Fed Chair Powell Holds Firm On 'Wait-And-See' Approach To Rate Cuts

The European Central Bank (ECB) is well-placed to tackle “exceptionally high” economic and political uncertainty, president Christine Lagarde said.

Addressing European lawmakers in Brussels, Lagarde said inflation is set to stabilise around the 2% goal and risks to economic growth remain tilted to the downside.

“At the current interest-rate levels, we believe that we are in a good position to navigate the uncertain circumstances,” she said on Monday. “Especially in the current conditions of exceptional uncertainty, we will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance.”The comments reaffirm Lagarde’s position after a weekend in which the US launched strikes on Iran’s nuclear infrastructure — sending oil prices higher and throwing the global economic outlook into question.

After eight rate cuts in a year, ECB officials are weighing whether to lower borrowing costs further. While Lagarde said in early June that the easing campaign is nearing an end, some policymakers reckon more may be needed to support the 20-nation economy.

Surprisingly strong expansion of 0.6% at the start of 2025 was partly down to exporters front-running US tariffs. Data earlier on Monday showed the eurozone’s private sector barely grew this month as trade and geopolitical uncertainty keeps companies from from investing and households from spending.

Investors and analysts reckon the key deposit rate will be left at 2% next month, but they’re leaning toward one more quarter-point cut before year-end.

“We are not pre-committing to a particular rate path,” Lagarde said.

Source: Theedgemarkets

The U.S. Federal Reserve has time to study the effect of rising import tariffs on prices and economic growth before deciding on further interest rate cuts, Kansas City Fed President Jeff Schmid said on Tuesday.

"The current posture of monetary policy, which has been characterized as 'wait-and-see,' is appropriate," Schmid said in remarks prepared for delivery to an agricultural summit in Nebraska.

"The resilience of the economy gives us the time to observe how prices and the economy develop," before changing the benchmark policy rate, said Schmid, a voter this year on the Fed's rate-setting Federal Open Market Committee, which next meets on July 29-30.

The Fed has held its benchmark rate steady in a range from 4.25% to 4.5% since December, despite calls from President Donald Trump for rate cuts.

Fed officials in recent projections anticipate two rate cuts by the end of the year, but have highlighted uncertainty around trade policy and in general expect to see slower growth, higher unemployment and higher inflation in coming months.

Inflation remains above the Fed's 2% target, and "contacts almost uniformly expect increased tariffs to push up prices and to weigh on activity," Schmid said, adding it seemed "likely" the Fed's inflation and job goals "will come into conflict."

But "there is far less clarity on when and by how much," said Schmid, an argument for leaving interest rates unchanged until the economy's direction is clearer.

Source: Yahoo Finance

Canadian consumer prices held steady while core measures eased slightly, likely giving some relief to Bank of Canada policymakers who had raised concerns about hotter underlying inflation prints in recent months.

The consumer price index (CPI) rose 1.7% from a year ago in May, Statistics Canada data showed on Tuesday. The yearly pace was unchanged from April, and also matched the median projection in a Bloomberg survey of economists.

The index increased 0.6% on the month, slightly faster than economist estimates, due to smaller price declines for gas and cellular services. Excluding energy, yearly inflation eased to 2.7% in May, after April’s 2.9% increase.

The Bank of Canada’s two preferred core inflation measures both decelerated to a 3% yearly pace, from 3.1% in April and also matching economists’ median projection. However, officials likely need to see more progress on core inflation before stepping off the sidelines and resuming cutting.

Traders in overnight swaps slightly reduced the odds of a rate cut at the central bank’s next meeting on July 30, to about one-third from close to 40% previously. The government of Canada two-year bond yield rose about two basis points to 2.637%, while the loonie traded at C$1.3706 per US dollar as of 9.30am in Ottawa.

Governor Tiff Macklem and his officials held interest rates at 2.75% for the past two meetings, and cited the rise in core inflation as a reason for remaining on hold again earlier this month. Policymakers are waiting to see whether the firmness in underlying inflation is temporary or persistent.

