Federal Reserve Faces Tough Balancing Act Between Fighting Inflation and Spurring Economic Growth

Economic

China–U.S. Trade War

Summary:

The Fed is expected to hold rates steady as it assesses the inflationary impact of Trump’s tariffs. Political pressure mounts, but uncertainty keeps policymakers cautious.

The Federal Reserve could keep its key rate unchanged for several more months as it evaluates the impact of President Donald Trump’s widespread tariffs on hiring and inflation, some economists say, even as the White House pushes for a rate cut.

The Fed is nearly certain to keep its rate unchanged when it concludes its latest policy meeting Wednesday. Chair Jerome Powell and other Fed officials have signaled that they want to see how the duties — including 145% on all imports from China — impact consumer prices and the economy.

The central bank’s caution could lead to more conflict between the Fed and the Trump administration. On Sunday, Trump again urged the Fed to cut rates in a television interview and said Powell “just doesn’t like me because I think he’s a total stiff.” With inflation not far from the Fed’s 2% target for now, Trump and Treasury Secretary Scott Bessent argue that the Fed could reduce its rate. The Fed pushed it higher in 2022 and 2023 to fight inflation.

If the Fed were to cut, it could lower other borrowing costs, such as for mortgages, auto loans, and credit cards, though that is not guaranteed.

Trump also said Sunday he wouldn’t fire Powell because the chair’s term ends next May and he will be able to appoint a new chair then. Yet if the economy stumbles in the coming months, Trump could renew his threats to remove Powell.

A big issue facing the Fed is how tariffs will impact inflation. Nearly all economists and Fed officials expect the import taxes will lift prices, but it’s not clear by how much or for how long. Tariffs typically cause a one-time increase in prices, but not necessarily ongoing inflation. Yet if Trump announces further tariffs — as he has threatened to do on pharmaceuticals, semiconductors, and copper — or if Americans worry that inflation will get worse, that could send prices higher in a more persistent way.

Kathy Bostjancic, chief economist at Nationwide, said this could keep the Fed on the sidelines until September.

“It’s hard for them to cut sooner because they’ve got to weigh, what’s the inflation impact?” Bostjancic said. “Is this going to be somewhat persistent and add to inflation expectations?”

Economists and the Fed are closely watching inflation expectations, which are essentially a measure of how much consumers are concerned that inflation will worsen. Higher inflation expectations can be self-fulfilling, because it Americans think prices will rise, they can take steps that push up costs, such as asking for higher wages.

For now, the U.S. economy is mostly in solid shape, and inflation has cooled considerably from its peak in 2022. Consumers are spending at a healthy pace, though some of that may reflect buying things like cars ahead of tariffs. Businesses are still adding workers at a steady pace, and unemployment is low.

Still, there are signs inflation will worsen in the coming months. Surveys of both manufacturing and services firms show that they are seeing higher prices from their suppliers. And a survey by the Federal Reserve’s Dallas branch found that nearly 55% of manufacturing firms expect to pass on the impact of tariff increases to their customers.

“The bottom line is that inflation will be rising significantly over the next six months,” Torsten Slok, chief economist at the Apollo Group, said in an email.

Yet the tariffs could also weigh heavily on the economy, particularly because of the uncertainty they have created. Huge tariffs on about 60 other nations, announced April 2, were then postponed until July 9, but could be reimposed. Business surveys show that firms are postponing investment decisions until they have greater clarity.

Ryan Sweet, chief U.S. economist at Oxford Economics, said the uncertainty surrounding trade policy gives him “night terrors.”

“The economics of uncertainty are absolutely suffocating,” Sweet said. “Businesses that don’t know the rules of the road, their knee-jerk reaction is to sit on their hands. And that’s what they’re doing.”

But if the uncertainty delays hiring, slows the economy and pushes up the unemployment rate, the Fed could quickly shift toward interest rate cuts. A sharp economic slowdown could eventually cool inflation by itself, economists say.

“If you felt like the economy was really slowing down, then I think that would probably take precedence (over inflation), because usually the way the committee thinks is that will also drag inflation somewhat with it,” said Jim Bullard, former president of the Federal Reserve’s St. Louis branch, and currently dean of Purdue University’s business school.

