Fed’s Bostic Says He Sees One Rate Cut This Year, No Recession

Economic

Forex

Summary:

Federal Reserve Bank of Atlanta President Raphael Bostic said he expects the US economy to slow this year but not fall into recession, and reiterated that he sees one interest-rate cut in 2025.

Bostic said economic growth could come in at 0.5% or 1% this year, as uncertainty and concerns about the outlook weigh on consumers. Fluctuating trade policy has also made businesses more reluctant to make important decisions, Bostic said.

“I have one cut for the year,” Bostic said during a May 14 interview for Bloomberg’s Odd Lots podcast. “In part, it’s because I think the uncertainty is unlikely to resolve itself quickly.”

Bostic pointed to the 90-day delays in the implementation of so-called reciprocal tariffs along with the latest US-China trade de-escalation, noting the final results of the negotiations are still unclear. When asked in the podcast, which aired Friday, if the recent trade truce between the US and China had changed his outlook, Bostic replied, “a little.”

Bostic said last week that he didn’t think it was “prudent” to adjust monetary policy with so little visibility about the path ahead. Fed officials kept interest rates steady at their most recent gathering, and said they see increased risks of both higher unemployment and inflation. Fed Chair Jerome Powell made clear the central bank is in no hurry to lower borrowing costs.

Bostic said economists at the Atlanta Fed see tariffs as putting upward pressure on inflation. That’s a view shared by many forecasters.

“That means that our policy is going to have to anticipate — and to some extent — potentially push against those inflationary forces to the extent that we see them, so that will put a limit on where our current policy stance is,” Bostic said.

Source: Yahoo Finance

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Technical Analysis

Economic

Forex

The EUR/USD pair remained steady near 1.1196 on Friday, closing the week with little movement.

Key drivers influencing EUR/USD

Earlier in the week, the US dollar strengthened as the US-China trade dispute showed signs of easing. However, this optimism was short-lived due to disappointing economic data.

The greenback initially rose by around 1% after Washington and Beijing agreed to reduce tariffs temporarily for 90 days, fuelling hopes of progress toward a broader trade deal. Yet, weak US economic indicators soon dampened sentiment:

●The April producer price index (PPI) fell to 2.4% year-on-year, down from 3.4% and below the forecast of 2.5%

●Month-on-month PPI dropped 0.5%, against expectations of no change

●US retail sales growth slowed sharply to 0.1% in March, following February’s 1.7% surge

●Industrial production stagnated in March after a 0.3% decline in February

These concerning figures have led traders to price in additional Fed rate cuts for 2025.

Technical analysis

The EUR/USD continues to consolidate around 1.1173. A temporary rise to 1.1276 (testing resistance from below) remains possible, but this uptick is considered a corrective phase within the broader downtrend. Once complete, the pair may resume its decline toward 1.0950, this being the first key support level. The MACD indicator confirms this outlook, with its signal line below zero and pointing downward.

The pair has already met a local bullish target at 1.12653, followed by a pullback to 1.1170. Today, another test of 1.1276 is plausible, but the broader expectation remains bearish, with a potential drop towards 1.1100. This scenario is reinforced by the Stochastic oscillator, whose signal line is above 80, suggesting an imminent downward reversal towards 20.

The EUR/USD remains range-bound amid mixed fundamentals and technical signals. While a short-term rebound is possible, the dominant downtrend is expected to prevail, with key support levels at 1.0950 (H4) and 1.1100 (H1). Traders should monitor Fed policy expectations and upcoming economic data for further direction.

Source: ACTIONFOREX

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Economic

Delinquencies Spike as Student Loan Collections Resume

Consumer debt in the United States is experiencing renewed stress as the long-standing moratorium on federal student loan payments officially ended, ushering in a wave of missed payments. According to the Federal Reserve Bank of New York, overall consumer debt delinquency rose sharply to 4.3% in Q1 2025, up from 3.6% the previous quarter and marking the highest rate since 2020. The primary driver of this surge is the rapid deterioration in student loan repayment compliance, after nearly five years of pandemic-related leniency.

Student Loan Delinquency Returns to Pre-Pandemic Levels

The return of mandatory collections has brought student loan delinquency back to what the New York Fed calls the “pre-pandemic normal.” Nearly 8% of total student debt is now classified as seriously delinquent—defined as over 90 days past due—compared to under 1% just a few months earlier. This drastic increase comes after the Biden administration’s proposed $400 billion student debt forgiveness plan was struck down by the U.S. Supreme Court, clearing the way for the Trump administration to resume full-scale collections.

