Fed and Powell face 'tug-of-war' with Trump and his tariffs looming

Economic

Summary:

The Federal Reserve faces a tough balancing act between persistent inflation, slowing growth, and political pressure from Trump to cut rates—amid rising tensions over tariffs and economic uncertainty.

The biggest question facing the Federal Reserve as it gathers again this week is how to grapple with a tariff-related "tug-of-war" between sticky inflation and a slowing economy — as well as a president who wants looser monetary policy.

How that dilemma gets resolved could mean two very different courses for interest rates in the coming months.

President Trump has made his views known in recent weeks: He wants rates lowered ahead of any slowing of the economy possibly triggered by his trade policies.

And he is not happy with the caution of Fed Chair Jerome Powell, who has said the central bank will "wait for greater clarity" while weighing both sides of its mandate for stable prices and full employment.

There is a "strong likelihood," Powell said last month, that the economy will be moving away from both of the Fed's goals for the "balance of the year, or at least not making much progress."

New reports on the economy, jobs, and inflation released last week reinforced the Fed's conundrum as it looks for patterns in the data.

A GDP report showed the US economy contracted for the first time in three years to begin 2025 due largely to a rush by importers to beat the start of President Trump's tariffs.

But an April jobs report released Friday also showed the labor market remained resilient even in the weeks after Trump's "Liberation Day" announcements shook markets.

An inflation gauge favored by the Fed showed that price growth slowed in March to an annualized 2.6%, but it was still a hotter-than-expected 3.5% for the quarter. And both marks are above the Fed's target of 2%.

Some economists expect inflation to kick higher and the economy to fall further in the months ahead.

The 'tug-of-war'

The challenge for the Fed, Wilmington Trust bond portfolio manager Wilmer Stith said, is that it has to ferret out "the tug-of-war between how much inflation is over the 2% target versus a deteriorating job market."

Luke Tilley, chief economist for Wilmington Trust, isn't expecting much change in the Fed's stance at this week's meeting. He does expect Powell to reiterate the tension between lower growth and higher inflation.

"They will hold where they are at this meeting, citing all of the uncertainty and that, if you look through the GDP data that still looks pretty strong and domestic demand was strong," he said.

Tilley said underlying demand was actually inflated during the first quarter by businesses stocking up on inventory ahead of the president's tariffs.

He expects the economy to slip into a mild, short recession in the second quarter, which he expects will lead the Fed to cut rates.

"I expect that by the end of the year they will be cutting rates and more so than they think right now — and more so that they'd ever be willing to say right now," Tilley said.

Tilley sees a rate cut at every meeting for the rest of the year starting in June, amounting to 125 basis points of reductions by year-end.

But he doesn't think the Fed will cut until there is an actual drop in economic growth.

That could lead to even more tension with the occupant of the White House. Trump in recent weeks has repeatedly made clear that he wants the Fed to cut rates and has accused it and Powell of being late.

Source: yahoo

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Damon

Economic

The largest U.S. lender, along with its peers has been ramping up its use of AI. Goldman Sachs is rolling out a generative AI assistant to its bankers, traders and asset managers, while Morgan Stanley developed a chatbot for its financial advisers with OpenAI.

JPMorgan's AI tools have supercharged the speed at which its bankers could provide research and investment advice to wealthy clients last month at a time when the U.S. tariff announcements erased trillions of dollars from the stock market.

"In the last few weeks, there have been several fluctuations in the market which are not in normal bite sizes, making it very complicated to think about all your clients and all the things required to do," Mary Erdoes said. The "powerful" AI tools helped advisors to quickly handle client requests by pulling data on their trading patterns and anticipating queries, she said.

In the days surrounding U.S. President Donald Trump's tariff announcement last month, U.S. stock markets set a new record for single-day trading volume, and posted some of the sharpest intraday swings of the past 50 years.

The volatility prompted individual investors to call their bankers seeking advice, Erdoes told Reuters.

"When you have a tool that pre-populates all the data and the movement in real time, while also remembering clients' old investment preferences and helps in tailoring a plan for them quickly, it also allows advisors to do much more," she added.

JPMorgan's so-called Coach AI tool used by private client advisers is quicker at locating content and research to drive conversations with clients.