In March, the Fed signaled that it could cut rates twice this year. But since then, the Trump administration imposed duties that Powell said last month were larger and broader than the Fed expected.

The duties, Powell acknowledged, could both slow growth and lift prices, which puts the Fed in a tough spot. It would usually cut rates to boost growth and hiring, while it would raise them to cool spending and inflation.

The Fed could reduce rates preemptively to help forestall a slowdown. But with such large tariffs in place, Powell has signaled that the Fed wants to see how they affect inflation before making any moves.

“Without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans,” Powell said.

Source: AP

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Dark Current

Economic

Commodity

Energy

The Energy Information Administration (EIA) released its weekly report on Crude Oil Inventories, showing a decline in the number of barrels of commercial crude oil held by US firms. The data revealed that inventories decreased by 2.032 million barrels, a figure that surpasses the forecasted decline of 1.700 million barrels.

In comparison to the previous week’s data, the current figure is less than the 2.696 million barrel decrease. However, it still indicates a greater-than-expected reduction, which is a bullish indicator for crude prices. The level of inventories can significantly influence the price of petroleum products, and in turn, can have a substantial impact on inflation.

A decrease in crude inventories that is more than expected implies a stronger demand for crude oil, which can push prices higher. Conversely, an increase in inventories that surpasses expectations implies weaker demand and can put downward pressure on crude prices.

In this instance, the reported decrease in inventories, although less than the previous week, was still more than what was forecasted. This indicates a robust demand for crude oil, which is a positive sign for crude prices.

The EIA’s Crude Oil Inventories report is one of the key indicators watched by traders and investors, given its potential impact on the energy market and broader economy. Its importance is underscored by the fact that changes in crude oil prices can affect inflation, consumer spending, and the overall economic outlook.

This week’s data suggests that demand for crude oil remains strong, which could provide support for crude prices in the coming days. However, market participants will continue to closely monitor future inventory reports, as well as other factors such as global oil supply and demand dynamics, geopolitical developments, and economic indicators, in order to gauge the direction of crude prices.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Source: Investing

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Adam

Commodity

Gold and silver futures prices are lower in early U.S. trading Wednesday, on some profit-taking following gains scored earlier this week and on an uptick in risk appetite today. Position evening is also featured just ahead of the conclusion of the Federal Reserve’s FOMC meeting this afternoon. June gold was last down $28.90 at $3,393.90. July silver prices were last down $0.256 at $33.125.

Asian and European stock markets were mixed in overnight trading. U.S. stock indexes are pointed to higher openings today in New York. Risk appetite has improved at mid-week as reports say U.S. and Chinese officials are set to meet in Switzerland late this week to discuss trade. U.S. Treasury Secretary Scott Bessent will lead the U.S. delegation.

The Federal Reserve’s FOMC interest rate decision comes on Wednesday afternoon. The marketplace consensus is that the FOMC will not lower U.S. interest rates. As always, the FOMC statement and press conference from Fed Chair Jerome Powell will be very closely scrutinized for clues on the trajectory of Fed monetary policy in the weeks and months ahead. Wording on inflationary pressures will also be very important to the marketplace, as will the central bank’s latest take on trade tariffs and the global trade war.

In other overnight news, China’s central bank said today it will lower its interest rates and inject more liquidity into its financial system in an effort to boost the Chinese economy. The moves by the People’s Bank of China are not seen as aggressive.

Traders and investors are keeping an eye on developments in India and Pakistan. Reports say Pakistan has vowed to retaliate after India carried air strikes with 26 people reported killed. India said it carried out air strikes on nine terrorist camps in Pakistan and the disputed region of Kashmir. India said it targeted the planners of the Pahalgam attack that claimed 25 lives in late April as a result of a terrorist attack. Said broker SP Angel: “We would not be surprised if the attacks were pre-cleared with the Pakistan government. It might be difficult for the Pakistan government to attack and contain certain terrorist groups within its own territory.”