More than 10% of student loan balances are now either delinquent or in default. With a total outstanding balance of $1.63 trillion, student loans now account for 9% of all consumer debt in the U.S., putting tens of millions of borrowers at financial risk.

Credit Scores Plunge as Grace Periods End

One of the most severe consequences of resumed collections is the collapse in credit scores for millions of borrowers. The expiration of the Biden-era “on-ramp to repayment” grace period in September 2024 removed the protective buffer that temporarily prevented missed payments from being reported to credit bureaus.

As a result, many Americans saw their credit scores drop by over 100 points in Q1 2025. The New York Fed reports that 2.4 million of the newly delinquent borrowers had credit scores above 620—high enough to qualify for mortgages, auto loans, or new credit cards before their delinquency status appeared. Now, these borrowers face a sharply reduced ability to access credit markets.

A Shift in Political and Economic Priorities

The Trump administration’s handling of student debt marks a decisive shift away from the borrower-friendly policies of the previous administration. According to U.S. Secretary of Education Linda McMahon, the new policy emphasizes fiscal responsibility and legal limitations on executive authority. McMahon argued that Biden’s plan misled borrowers and placed an unfair burden on taxpayers, stating, “American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies.”

This policy shift may have broader economic consequences. The government is now authorized to recover debts through garnishment of tax refunds, Social Security payments, federal pensions, and even wages—adding further pressure to low- and middle-income households already struggling with inflation and stagnant wage growth.

Future Borrowers Face Interest Rate Headwinds

Beyond those currently in repayment, prospective college students are also facing an increasingly burdensome financial outlook. Interest rates on federal undergraduate loans remain near 15-year highs, tied to the surging 10-year Treasury yield. With borrowing costs elevated and default rates climbing, access to affordable education is becoming a greater financial strain, particularly for low-income students.

The reintroduction of student loan collections is producing measurable financial distress across the U.S. economy. With six million borrowers already in default and millions more facing reduced credit access, the cumulative effects of rising debt burdens may weigh heavily on consumer spending, home buying, and financial stability. As political debates continue over how best to handle the student debt crisis, current indicators suggest that the expiration of forbearance measures has re-exposed a long-standing systemic vulnerability—one that could persist unless broader structural reforms are enacted.

Source: The Fortune

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Economic

China–U.S. Trade War

Trade Tensions Shift Pressure from U.S. to Europe

China, with its $18.5 trillion economy, is recalibrating export flows in the wake of persistent U.S. tariffs. Although a temporary trade truce was signed in Geneva between Vice Premier He Lifeng and U.S. officials, the American tariff wall — now over 30 percentage points higher than at the beginning of 2025 — remains largely intact for China.

This leaves Beijing with limited access to its largest market, pushing Chinese manufacturers to offload excess goods elsewhere — especially to Europe, where trade barriers are lower and regulatory hurdles are less politically charged than in the U.S.

Alarming Trade Imbalance Raises Red Flags in Brussels

From January to April 2025, China’s trade surplus with the EU hit a record $90 billion, a sharp rise from historical averages. Analysts warn this is not an anomaly, but a sign of a structural shift: as Chinese goods face steep U.S. tariffs, they are now pivoting toward Europe and emerging markets.

According to Maxime Darmet of Allianz Trade, China will attempt to “defend global market share” by flooding open markets — particularly the EU — with competitively priced products, further aided by the yuan's 10-year low against the euro.

Europe Confronts Its Free Trade Dilemma

For decades, the EU has championed open trade. But with China rerouting massive volumes of exports, European policymakers now face a painful reckoning. There is growing concern that an unchecked influx of Chinese products — particularly in green technology, EVs, and machinery — will undermine domestic industries, which are already losing global competitiveness.

Alicia Garcia Herrero of Natixis warns that “free trade cannot survive in a protectionist world,” and that Europe will need customs tools to guard vulnerable sectors, especially as it seeks to build its own green industrial base.

Chinese EVs, European Taxes, and a Brewing Trade Battle

Despite the EU’s recent move to impose anti-dumping tariffs on Chinese electric vehicles, Chinese automakers have quickly adapted, boosting exports of hybrids and traditional fuel cars. These models — benefiting from massive domestic subsidies and lower costs — are quickly gaining ground in the EU market, particularly in price-sensitive segments.

Tensions have escalated further with China slapping retaliatory tariffs on French cognac exports — a crucial sector for France — amid deepening rifts with individual EU nations like Germany and France.

