Fed´s Powell Warns the U.S. Economy Could Face Persistent Supply Shocks

Central Bank

Forex

Summary:

Powell’s remarks mirrored past concerns, indicating that changes in policy could put the Fed in a difficult balancing act between supporting employment and controlling inflation.

Federal Reserve Chairman Jerome Powell said Thursday that economic trends pointed to the possibility that the Fed will have to grapple with sudden shocks to the supply of goods and commodities in the coming years, which is a difficult challenge for the economy and the central bank.

On May 15th, Powell warned that longer-term interest rates were likely to be higher as the economy changed and policy was in flux. He noted that conditions had changed significantly over the past five years, during which the Fed witnessed a period of surging inflation, pushing it to historically aggressive interest rate hikes. The Fed Chair also said that even with longer-term inflation expectations largely aligning with the Fed’s 2% target, the era of near-zero rates was unlikely to return anytime soon.

Powell says the U.S. should expect volatile inflation going forward

According to Powell, higher real rates may reflect the possibility that inflation could be more volatile going forward than in the inter-crisis period of the 2010s. The Fed held its benchmark borrowing rate near zero for seven years following the financial crisis in 2008. However, the overnight lending rate has been in a range between 4.25%-4.5% since December 2024 and most recently trading at 4.33%.

The “supply shocks” remarks were similar to those Powell delivered over the past several weeks, cautioning that policy changes could put the Fed in a difficult balancing act between supporting employment and controlling inflation.

“In periods with larger, more frequent, or more disparate shocks, effective communication requires that we convey the uncertainty that surrounds our understanding of the economy and the outlook.” –Jerome Powell, Chairman of the Federal Reserve.

Powell’s remarks mirrored past concerns, indicating that changes in policy could put the Fed in a difficult balancing act between supporting employment and controlling inflation.

Powell warns tariffs could pose a challenge for the Fed

The central bank chief previously noted the likelihood that tariffs will slow growth and boost inflation, although he did not mention President Trump in his remarks. However, the extent of the impact was difficult to gauge, particularly as Trump recently backed off the more aggressive duties pending a 90-day negotiating window.

Powell said that while he expected higher inflation and lower growth, it was unclear where the Fed would need to devote greater focus as uncertainty over what impact President Donald Trump’s tariffs would have on the U.S economy continued to increase. He added that the Fed may find itself in a challenging scenario where its dual-mandate goals are in tension. If that were to occur, Powell said the Fed would consider how far the economy was from each goal and the potentially different time horizons over which those respective gaps would be anticipated to close.

The Fed Chair did not directly say where he saw interest rates headed, but he mentioned that the Fed was well-positioned to wait for greater clarity before considering any adjustments to its policy stance.

Powell also said tariffs were likely to move the Fed further away from its goals but noted that survey- and market-based measures of near-term inflation were on the rise, although the longer-term outlook remained close to the Fed’s 2% goal.

The Fed Chair claimed tariffs were highly likely to generate at least a temporary rise in inflation, and the inflationary effects could also be more persistent. He pointed out that avoiding such an outcome depended on the size of the effects, how long it took for them to pass through fully to prices, and on keeping longer-term inflation expectations well anchored.

Source: Cryptopolitan

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Manuel

Cryptocurrency

Stocks

Coinbase's stock (COIN) fell by more than 8% Thursday after two developments that raised new questions about the company's controls and regulatory headaches.

First the US crypto exchange disclosed that cyber attackers had stolen sensitive customer data and threatened to publish it unless the company paid a $20 million ransom.

Then the New York Times reported that the Securities and Exchange Commission still has an open investigation into whether Coinbase misreported user data years ago.

Coinbase said no passwords or private crypto wallet codes had been compromised by the cyber attack and that the data leak affected less than 1% of Coinbase's monthly transacting customers, according to a blog post.

Separately, Coinbase's chief legal officer Paul Grewal told Yahoo Finance the SEC matter was "a holdover investigation from the prior administration about a metric we stopped reporting two and a half years ago” and that "we remain committed to working with the SEC to bring this matter to a close."