The key outside markets today see the U.S. dollar index firmer. Nymex crude oil futures prices are slightly higher and trading around $59.50 a barrel. The yield on the benchmark 10-year U.S. Treasury note is presently at 4.312%.

U.S. economic data due for release Wednesday includes the weekly MBA mortgage applications survey, consumer credit and the weekly DOE liquid energy stocks report.

Profit-taking price pressure on gold, silver as FOMC conclusion looms_1

Technically, June gold futures bulls have the solid overall near-term technical advantage. Bulls’ next upside price objective is to produce a close above solid resistance at the contract/record high of $3,509.90. Bears' next near-term downside price objective is pushing futures prices below solid technical support at last week’s low of $3,209.40. First resistance is seen at the overnight high of $3,448.20 and then at $3,475.00. First support is seen at the overnight low of $3,367.00 and then at Tuesday’s low of $3,332.10. Wyckoff's Market Rating: 7.5.

Profit-taking price pressure on gold, silver as FOMC conclusion looms_2

July silver futures bulls have the overall near-term technical advantage. Silver bulls' next upside price objective is closing prices above solid technical resistance at $34.015. The next downside price objective for the bears is closing prices below solid support at $31.00. First resistance is seen at the overnight high of $33.48 and then at $34.015. Next support is seen at the overnight low of $32.93 and then at Tuesday’s low of $32.625. Wyckoff's Market Rating: 6.0.

Source: kitco

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Damon

Economic

“We now live in a world that is losing faith in the US dollar,” Co-Founder Brad Dunkley said in a letter to investors seen by Bloomberg News. “Central banks and ordinary citizens, particularly in India, China and developing markets, have increasingly turned to gold to preserve their purchasing power.”

Dunkley said he expects gold will “do much of the heavy lifting” for the firm’s funds in 2025. Still, its two flagship funds, Waratah One and Waratah One X, lost 3.3% and 5% in the first quarter, respectively. The firm’s long-biased fund gained about 2% and its thematic fund climbed 4.5%.

Gold has surged to new records this year as investors and traders take a dimmer view of the US dollar amid President Donald Trump’s shifting trade and economic policies. The price of gold touched $3,500 for the first time last month, and the metal’s value is up by more than 45% over the past year.

Toronto-based Waratah expects the prices of copper, natural gas, and electricity to continue rising as the use of artificial intelligence proliferates, but remains skeptical that AI processing will ever be a good business. “There are just too many competitors lacking meaningful differentiation,” Dunkley wrote.

“The trillions of dollars being spent on quickly depreciating capital reminds me of the rollout of high-speed fiber optics: consumers and businesses are going to be the beneficiaries, not the capital spenders,” he said.

Waratah’s long-short equity fund, which has C$247 million ($179 million) in assets as of the end of February, increased its exposure to Canadian stocks — particularly engineering and construction companies — ahead of the country’s April 28 election. The firm expects higher infrastructure spending — a promise made by Prime Minister Mark Carney — as Canada responds to tariff threats, portfolio manager Jason Landau wrote in the same letter.

Other stock holdings include Nexgen Energy Ltd., a Canadian company with assets in Saskatchewan that has the potential to become a large uranium producer. The company is awaiting its final federal permit, which Landau said may be expedited after the election.

Waratah, founded by Dunkley and Blair Levinsky, managed about C$3.8 billion as of Feb. 28 for wealthy individuals, family offices, foundations and pension funds.

Source: Bloomberg Europe

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Warren Takunda

Cryptocurrency

Key takeaways:

Bitcoin gained 2% to $96,530 on May 7, fueled by US-China trade deal hopes.

BTC price rises with $83.6 million in short liquidations, with open interest up 26% to $64.4 billion, signaling strong bullish momentum.

A classic bullish reversal pattern is still in play, targeting BTC price at $100,000 and beyond.

Bitcoin is up today, rising over 3% in the last 24 hours to over $97,000 on May 7. Its daily trading volume has jumped 37% to $31.7 billion. Why Is Bitcoin Price Up Today?_1

BTC/USD daily chart. Source: Cointelegraph/TradingView

Let’s take a look at the factors driving Bitcoin price up today.