In 2020, Germany ran an $18 billion surplus with China. By 2023, that flipped to a $12 billion surplus in China’s favor, and estimates suggest it could exceed $25 billion by the end of 2025.

A Wake-Up Call for EU Trade Policy

European Trade Commissioner Maros Sefcovic has publicly acknowledged the threat of “trade diversion” and is expected to release a preliminary report this month. The issue is also set to dominate upcoming EU trade minister meetings in Brussels, as the bloc debates how to respond to China’s export redirection.

Darmet warns that “this is no longer just a U.S.–China conflict”. Instead, it is an unfolding global realignment that “demands a strategic response” from European regulators.

Strategic Shifts Ahead

If the EU fails to act, it risks a structural erosion of its industrial base. A renewed focus on: reshoring production, strengthening internal manufacturing, and tightening import scrutinyis becoming a strategic necessity.

The post-COVID recovery boom has faded, inflation remains volatile, and energy costs are still high. Against this backdrop, a surge in ultra-competitive Chinese exports could be the final blow to fragile sectors — unless Brussels adjusts its course.

China's rerouted exports are not just an economic issue; they are a geopolitical warning. For the EU, the next few months may determine whether it continues to be an open trading bloc — or whether it finally embraces a “strategic protectionism” to survive a new era of trade realignment.

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Commodity

Central Bank

An Unusual Surge in Physical Gold Imports

In just the first two months of 2025, the United States imported over 600 tonnes of physical gold — primarily from London and Switzerland — according to World Gold Council data. This volume, equivalent to 13% of the Fort Knox reserve, has triggered concern among analysts who warn this isn't merely speculative positioning or trade hedging. Instead, it's being interpreted as a strategic stockpiling maneuver.

This trend occurs alongside a third consecutive year in which global central banks purchased over 1,000 tonnes of gold, the highest accumulation rate since the 1950s. Leading the charge are Russia and China, nations whose monetary strategies suggest a hedging move against systemic risks — or preparation for triggering structural change.

Gold as a Hedge Against Systemic Instability

Why the sudden return to gold?

Because gold is the ultimate neutral asset — one that holds value regardless of political regime, fiat dilution, or currency collapse. While fiat currencies can be inflated or restructured, gold is finite, tangible, and independent of central bank policy manipulation.

Ray Dalio, founder of Bridgewater Associates, has labeled the current moment as the “end of a long-term debt cycle,” referencing historic turning points like the collapse of Bretton Woods. That monetary system — which pegged currencies to the U.S. dollar backed by gold — has now lasted over 80 years, exceeding historical norms and, many argue, nearing its expiration.

China and Russia: Strategic Moves in the Shadows

China, holding $784 billion in U.S. Treasuries, has now permitted domestic enterprises to use foreign currency to purchase physical gold. If just 10% of those Treasuries were converted into bullion, the volume would rival nearly 8% of Fort Knox’s gold.

Russia, meanwhile, has aggressively grown its reserves amid sanctions and geopolitical isolation, seeing gold as a politically neutral safeguard that bypasses the dollar-dominated SWIFT system.

Both countries’ actions imply not only a hedge against inflation or dollar risk — but the foreshadowing of an alternative global monetary framework.

The U.S. Joins the Gold Game — Quietly

While the U.S. has long downplayed gold’s relevance in modern finance, recent moves suggest a pivot. The sudden inflow of massive gold shipments to U.S. vaults — rather than settling contracts digitally or via ETFs — is unprecedented in scale and intent.

Some observers link this to U.S. President Donald Trump's second-term monetary rhetoric, including his suggestion to audit Fort Knox, which revived conspiracy theories over actual reserve levels. Though official accounts claim no change in America’s 8,133 tonnes of gold, the physical import wave tells a different story.

Implications for Investors: Follow the Gold Trail

The market message is clear: gold is rising not for its shine, but for its strategic significance. Central banks — the most cautious institutions on Earth — are buying at record levels. This is not a retail-led rally. It’s led by sovereign strategies anticipating a world where gold will once again define trust, value, and stability.

If the world's financial architecture is preparing for restructuring — possibly due to U.S. trade volatility, supply shocks, geopolitical fragmentation, or systemic debt stress — then gold is the anchor asset in the storm.

Source: MarketWatch

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Economic

Forex

Softer U.S. Data Shifts Rate Cut Outlook

A sharp decline in U.S. producer price inflation (PPI) and slowing retail sales data capped off a week of dovish economic signals, fueling bets that the Federal Reserve may lower rates twice or more by year-end. Following Thursday’s data, futures markets priced in 57 basis points of cuts, up from 49 bps earlier in the week.