The two developments Thursday represented an unexpected setback for Coinbase, the largest US cryptocurrency exchange, following a series of wins this year as the crypto world gained deeper mainstream acceptance on Wall Street and in Washington, D.C.

Last week, the company announced a $2.9 billion acquisition of crypto options exchange Deribit. Earlier this week, Coinbase's stock soared after it was officially added to the S&P 500 index (^GSPC).

"Coinbase joining the S&P 500 means crypto's here to stay," Armstrong said in a Yahoo Finance interview on Capitol Hill Wednesday.

"It's going to be in everybody's 401(k). Everyone's going to have crypto exposure at least indirectly through Coinbase. And it's also a symbol that crypto is updating the financial system," Armstrong added.

On Thursday morning, Armstrong posted a video on X addressing the breach.

He explained that instead of paying the ransom, Coinbase is establishing a $20 million reward or bounty program for information leading to the arrest and conviction of the attackers. He also said the company is planning to reimburse customers affected by the incident.

"No, we're not going to pay your ransom," Coinbase CEO Brian Armstrong said.

"These attackers had been approaching our overseas customer support agents, looking for a weak link, someone to accept a bribe in exchange for sharing some customer information," Armstrong said.

A preliminary estimate of the cost for the incident is "approximately $180 million to $400 million," Coinbase said in a Thursday SEC filing. A spokesperson clarified that the cost is "mostly" for the bounty program and reimbursing affected customers.

The attackers gained control of customer information, including names, emails, physical addresses, phone numbers, and government identification details — including the last four digits of their Social Security numbers — along with some bank account identifiers and snapshots of customer balance data and transaction history.

The news that the SEC still has an open investigation into Coinbase reinforced that the company's regulatory troubles may not be over even after announcing in late February that the SEC had agreed to drop an enforcement case initiated by former SEC boss Gary Gensler.

Under Gensler, the agency had charged Coinbase with operating as an unregistered national securities exchange, broker, and clearing agency. President Trump replaced Gensler with cryptocurrency advocate Paul Atkins.

The outstanding SEC inquiry that remains open also began during the Biden administration, according to The New York Times. It centers on whether it misstated its "verified user" numbers in financial disclosures as far back as its initial filing to go public, according to the Times.

Coinbase stopped using the 'verified user' metric in 2023. "Based on our evaluation of our Verified Users metric, we do not believe this metric, which is an indicator of the scale of our platform, provides meaningful information related to our business performance," the company said in a February filing of that year.

Grewal, Coinbase's chief legal officer, said the metric was "fully disclosed to the public. We explained that the verified users metric includes anyone who verified their email address or phone number with us, so it may overstate the number of unique customers."

"We also disclosed — and continue to disclose — the more relevant metric of ‘monthly transacting users’ — the number of people who use our platform in a given month."

Source: Yahoo Finance

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Adam

Economic

Legendary investor Warren Buffett's leadership of Berkshire Hathaway (BRK.A, BRK.B), the struggling textile company he made into a trillion dollar conglomerate, will be a tough act to follow. But the “Oracle of Omaha” said his successor Greg Abel is ready for the challenge.

“He was already ready. I haven’t taught him anything,” Buffett told the Wall Street Journal in an interview in which he called Abel a "natural" and praised the vice chair's skills, according to reports Wednesday.

While Buffett lauded Abel's energy and business acumen in his role overseeing Berkshire's noninsurance subsidiaries, he also said Abel is a successful investor, who "will have ideas about where money should be invested," amid speculation about how Berkshire's record $347.7 billion cash pile could be deployed.

“Really great talent is rare,” Buffett reportedly said. “It’s rare in business. It’s rare in capital allocation. It’s rare in almost every human activity you can name," he said, adding that “the more years that Berkshire gets out of Greg, the better.”

Berkshire's Stock Has Outperformed Broader Market, Despite Hit After Buffett Said He Will Step Down

Earlier this month, Buffett stunned attendees at Berkshire’s annual shareholder meeting—including Abel, who was sitting beside Buffett on stage—when the CEO of 60 years announced Abel would assume the role at year-end.