The three-month moving average of the bank’s preferred core rates fell to 3%, from 3.4% previously. The share of components within the CPI basket that are rising by 3% and higher — another key metric that policymakers are watching closely — shrank to 37.3%, from 39.1% in April.

While the economy has started showing softness in the second quarter, a deep downturn isn’t a likely outcome, giving the central bank some time to weigh a response. Some economists believe policymakers are already near the end of their easing cycle, while others anticipate at least one more cut this year. Statistics Canada will release another inflation report before the July 30 decision.

“The moderation in core measures is a step in the right direction for the Bank of Canada and they will want that progress to be maintained in the next report in order to feel comfortable cutting in July,” Katherine Judge, economist at Canadian Imperial Bank of Commerce, said in a report to investors.

A car refuels at a Shell gas station in Victoria, British Columbia. Excluding energy, yearly inflation eased to 2.7% in May, after April’s 2.9% increase.

Karl Schamotta, chief market strategist at Corpay, said although a cut in October seems most probable, July remains on the table. “Inflation is clearly continuing to moderate, and new evidence in the weeks ahead could clinch an earlier move,” he told investors.

A July cut makes “little sense,” argued Kyle Chapman, FX markets analyst at Ballinger Group. “The figure that really matters is core inflation. And here we are not seeing the necessary softening to convince policymakers that they can safely lower rates by another 25 basis points,” he said in an email.

“The May data show some core price pressures, and these steady, elevated measures will likely keep monetary policymakers uneasy. But with inflation risk increasingly skewed to the downside, we think odds favor additional rate cuts in the second half of the year,” says Stuart Paul, US and Canada economist at Bloomberg Economics.

Prices for rent rose 4.5%, compared with April’s 5.2% increase, with price growth slowing most in Ontario, as the country’s population increases were tempered by the federal government’s efforts to curb immigration.

US President Donald Trump’s tariffs and trade war with Canada have influenced some of the price changes in May, the statistics agency said.

With many Canadians increasingly avoiding trips to their southern neighbour, the negative sentiment appeared to be cooling prices of travel tours and air transportation, which fell 0.2% and 10.1% on an annual basis, respectively.

Higher prices for some electric vehicles led to stronger price increases for new cars in May, rising 4.9% from a year ago, versus April’s pace of 4.6%.

Out of 10 Canadian provinces, six saw prices rising at a faster pace in May compared with April. Quebec, Manitoba and Saskatchewan saw slower price growth, and inflation held steady in Nova Scotia.

“Strip out energy effects — mostly from carbon tax removal — and inflation has really held steady on many indicators,” said Andrew DiCapua, principal economist at the Canadian Chamber of Commerce, referring to the federal government canceling the consumer carbon tax.

“With economic growth anticipated to slow, the bank will likely shift focus in the next month to potential downside risks.”

Source: Theedgemarkets

Like the casino owner he once was, President Donald Trump has shown an appetite for risk during the first months of his administration.

The U.S. airstrike on Iran, however, may represent Trump's largest gamble yet. While the potential for political reward is high and largely dependent on whether Trump can maintain the fragile peace he is trying to forge between Iran and Israel, experts say, there is a downside risk of events spiraling out of Trump’s control while a skeptical American public watches.

For now, Trump appears to have won his bet that he could limit U.S. involvement and force the parties to a ceasefire. “He wagered,” said Firas Maksad, managing director for the Middle East and North Africa practice at Eurasia Group. “Things went his way.”

It remains to be seen whether the ceasefire will hold. Early Tuesday, Trump expressed frustration that Israel had launched an attack on Tehran hours after the president had declared a break in the hostilities.

If the agreement doesn’t stick - or if Iran ultimately retaliates militarily or economically - Trump risks fragmenting the America First coalition that helped power him back into office by rendering what his movement stands for increasingly nebulous and ill-defined.