"Our advisors are finding the right information up to 95% faster--which means they spend less time searching and more time engaging in meaningful conversations with clients," said Mike Urciuoli, chief information officer at JPMorgan asset and wealth management.

"It's a great example of how of AI isn't replacing human touch, it's enhancing it," Urciuoli added.

The app will help advisers expand their client rosters by 50% in the next three-to-five years by enabling them to take on more clients, with AI handling some of the other research-related work.

JPMorgan Asset & Wealth Management also saw a 20% year-over-year increase in gross sales between 2023-2024, with Gen AI-driven tools which has helped teams focus more effectively on high-impact client work, it said.

Source: Yahoo Finance

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Adam

Economic

Markets in focus

China unveils economic support framework

The Chinese government has recently articulated more comprehensive details regarding economic support measures, including employment subsidies for university graduates, financial assistance packages for exporters, and strategic initiatives to stimulate domestic consumption. Officials have confirmed the imminent implementation of a technology development fund and consumption stimulus policies by June, whilst expressing confidence in achieving the 5% growth target despite ongoing US trade tensions. This enhanced clarity generated market optimism, propelling the Hang Seng Index (HSI) upward by 2.4% last week.

The current week represents another shortened trading period for numerous Asian markets, including Hong Kong, which observes a market holiday on Monday. Investors will be meticulously analysing developments in US-China trade negotiations and assessing the forthcoming April trade data release.

Technical analysis indicates that momentum has improved substantially since early April, with the index approaching the 50-day moving average (SMA). The HSI price pattern demonstrates characteristics consistent with Elliott Wave theory, with the recent market recovery exhibiting behaviour typical of Wave B within the framework. A 0.618 Fibonacci extension of Wave A would potentially advance the index to 22,729 before a subsequent retracement towards 19,000. However, a definitive breach of the 50-day SMA could establish a trajectory towards the psychological threshold of 24,000.

Figure 1: Hang Seng index (daily) price chart

Technical correction in gold market

Gold has experienced an 8% correction from its historical peak and currently trades at approximately $3230. The improved market sentiment catalysed by diminishing US trade tensions has strengthened the US dollar and risk assets, precipitating the gold price retracement.

The World Gold Council's latest analysis indicates persistently robust demand for gold. Global central banks augmented their reserves by 244 tonnes in Q1, whilst exchange-traded funds (ETFs) recorded inflows of 227 tonnes (equivalent to approximately $21 billion), representing the highest quarterly influx since Q1 2022. Despite a temporary moderation in price momentum, Chinese investors have maintained their gold accumulation strategy through ETFs, futures contract and gold bars.

Gold prices descended below the 20-day SMA last week, bringing valuations to more sustainable levels as reflected in the relative strength index (RSI). This correction may present an opportunity to enter for bullish market participants. Buying interests is anticipated around $3190, with potential upside towards the recent high of $3,500. However, a decisive breach below $3190 could establish a trajectory towards the subsequent support level at approximately $3100.

Figure 2: Gold (daily) price chart

USD/JPY advances following Bank of Japan policy decision

USD/JPY has sustained its recovery from seven-month lows, bolstered by the Bank of Japan's (BoJ) decision to maintain interest rates at 0.5%. The board emphasised that uncertainties surrounding US tariffs would exert pressure on Japanese corporate earnings and consumer expenditure, consequently decelerating economic growth. Accordingly, the BoJ revised its growth forecast for the current fiscal year downward to 0.5% from the previous projection of 1.1%. While the trajectory towards interest rate hikes remains intact, the implementation timeline has been extended.

Market reaction has primarily focused on the delayed interest rate adjustment schedule; however, it is essential to recognise that the yen's safe-haven status can supersede Japan's economic growth considerations during periods of heightened market volatility, as evidenced during April's market turbulence. Any substantive progress in trade negotiations could also significantly alter the BoJ's baseline economic assessment.

From a technical perspective, USD/JPY will remain subject to downward pressure while trading below the 200-day SMA with an adequate safety margin. The currency pair is currently intersecting the upper boundary of the descending channel at approximately 145. Although USD/JPY is likely to revert to the prevailing downtrend, a clear and sustained breakout would suggest temporary dollar strength towards the resistance zone at 148.2-148.5. The recent low at 139.9 represents significant technical support.