But it was a decision that many Berkshire investors anticipated would come soon, after the 94-year-old Buffett warned in February that "it won’t be long before Greg Abel replaces me as CEO." The 62-year-old Abel has been with the company for 25 years, and has a strong track record leading the company's energy and railroad businesses.

"I think the prospects of Berkshire will be better under Greg’s management than mine," Buffett told investors at the event, adding that he has no plans of selling his shares. Buffett will remain chair of Berkshire's board after he steps down as CEO.

Shares of Berkshire have taken a hit in the wake of the announcement, though they’ve still outperformed the broader market, with shares up about 11% since the start of the year, while the S&P 500 barely edged back into positive territory yesterday.

Abel Is Expected to Follow Buffett's Investment Principles and Approach

"We believe Abel is a great operator and has already helped improve some of BRK's businesses," UBS analysts told clients in a note last week, adding they "expect little change at BRK and the culture/strategy to remain unchanged under Abel."

Abel has said he aims to continue the investment philosophy and values that have guided Berkshire under Buffett, telling investors at the annual shareholder meeting, “it will not change, and it’s the approach we’ll take as we go forward.”

Source: finance.yahoo

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Manuel

Economic

China–U.S. Trade War

A key indicator of the impact of tariffs on the economy isn’t flashing warning signs yet, as retail sales growth continued in April.

While slower than March’s surge, retail sales increased by 0.1% in April. The measure of sales at retail stores was in line with estimates of economists surveyed by The Wall Street Journal and Dow Jones Newswires. Last month’s sales growth figures were revised upward to reflect 1.7% growth, as shoppers rushed to purchase items ahead of potential U.S. tariffs.

“[April's 0.1% growth] is much more impressive than it sounds, as it means March's huge gains were maintained,” wrote Moody’s Economist Scott Hoyt.

Retail Sales in Focus Amid Tariff Tussle

Economists are watching retail sales as an important signal on whether consumer fears about President Donald Trump’s tariffs are making them hesitant to spend money.

So far, poor consumer sentiment surveys haven’t resulted in a meaningful decline in spending, mainly as people rush to buy items before tariffs raise prices. However, economists still expect a slowdown as tariffs work through the economy.

“Going forward, we anticipate further weakness in consumer spending as pay back from the front-loading of consumption ahead of the tariffs, higher tariff-induced prices, high borrowing rates, and a softening in employment gains that will weigh on aggregate income gains for households,” Nationwide Chief Economist Kathy Bostjancic said.

Consumer spending powers the economy, representing about two-thirds of the U.S. economy, with goods purchases making up about a third of spending levels. Retail sales, in particular, can illuminate tariffs’ impact on consumers because they reflect spending on goods like cars, building supplies, sporting goods, and toys. Many items tracked by the measure are manufactured in foreign countries and subjected to import taxes.

“The retail sales figures in the coming months take on additional importance as they serve as a harbinger of the impact of tariffs on the broader economy,” Wells Fargo economists wrote.

Source: Investopedia

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Adam

Economic

The average rate on a 30-year mortgage in the U.S. edged above 6.8% this week, returning to where it was just three weeks ago.

The rate increased to 6.81% from 6.76% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 7.02%.

Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loans, also rose. The average rate ticked up to 5.92% from 5.89% last week. It’s down from 6.28% a year ago, Freddie Mac said.

Mortgage rates are influenced by several factors, including global demand for U.S. Treasurys, the Federal Reserve’s interest rate policy decisions and bond market investors’ expectations about the economy and inflation.

The average rate on a 30-year mortgage has remained relatively close to its high so far this year of just above 7%, which it set in mid-January. The average rate’s low point so far was five weeks ago, when it briefly dropped to 6.62%.

The elevated mortgage rates, which can add hundreds of dollars a month in costs for borrowers, have discouraged home shoppers, leading to a lackluster start to the spring homebuying season, even as the inventory of homes on the market is up sharply from last year. Sales of previously occupied U.S. homes fell in March, posting the largest monthly drop since November 2022.