“If six months from now, Iran continues to be a problem, it will grind down the MAGA coalition,” said Chris Stirewalt, a political analyst with the conservative American Enterprise Institute.

Trump, in a sense, has already diluted the MAGA brand, Stirewalt said, by doing what he swore on the campaign trail he wouldn’t: involve the United States in another conflict in the Middle East.

And Trump's messaging may already show the challenges that could be faced with winning approval from his base. Last Thursday, Trump said he would take as long as two weeks to determine whether the U.S. would join the war on Israel’s side, arguing the time was needed to lower the temperature.

Instead, two days later, he approved the bomber run, not only likely catching the Iranians off guard but many Americans as well.

His choice to hit Iran could also pose problems for whichever Republican tries to claim his mantle in the next presidential election. “In 2028, the question of foreign intervention will be a dividing line. It will be a litmus test as people struggle to define what MAGA is,” Stirewalt said.

The White House largely left it to Vice President JD Vance, one of the most isolationist members of the administration, to defend the Iranian strike on a Sunday news program. Vance is viewed as one inheritor of the MAGA movement after Trump leaves office, and would be forced to reconcile his support of the strike with his personal politics.

BETTING BIG

Iran has not been the only example of where Trump has bet big and the payoff remains elusive.

His on-again-off-again use oftariffshas sparked uncertainty in markets and stoked inflation fears. His efforts to slash the government bureaucracy have lost momentum with the departure of Elon Musk from his circle of advisers. His hardline immigration push sparked protests across the country.

But if Trump does succeed in his efforts to push Iran to abandon its nuclear weapon ambitions, it would make for a legacy-building achievement in a region that has bedeviled U.S. presidents for decades and seen the nation pulled into wars in Iraq and Afghanistan.

Trump campaigned on ending the "forever wars" — which may be one reason why the American public appears to be jittery about his aggression toward Iran.

A Reuters/Ipsos poll released on Monday, and conducted before the ceasefire was announced, showed that only 36% of those surveyed supported the strikes against Iran’s nuclear program.

Overall, Trump’s approval rating fell to 41%, a new low for his second term. His foreign policy received even lower marks.

Dave Hopkins, an expert on U.S. politics at Boston College, said that with his seemingly sudden move to launch an attack, Trump neglected to make a case in advance to the American people that the strike was in U.S. interests.

“We have not seen discussion of Iran as a major enemy of the U.S. or a threat to the U.S.,” Hopkins said.

The White House defended Trump's actions as vital and successful.

“In just 48 hours, President Trump accomplished what his predecessors have only dreamed about – Iran’s nuclear capabilities are obliterated following the flawless execution of Operation Midnight Hammer, a ceasefire has been brokered to conclude the ’12-Day-War,’ and the entire world is safer. Americans can sleep well at night knowing that our nation is secure because President Trump is in charge,” Anna Kelly, a White House spokeswoman, said.

PROMISES, PROMISES

Trump’s boast that he had forced a ceasefire was part of a pattern, Hopkins said. As a candidate, Trump promised he could end the wars in Ukraine and Gaza, but has since discovered he cannot bend Moscow and Jerusalem to his will. In fact, in striking Iran, Trump followed Israel’s lead, not vice versa.

The strike fits with how Trump has approached his second term, with a willingness to govern in broad strokes and act boldly without widespread public backing. He does not need to worry about facing voters again and works with a largely compliant Republican-controlled Congress.

Along that line, the first months of Trump’s tenure have seen him fire thousands of government workers, green-light immigration raids and deportations that have provoked protests and eroded blue-collar workforces, erect trade barriers on the flow of goods – and now, bomb a Middle Eastern nation.

Political payback may not happen immediately, said Allison Stanger, a political scientist at Middlebury College, but could come in the form of continued civic unrest in America or Democratic gains in next year's midterm elections.

“Trump’s political risk isn't immediate escalation,” Stanger said. “It's the slow burn of resentment he has built across multiple fronts, both foreign and domestic.”

Source: 路透社

Source: Investing

Source: Reuters