Figure 3: USD/JPY (daily) price chart

The week ahead

This week features a lighter schedule of economic data releases, with the Federal Open Market Committee (FOMC) meeting and the Bank of England's (BoE) interest rate decision representing the principal events for market participants. The quarterly earnings season progresses with pivotal financial disclosures from Advanced Micro Devices, Walt Disney and Coinbase.

Although US inflation appears to be moderating, with core personal consumption expenditures (PCE) price index decelerating to 2.6% year-on-year (YoY) in March, market consensus anticipates the Fed will maintain current policy rates while assessing the impact of President Trump's tariff implementations. Fed funds futures currently indicate expectations for three to four 25-basis-point reductions by year-end, reflecting a more accommodative outlook compared to market views prior to Liberation Day on 2 April. Market participants will scrutinise Thursday's FOMC statement for indications regarding the future interest rate trajectory.

Figure 4: Fed funds futures implied yield

Source: ig

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Blue River

Forex

Economic

The U.S. dollar was mostly lower against major currencies, including the yen and the euro, on Monday as markets weighed continued uncertainty from President Donald Trump's policies and their impact on the economy.

The greenback slid to a fresh record low against the Taiwan dollar to 28.8150 amid speculation that Taiwan was letting its currency appreciate as part of a trade deal with the U.S., or at least was unwilling to intervene to stop it rising alongside sharp inflows in capital.Trump doubled down on tariff-driven policies during an interview on Sunday, reiterating that the duties on U.S. imports would eventually make Americans rich. He announced on Sunday a new 100% tariff on films made outside the U.S.

Markets have been affected by the fact that Trump is not leaving his stance that tariffs are important, said Juan Perez, director of trading at Monex USA in Washington.

The dollar was down 0.79% against the Japanese yen at 143.805 . Against the Swiss franc , the dollar weakened 0.57% to 0.822.Trump said he would not attempt to remove Federal Reserve Chair Jerome Powell, but repeated calls for lower interest rates and called Powell a "stiff". The Fed meets on Wednesday and is widely expected to leave rates steady following a solid March payrolls report.Perez said the U.S. dollar was being hurt the most by chaos in the markets.

"I think we're returning today to...this very sour mood and descent and this idea that overall you may not necessarily rely on American markets the way you used to. And that's been seen across Treasuries."

Markets now imply only a 37% chance of a Fed rate cut in June, down from 64% a month ago. Goldman Sachs and Barclays both shifted their cut calls to July from June.

The dollar trimmed its losses briefly against the yen after the Institute for Supply Management report for April showed a larger-than-expected pickup in growth in the U.S. services sector, which accounts for two-thirds of the American economy.

Chinese onshore markets were closed but the yuan traded offshore hit its highest in almost six months at 7.1831 per dollar as investors wagered Beijing might let its currency strengthen as part of trade talks with Washington. The yuan was last up 0.23% to 7.194 per dollar.

In Europe, the euro was up 0.27% at $1.133025 and the pound was up 0.28% at $1.33050.

The Bank of England will meet on Thursday and is widely expected to cut rates by a further 25 basis points to 4.25%. Central banks in Norway and Sweden also meet this week and are expected to keep rates steady.

Reporting by Chibuike Oguh in New York, Wayne Cole and Alun John. Editing by Sonali Paul, Mark Potter, Tomasz Janowski and Nia Williams

Source: Kitco

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Justin

Economic

The Institute for Supply Management (ISM) survey on Monday showed services businesses were worried about the impact of President Donald Trump's tariffs on prices and deep federal spending cuts as his administration seeks to drastically shrink the government.

Trump's on-and-off again tariffs have heightened uncertainty over the once-resilient economy. Some real estate, rental and leasing firms in the ISM survey described the implementation of import duties as "maddeningly inconsistent."

Risks of a recession have risen. Trump on Sunday announced a 100% tariff on movies produced outside the United States.

"The negative impact on services activity and inflation from the tariffs and government spending cuts are very real and already beginning to materialize," said Scott Anderson, chief U.S. economist at BMO Capital Markets. "Without a hard pivot in U.S. tariffs and government spending cuts, we expect the ISM services readings to remain under downward pressure."