The recent swings in mortgage rates reflect volatility in the 10-year Treasury yield, which lenders use as a guide to pricing home loans.

The yield, which had mostly fallen this after climbing to around 4.8% in mid-January, surged last month to 4.5% amid a sell-off of government bonds, triggered by investor anxiety over the Trump administration’s trade war.

The yield eased in the weeks since, but climbed above 4.5% earlier this week after the U.S. and China agreed to a 90-day truce in their trade dispute. That raised expectations that the Federal Reserve won’t have to cut interest rates as deeply as expected this year in order to shield the economy from the damage of tariffs.

The 10-year Treasury yield was at 4.45% in midday trading Thursday.

Economists expect mortgage rates to remain volatile in coming months, though they generally call for the average rate on a 30-year mortgage to remain above 6.5% this year.

Source: finance.yahoo

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Owen Li

Political

Much of the world was caught off guard when amid an avalanche of multiple US-Gulf deals worth hundreds of billions of dollars each being signed Wednesday, President Trump not only announced that he is lifting all sanctions on Syria, but even met in-person with US-designated terrorist and Syrian President Ahmed al-Sharaa (Jolani) in the Saudi capital.

Apparently even the State Department and US Treasury departments were caught off guard. Trump's move to lift sanctions on Syria "took many by surprise," including his own officials at State and Treasury, according to Reuters.

"In Washington, senior officials at the State Department and Treasury Department scrambled to understand how to cancel the sanctions, many of which have been in place for decades … The White House had issued no memorandum or directive to State or Treasury sanctions officials to prepare for the unwinding and didn’t alert them that the president’s announcement was imminent," several senior US officials anonymously told publication.

Via Office of the Syrian Presidency

"Officials were confused about exactly how the administration would unwind the layers of sanctions, which ones were being eased and when the White House wanted to begin the process," they added while emphasizing that top officials were "caught off guard."

"Everyone is trying to figure out how to implement it," Reuters cited the officials as saying. Legally and procedurally, the removal of the sanctions will be a process which could take weeks or even months.

Meanwhile there are reports saying the Syrian Pound (SYP) jumped 30% quickly upon Trump's announcement. The local currency has experienced runaway inflation, and people have to lug huge bricks of cash around to purchase simple items like eggs or medicines.

Syrians have further endured rolling blackouts and lack of resources, or even fuel, for years amid the US-sanctions regimen which was geared toward regime change. But now...

The streets of Syria were a carnival of car horns, fireworks and flags after President Donald Trump made the surprise announcement that the United States would lift sanctions that have throttled the country’s economy for more than 45 years.

Trump stunned even close observers on Tuesday by saying he wants to normalize relations after Syria’s longtime president, Bashar al Assad, was toppled in December. Trump met Wednesday with Assad’s successor, interim President Ahmad al-Sharaa, a former leader of an al-Qaeda offshoot group, in Saudi Arabia after urging him late Tuesday to “show us something special.”

Trump said he wanted to give Syrians a 'fresh start' - and indeed this could be the start of an economic turnaround after years of brutal proxy war.

With Assad having been overthrown, the Saudis and Qataris are also stepping in to cover national debt and prop up public sector salaries.

Ultimately, Washington and the Gulf monarchies got their desired regime change in Syria. It was never about "democracy" or the Syrian people at all. The brutality of the sanctions, which compounded the common mysery, proves that - as some US officials are now openly admitting.

But this sick policy of the Washington blob is nothing really new...

Source: Zero Hedge

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Adam

Economic

This morning was a deluge of macroeconomic statistics - jobless claims, factory output, retail sales, and producer prices - all arriving in one dense wave. The signals were, in classic fashion, mixed. But one figure stood out for all the wrong reasons: core retail sales, a key input for GDP, unexpectedly slipped 0.2% in April, disappointing investors who had been bracing for modest growth.

