will also gradually weaken.

The nonfarm payroll data in February only covered the period February 12th. That is to say, the impact of government layoffs has not been fully reflected, and subsequent employment data may be negatively impacted. After taking office, the Trump administration has carried out relatively radical reforms in the federal government, not only significantly cutting government procurement contract expenditures, and suspending federal government recruitment, but also laying off employees in various federal government departments to varying degrees.

In addition, the deportation of illegal immigrants is currently slightly falling short of expectations, but it may continue to deepen in the future, having a negative impact on the job market.

Overall, with the acceleration of federal government layoffs and the gradual deepening of the deportation of illegal immigrants, the US job market may continue to weaken in the short term.

Kugler: Inflation risks are tilted to the upside, interest rates may remain unchanged for a long time

Fed's Kugler said in a speech on Saturday that multiple data indicate that inflation expectations are rising. For example, a report from the University of Michigan shows that US consumers expect inflation to reach 3.5% in the next 5 to 10 years, the highest level since 1995. Fed officials generally believe that stable inflation expectations are crucial for controlling price levels.

Since the second half of last year, the inflation level in the US has been basically flat, but the rising prices of core services and goods are pushing up overall inflation. This is not a welcome phenomenon because, for a long time, the decline in commodity prices has usually been able to offset the rise in prices of other categories, thus curbing overall inflation.

Current data shows that due to increased uncertainty, inflation expectations rise while businesses report rising input costs.

Given the recent rise in inflation expectations and the fact that some key inflation categories have not yet moved towards the Fed's 2% target, it may be appropriate to keep the policy rate at the current level for some time.

Powell says the Fed is in no hurry to adjust rates amid Trump's policy shift

On the 7th, Eastern US Time, Fed Chair Jerome Powell said in a speech at the New York Economic Forum that it remains to be seen whether Trump's tariff plan will trigger sustained inflation. If the tariffs are just a one-time event, the Fed does not need to respond by tightening monetary policy. However, if the tariffs evolve into a series of events and lead to a continuous rise in inflation, the Fed will have to take action. The key lies in whether long-term inflation expectations will change and the persistence of the inflation effect. The Fed will remain cautious and ensure that it fully understands the impact of the tariffs before making a decision, rather than rushing to cut interest rates.

The Fed is currently in a favorable position to wait for the situation to become clearer. Although consumer spending may slow down and businesses and companies are uncertain about the economic outlook, key economic data remain robust. The progress of continuous increases in inflation and employment, although unbalanced, continues.

[Today's Focus]

23:00 US February New York Fed 1-year-ahead inflation expectations

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Cohen

Economic

Forex

Key Highlights

EUR/USD started a fresh increase above the 1.0750 resistance zone.
A short-term rising channel with support at 1.0800 on the 4-hour chart.
GBP/USD surged above the 1.2850 and 1.2880 resistance levels.
Crude oil prices dived below the $68.00 support zone.

EUR/USD Technical Analysis

The Euro started a decent increase above the 1.0750 resistance against the US Dollar. EUR/USD broke the 1.0800 and 1.0820 resistance levels.

Looking at the 4-hour chart, the pair settled above the 1.0800 level, the 100 simple moving average (red, 4-hour), and the 200 simple moving average (green, 4-hour). The pair even climbed above the 1.0850 zone before the bears appeared.

It tested the 1.0880 zone. On the upside, the pair seems to be facing hurdles near the 1.0880 level. The next major resistance is near the 1.0920 level.

The main resistance is now forming near the 1.0950 zone. Any more gains might send the pair toward the 1.1000 zone. On the downside, immediate support sits near the 1.0800 level. There is also a short-term rising channel with support at 1.0800 on the same chart.

The next key support sits near the 1.0765 level. Any more losses could send the pair toward the 1.0750 level. A close above the 1.0750 level could set the tone for another increase. In the stated case, the pair could even clear the 1.0720 resistance.

Looking at GBP/USD, the pair also started a decent increase and the pair even cleared the 1.2880 resistance zone.

Upcoming Economic Events:

Germany’s Trade Balance for Jan 2025 – Forecast €21B, versus €20.7B previous.

Source: ACTIONFOREX

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

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Justin

Economic

Acting President Choi Sang-mok speaks during a meeting with ministers and officials on economic issues at the government complex in Seoul, March 10. Courtesy of Ministry of Economy and Finance

Acting President Choi Sang-mok on Monday instructed the government to engage with the United States to address any "misunderstandings" regarding Korea's average tariff rate on U.S. imports.

The order followed U.S. President Donald Trump's claim in his address to a joint session of Congress last week, stating that Korea's average tariff is four times higher than that of the U.S.

In a meeting with ministers and officials on economic issues, Choi ordered officials to "actively explain" any misunderstandings regarding Korea's tariff rate on U.S. imports in future talks with the United States.

The Korean government has clarified that its average tariff rate on goods imported from the U.S. was 0.79 percent last year under the bilateral free trade agreement (FTA) between the two nations, with the rate set to decrease further this year.

He also instructed officials to prepare and negotiate on matters of interest to the U.S., such as the shipbuilding and energy sectors, in ways that would benefit both countries.

Source: Koreatimes

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Alex

Commodity

Oil prices fell on Monday as concern about the impact of US import tariffs on global economic growth and fuel demand, as well as rising output from OPEC+ producers, cooled investor appetite for riskier assets.

Brent crude fell 25 cents, or 0.4%, to $70.11 a barrel by 0037 GMT after settling up 90 cents on Friday. US West Texas Intermediate crude was at $66.76 a barrel, down 28 cents, or 0.4%, after closing 68 cents higher in the previous trading session.

WTI declined for a seventh successive week, the longest losing streak since November 2023, while Brent was down for a third consecutive week after US President Donald Trump imposed then delayed tariffs on its key oil suppliers Canada and Mexico while raising taxes on Chinese goods. China retaliated against the US and Canada with tariffs on agricultural products.

"Crude oil was weighed down last week by US tariff uncertainty, US growth concerns, the potential lifting of US sanctions on Russia, and OPEC+ opting to increase output," IG analyst Tony Sycamore said in a client note.

"Nonetheless, with much of the bad news likely factored in, we expect weekly support around $65/$62 to hold firm before a recovery back to $72.00," he said in reference to the WTI price.

Oil prices clawed back some loss on Friday after Trump said the US would increase sanctions on Russia if the latter fails to reach a ceasefire with Ukraine.

The US is also studying ways to ease sanctions on Russia's energy sector if Russia agrees to end its war with Ukraine, two people familiar with the matter told Reuters.

Meanwhile, the Organization of the Petroleum Exporting Countries and allies including Russia, collectively known as OPEC+, said it will proceed with oil output hikes from April.

Russia's Deputy Prime Minister Alexander Novak on Friday said OPEC+ could reverse the decision in the event of market imbalance.

Last week, Trump said he wanted to negotiate a deal with OPEC member Iran to prevent the latter seeking nuclear weapons - though Iran has said it is not seeking such weapons.

Trump is pursuing a "maximum pressure" campaign against Iran under which the US on Saturday rescinded a waiver that allowed Iraq to pay Iran for electricity, a State Department spokesperson said.

Iran's Supreme Leader Ayatollah Ali Khamenei on Saturday said his country will not be bullied into negotiations.