The ISM said its nonmanufacturing purchasing managers index (PMI) increased to 51.6 last month from 50.8 in March. Economists polled by Reuters had forecast the services PMI dipping to 50.2.

A PMI reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of the economy. The ISM associates a PMI reading above 49 over time with growth in the overall economy.

Efforts by businesses and households to get ahead of the import duties likely accounted for some of the rise in the services PMI last month. The ISM survey's new orders measure increased to 52.3 from 50.4 in March.

Inventories also rose, with some businesses saying they had "purchased some products in advance of tariffs." Others attributed the rise to increased sales volumes.

"But overall, results are improving," said Steve Miller, chair of the ISM Services Business Survey Committee.

The survey added to solid job growth in April in offering assurance that the economy was not near a recession despite gross domestic product contracting in the first quarter, burdened by a massive inflow of imports as businesses sought to avoid higher prices from tariffs.

"The economy continued to expand at the start of second quarter, albeit at a slow pace," said Matthew Martin, a senior U.S. economist at Oxford Economics. "We expect the services side of the economy to fare better than the manufacturing sector this year but will be unable to avoid the impact of higher prices and weaker consumer spending as real disposable incomes decline."

Stocks on Wall Street were trading lower. The dollar slipped against a basket of currencies. U.S. Treasury yields rose.

Eleven industries including accommodation and food services, wholesale trade, mining and utilities reported growth. Among the six reporting a contraction were finance and insurance as well as public administration.

Businesses in the agriculture, forestry, fishing and hunting sector said "tariffs are negatively impacting small business customers," many of whom "source their products from China." Trump hiked tariffs on Chinese imports to 145%, sparking a trade war with Beijing.

Educational services companies worried about the White House's cuts to research funding, while their counterparts in the healthcare and social assistance sector reported they were "seeing some vendors increasing their prices," adding that "we are actively pushing back on those increases."

Providers of public administration services said "our business is in a state of crises with uncertainty caused by both the ongoing trade war and the threats to federal funding of programs."

The swirling uncertainty was seen encouraging the Federal Reserve to leave interest rates unchanged on Wednesday.

Suppliers' delivery performance worsened last month, suggesting supply chains were starting to get strained. The ISM survey's supplier deliveries index increased to 51.3 from 50.6 in the prior month. A reading above 50 indicates slower deliveries.

A lengthening in suppliers' delivery times is normally associated with a strong economy, which would be a positive contribution to the PMI. Delivery times are, however, likely getting longer because of the rush to beat tariffs.

Some businesses reported "steel conduit lead times have increased due to factories unable to keep up with demand."

With supply bottlenecks emerging, the survey's measure of prices paid for services inputs jumped to 65.1. That was the highest reading since January 2023 and followed 60.9 in March.

Seventeen services industries reported a rise in prices, with the exception of arts, entertainment and recreation.

Most economists anticipate the tariff hit to inflation and employment could become evident by summer in the so-called hard economic data. Services sector employment continued to decline, though the pace slowed. The survey's measure of services employment increased to 49.0 from 46.2 in March.

Companies attributed the rise to "backfilling many empty positions." Others noted hiring freezes "due to uncertainty of government grants."

"A stable labor market remains key for the economic outlook as the potential determining factor for sustaining consumers through whatever tariff-related disruptions are lurking in the months ahead," said Tim Quinlan, a senior economist at Wells Fargo. "The labor market is holding up, but for how long remains a key question for growth this year."

Source: Reuters

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Adam

Stocks

American media stocks fell on Monday after President Donald Trump unveiled a 100% tariff on all movies produced outside the U.S., in his latest levies that could sharply raise costs for Hollywood studios and roil the global entertainment industry.

Trump's announcement was light on details. It did not say whether the duties will apply to films on streaming platforms as well as theatrical releases, nor did it detail whether tariffs would be based on production costs or box office revenue.

"There is too much uncertainty, and this latest move raises more questions than answers," said PP Foresight analyst Paolo Pescatore. "It doesn't feel like something that will happen in the short term as everyone will be grappling to understand the whole process. Inevitably costs will be passed on to consumers."

The move dashed hopes that Trump was backing away from his aggressive trade agenda, which has rattled business confidence, clouded the outlook for U.S. assets and dented economic growth.