Headline retail sales rose just 0.1% - a whisper of an increase, and a far cry from March’s unexpectedly strong 1.7% surge. However, this was slightly better than expected by economists. Consumers were selective: spending picked up at restaurants and garden centers, as if spring had coaxed a few more dollars out of their wallets. But other corners of Main Street - bookstores, hobby shops, sporting goods - felt the chill of tighter budgets and perhaps tighter minds.

Elsewhere, jobless claims nudged up to 229,000, factory activity in New York contracted deeper into negative territory, and producer prices delivered a rare surprise: a 0.5% monthly decline, even as the annual pace remained a steady 2.4%. It was a reminder that while inflation may be cooling, it isn’t quite done.

Taken together, the numbers paint a picture of an economy that’s neither overheating nor collapsing, but treading water. Growth is there, but it’s fragile. Confidence is present, but it’s cautious.

America's equity rebound, now over a month long, is beginning to show signs of fatigue. Yet the Nasdaq 100 managed a sixth consecutive gain, fueled by a renewed flicker of FOMO (fear of missing out). Investors are returning to their favorite adrenaline-providing tech stocks - equities that reliably amplify gains during rallies, offer a whiff of invincibility, and seem insulated from the doubts hanging over more cyclical sectors. The S&P 500, for its part, has now advanced in 14 of its last 17 sessions, albeit with a mere 0.1% rise on Wednesday.

Europe was more subdued. Most indices posted mild declines, lacking the stimulus of the Gulf whirlwind tour that produced a series of headline-grabbing commercial announcements from Donald Trump. These included deals supposedly worth hundreds of billions of dollars. The figures are immense; the details, conveniently opaque. But as ever, the intoxicant matters more than the bottle.

Consider one such proclamation, which warrants dissection - not for its veracity, but for its audacity. Mr Trump took to social media - one might reasonably ask whether that phrase is tautological - to boast that Qatar Airways had placed an order for 160 Boeing aircraft, valued at $200bn. This implies a per-plane price tag of $1.25bn. For the uninitiated, Boeing's priciest model, the stretched B777, lists at around $450m. That figure, mind you, is theoretical: neither Boeing nor Airbus has published catalogue prices for years, and real-world buyers rarely pay them anyway. John Leahy, Airbus's outspoken former sales chief, once quipped that across his career, only one customer ever paid list price. Discounts - often deep ones - are the norm, especially for mega-orders.

So, to recap: either Mr Trump struck the most lopsided deal in aviation history, or Qatar somehow paid three times the sticker price, perhaps six times the negotiated one. And that's assuming the jets in question are B777s. Were they B737MAXs, which cost under $150m apiece (and come with their own aeronautical baggage), the discrepancy would be even more spectacular. There is, of course, a more prosaic explanation: the former president likes round numbers and grand declarations. The White House did issue a correction - awkwardly - claiming the actual order was for 210 planes at $96bn, including B777s and B787s. That averages out at $457m a unit. Still inflated, but at least within the realm of possibility. Apply standard volume discounts and the true cost probably lands closer to $50bn. A sizeable deal, to be sure - just not the $200bn whopper initially proclaimed.

In short, say what you like. It's unlikely to matter.

Meanwhile, the more serious developments of the day fall into three broad categories. First, peace talks between Russia and Ukraine are due to take place in Turkey. Neither Vladimir Putin nor Donald Trump will attend, though Volodymyr Zelensky had entertained hopes of higher-level participation. Second, yields on U.S. government debt continue to rise, reflecting a market increasingly skeptical about imminent rate cuts. While not disastrous, this trend suggests that uncertainty has not abated - merely shifted shape. And finally, a market-moving rumor: Iran is reportedly open to scrapping its nuclear ambitions if Western sanctions are lifted. Oil prices duly sagged.

Asia-Pacific markets mirrored this indecisive mood. Tokyo fell by 1%, while indices in mainland China, Hong Kong and South Korea were each down around 0.5%. Australia managed a 0.2% gain; India edged up 0.4%. Europe is mixed, with the Stoxx Europe 600 up 0.1%. Futures on Wall Street are in the red, ranging from -0.3% for the Dow to -0.5% for the Nasdaq 100.