Bitcoin rises on hopes of a US-China trade deal

Bitcoin briefly hit $97,700 during the early Asian trading hours on May 7, driven by optimism over potential US-China trade talks.

Disclosing plans to travel to Switzerland to meet a team from China’s Ministry of Commerce, US Treasury Secretary Scott Bessent said:

“The current tariffs and trade barriers are unsustainable, but we don’t want to decouple.”

China's commerce ministry signaled openness to negotiations following US outreach. This has boosted risk appetite across markets, including cryptocurrencies.

Despite the surge, skepticism remains, with Polymarket bettors giving only a 25% chance of a deal by June.

The focus remains on the May 7 FOMC meeting, where the US Federal Reserve is expected to deliver its decision on interest rate cuts. Traders are growing less confident that the Fed will ease monetary policy, with the chances of interest rates remaining unchanged after today’s meeting standing at 95.6%, as per the CME FedWatch Tool. Why Is Bitcoin Price Up Today?_2

Target probabilities for May 7 Fed meeting. Source: CME FedWatch

While numerous analysts believe that Bitcoin’s price will rally regardless of the Fed's decision, traders remain on edge. Any shift in Fed Chair Jerome Powell's tone could impact risk appetite and trigger market volatility.

Over $83 million in BTC shorts liquidated

BTC’s recovery on May 7 is accompanied by significant liquidations in the derivatives market, signaling strong upward momentum.

Over $83.6 million of short Bitcoin positions have been liquidated over the last 24 hours, compared to $15 million in long liquidations. Bearish traders are forced to sell their positions when short positions are liquidated. Why Is Bitcoin Price Up Today?_3

Total Bitcoin liquidations. Source: CoinGlass

The scale of these liquidations mirrors the period between March 23 and March 25, when a total of $122 million in short BTC positions were wiped out, accompanying a 6% rise in price over the same period.

Bitcoin’s open interest (OI) has also climbed steadily over the last 30 days, up 26% from $50.8 billion on April 8 to $64.4 billion at the time of writing. BTC OI has jumped by 4% over the last 24 hours, reflecting increased trader participation. Why Is Bitcoin Price Up Today?_4

BTC futures open interest. Source: CoinGlass

Although the funding rate briefly flipped negative on May 5, it increased to 0.0046% on May 7, suggesting a stronger bullish conviction. Why Is Bitcoin Price Up Today?_5

BTC OI-weighted funding rate. Source: CoinGlass

Bitcoin price still validating falling wedge pattern

Bitcoin’s ongoing price rise is part of a breakout from its prevailing falling wedge, a classic bullish reversal pattern.

Additionally, Bitcoin has reclaimed key support levels, including all the major moving averages and the yearly open at $93,000.

A key barrier now sits at $98,000. A breach of this level will see Bitcoin’s price rise to hit the technical target of the falling wedge at $100,200. Why Is Bitcoin Price Up Today?_6

BTC/USD daily chart. Source: Cointelegraph/TradingView

On the other hand, the emergence of the bearish divergence from the RSI points to a possible weakening of momentum. A daily candlestick close below $93,000 could drive prices back toward the $90,000-$87,000 level, where the 200-day, 10-day and 50-day SMAs are.

Source: Cointelegraph

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Michelle

Economic

Commodity

Gold prices fell more than 1% on Wednesday as hopes around trade talks between the United States and China weighed on the safe-haven metal ahead of a Federal Reserve rates decision later in the day.

Spot gold was down 1.2% at $3,388.49 an ounce as of 1141 GMT, after a sharp rise in the previous session.U.S. gold futures lost 0.8% to $3,396.70."Late yesterday, reports emerged of a potential meeting between U.S. and Chinese officials this week, which could bolster sentiment if confirmed by Chinese and U.S. authorities," said Zain Vawda, analyst at MarketPulse by OANDA.U.S. Treasury Secretary Scott Bessent and chief trade negotiator Jamieson Greer will meet top Chinese economic official He Lifeng in Switzerland this weekend to discuss tariffs.