The tariffs could particularly hit Netflix (NFLX.O), opens new tab as the streaming pioneer relies on its global production network to produce content for international audiences. Its shares tumbled 2.5% in early trading.

Disney (DIS.N), opens new tab, Warner Bros Discovery (WBD.O), opens new tab and Universal-owner Comcast (CMCSA.O), opens new tab fell between 0.7% and 1.7%. Stocks of theater operators such as Cinemark (CNK.N), opens new tab and IMAX (IMAX.N), opens new tab were down 5.4% and 5.9%, respectively.

Imax declined to comment, while others did not respond to requests for comment.

Despite Los Angeles' historic reputation as the hub of cinema, studios have over the years shifted production overseas to locations such as the UK, Canada and Australia to take advantage of generous tax credits and lower labor costs.

Most of this year's Oscar best picture nominees were filmed outside the U.S. and a survey among studio executives over their preferred production locations for 2025 to 2026 by ProdPro showed that the top five choices were all overseas.

Forcing a return to U.S. soil would drive up production budgets and disrupt a global production supply chain that now includes shooting in Europe, post-production in Canada and visual effects work in Southeast Asia.

US media stocks fall as Trump threatens 100% tariff on foreign-made films_1

Production spending in U.S. decreased by 26% compared to 2022

"The problem is that pretty much all the studios are moving tons of production overseas to reduce production costs," said Rosenblatt Securities analyst Barton Crockett.

"Raising the cost to produce movies could lead studios to make less content. There's also a risk of retaliatory tariffs against American content overseas.

Hollywood is already in the crosshairs of China, which vowed last month to curb U.S. movie imports in retaliation for the latest broader tariffs. But analysts said the hit may be limited as box office returns from China have been declining.

Still, any tariffs would put further pressure on an industry already reeling from cord-cutting and rising labor costs after the 2023 Hollywood strikes secured higher pay and broader benefits for writers and actors.

STOKING CONCERNS

Trump's tariff threat - framed as a national security move - sparked concern across the global film industry.

Leaders in Australia and New Zealand, key locations for Marvel movies and "The Lord of the Rings," said they would defend local film industries. British media union Bectu urged the government to protect the country's "vital" film sector, warning tens of thousands of freelance jobs were on the line.

Matthew Stillman, CEO of Prague-based Stillking Films, one of the biggest producers of U.S.-financed international content in Central and Eastern Europe, said the tariff threat risked derailing global production pipelines.

"We are awaiting clarity about how the tariff is calculated and whether its on international rebated production, film financing or U.S. distribution - all of which have implications and complications," he said.

Analysts also said enforcement would be tough, as major media conglomerates could restructure operations to skirt the duties, producing content through foreign subsidiaries or licensing content across borders.

"A single movie can also be shot in several countries, as is the case with many James Bond movies, so it is unclear if another way around this is by having just a few scenes filmed in the U.S.," said Emarketer analyst Ross Benes.

"It's another half-baked idea that will introduce panic for workers in the marketplace as the legality and enforcement are worked out ex post facto."

Source: reuters

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Adam

Commodity

After a surprise decision to increase production by 411,000 barrels per day in April, OPEC+ on Saturday announced a similar increase starting in June.

While OPEC+ had initially planned to gradually return the 2.2 million barrels per day in production cuts decided at the end of 2022 to the market, the pace is now faster. This decision wasn't really liked by the market at a time when global growth is being revised downward due to the impact of the US trade policy. This explains the drop in oil prices, which are now at their lowest level since 2021 and down about 20% for the year.

The OPEC+ decision may seem surprising, given that for several years the cartel has been working to keep prices at relatively high levels. However, Saudi Arabia seems frustrated by a situation in which it has borne the brunt of production cuts—the kingdom reduced its output by 2 million barrels per day—while other members, such as Kazakhstan and Iraq, have prioritized their own interests and consistently exceeded their quotas.

On the stockmarket, this drop in prices has led to a significant underperformance by oil companies, whose results are directly affected. TotalEnergies, for example, is down 5% in 2025, compared with an increase of around 5% for the CAC40 over the same period.

Nevertheless, the decline in oil prices is benefiting companies whose costs are heavily dependent on oil prices. This is the case, for example, with airlines. On Monday, Ryanair shares were up 6%, while Air France-KLM and Lufthansa both gained 2%.