The U.S. and China imposed tit-for-tat tariffs last month, triggering a trade war that stoked global recessionary fears and prompting investors to take refuge in safe-haven assets such as gold.

Market focus now shifts to the Fed policy announcement at 1800 GMT. The central bank is widely expected to keep rates steady but investors will look for signals on future cuts.

Markets now imply only a 30% chance of a Fed rate cut in June, according to the CME FedWatch Tool.

Gold, traditionally seen as a hedge against economic and political uncertainties, tends to thrive in a low interest rate environment.

On the geopolitical front, India attacked Pakistan and Pakistani Kashmir on Wednesday and Pakistan said it had shot down five Indian fighter jets in the worst fighting in more than two decades between the two nuclear-armed enemies.

"If the current friction between India and Pakistan escalates into a more serious conflict, gold is likely to attract increased safe-haven demand, which could support prices further," Vawda said.

Elsewhere, spot silver slipped 1% to $32.91 an ounce, platinum eased 0.3% to $988 and palladium edged 0.7% higher to $981.25.

Source: Kitco

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Warren Takunda

Economic

China–U.S. Trade War

The three main U.S. stock indexes inched higher on Wednesday as hopes for a de-escalation in trade tensions with Beijing firmed and investors awaited the Federal Reserve's interest-rate decision later in the day.

Washington announced late on Tuesday that representatives of the two countries would meet over the weekend in Switzerland for ice-breaker trade discussions.

The meetings will follow weeks of tit-for-tat tariffs that roiled financial markets and flagged concerns about global economic growth.

Mixed signals from the world's two biggest economies recently on the status of the negotiations have led to uncertainty, pushing many companies to shelve their forecasts. The U.S. central bank, meanwhile, adopted a wait-and-watch approach despite signs of slowing growth.

President Donald Trump's administration has said potential deals with major trading partners are underway, but markets are yet to see tangible results on that front.

"There's a lot of theater that's going to go on, but I would think that (moving forward) sooner rather than later is probably what both parties want," said Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh.

"It's become clear that a lot of the tariff talks are more for discussions on how to change trade."

At 09:43 a.m. ET, the Dow Jones Industrial Average rose 221.20 points, or 0.54%, to 41,050.20, the S&P 500 gained 18.42 points, or 0.33%, to 5,625.33, and the Nasdaq Composite gained 43.41 points, or 0.25%, to 17,733.07.

Seven of the 11 S&P 500 sectors ticked up, with communication services among top advancers, helped by Walt Disney's 10.4% rise after the streaming firm's quarterly results topped Street expectations.

The U.S. Federal Reserve is scheduled to announce its policy decision on Wednesday afternoon, when it is widely expected to hold interest rates steady.

Traders are now roughly pricing in a rate cut by July, according to data compiled by LSEG, after a mixed bag of reports last week signaled a slowing U.S. economy and resilient labor market.

Commentary from policymakers will be scrutinized for clues on how they plan to approach monetary policy easing this year, given the backdrop of Trump's criticism of Fed Chair Jerome Powell as well as repeated calls for lower interest rates, which spooked investors in April.

Wall Street ended lower for the second straight session on Tuesday, but all indexes have recouped declines logged since Trump's announcement of "Liberation Day" reciprocal tariffs on April 2.

Advanced Micro Devices was up 2.2% after the chipmaker forecast revenue for the second quarter above Street estimates.

Uber dropped 6% as the ride-hailing company missed quarterly revenue expectations.

CrowdStrike dropped 3.9%. The cybersecurity company reiterated its fiscal 2025 and 2026 forecasts and announced a plan to cut jobs.

Contract research firm Charles River Laboratories shot up 20% after it said it had reached an agreement with activist investor Elliott Investment Management and raised its 2025 earnings forecast.

Arista Networks fell 6.9% after its quarterly report.

Advancing issues outnumbered decliners by a 2.37-to-1 ratio on the NYSE, and by a 1.6-to-1 ratio on the Nasdaq.

The S&P 500 posted seven new 52-week highs and three new lows, while the Nasdaq Composite recorded 24 new highs and 37 new lows.