The benchmark 10-year Treasury yield slipped to 4.4217%, extending a 7-basis-point decline, while the 2-year yield dropped below 4% to 3.9467% — indicating market confidence in an easier monetary policy path.

Despite this, Fed Chair Jerome Powell cautioned in a Thursday speech that the central bank is re-evaluating its policy framework, now placing more emphasis on inflation over employment. That recalibration could raise the threshold for actual rate cuts if inflation pressures return later this year.

Dollar Retreats Despite Monday’s Surge

The dollar index fell 0.2% to 100.57, yet remained on track for a modest weekly gain, thanks to a 1.3% surge on Monday after the initial excitement over the Geneva tariff truce between the U.S. and China.

However, the dollar retreated broadly on Friday:

Euro rose to $1.2130 (+0.26%)

Sterling strengthened to $1.3325 (+0.14%)

Yen appreciated to 145.30 per dollar (-0.33%)

Australian dollar climbed to $0.6430 (+0.39%)

New Zealand dollar advanced to $0.5910 (+0.6%)

The yen gained despite Japan’s Q1 GDP contraction and dovish remarks from a BOJ policymaker. Analysts noted Japan may negotiate tariff relief with the U.S. soon, which could offset economic weakness and reduce pressure on the BOJ to act.

Won Volatility Signals Intervention Speculation

The South Korean won saw sharp gains for a second consecutive session, dropping 0.4% to 1,390 per dollar, amid signs that U.S. and Korean officials had discussed FX market conditions earlier this month. The episode mirrored a similar situation with the Taiwan dollar recently, fueling speculation that the Trump administration may be encouraging Asian currencies to appreciate as a trade strategy.

George Vessey of Convera noted that a weaker dollar aligns with the Trump administration’s efforts to challenge long-standing export advantages held by Asian economies through currency suppression.

Outlook: Dollar Faces Crosswinds

The dollar’s outlook is now tied to two conflicting forces:

Macro softness and easing inflation, which favor Fed cuts and dollar weakness.

Global trade realignments, such as tariff rollbacks and geopolitical deals, which can temporarily boost the dollar on safe-haven flows or economic optimism.

While the immediate trajectory appears downward due to macro data and falling yields, strategists like Kristina Clifton from CBA caution that upside inflation surprises or policy hawkishness could stall or even reverse this trend.

Conclusion:With the Fed leaning dovish, U.S. yields softening, and global currencies regaining ground, the dollar faces renewed downward pressure despite early-week strength. Barring inflation shocks, the market appears increasingly convinced of a 2025 easing cycle — leaving risk-sensitive assets and export-oriented Asian currencies poised to benefit.

Source: Reuters

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China–U.S. Trade War

A Near-Miss with Social Instability

After April’s tariff shock saw U.S. import duties on Chinese goods spike to as high as 145%, fears of mass unemployment and social unrest loomed large over Beijing’s leadership. For the ruling Communist Party, preserving social stability is vital to regime legitimacy.

Economists such as Alicia Garcia-Herrero had warned of up to 9 million job losses under the triple-digit tariff regime. The Geneva de-escalation last week — which brought tariffs down to 30% — reduced that threat substantially. Current forecasts suggest 4–6 million jobs remain at risk, with potential losses shrinking to 1.5–2.5 million if duties are cut further.

Still, the economic damage has already been done for many. Workers like Liu Shengzun, who lost two factory jobs in a single month, have abandoned manufacturing altogether and returned to subsistence farming.

Lingering Tariffs, Lingering Risk

Despite progress, 30% tariffs remain punitive. A Chinese government adviser told Reuters that while the “worst-case” scenario has been avoided, the current level of duties will “continue to be a burden on China’s economic development.” The uncertainty of Donald Trump’s policy swings compounds this hesitancy.

Lu Zhe of Soochow Securities estimates that job losses could now stay under 1 million, down from nearly 7 million projected at the peak of the trade dispute.

But analysts remain cautious. Companies impacted by the April spike are not rushing to rehire, worried about future shocks. Garcia-Herrero emphasized that “at 30%, I doubt [companies] will say, ‘okay, come back.’”

A Fragile Employment Landscape

China’s export-heavy sectors like lighting, furniture, footwear, and industrial components were already operating on thin margins before April. The tariff shock accelerated workforce reductions, and with global demand weakening, firms are turning even more conservative in their labor strategies.

Li Qiang, once employed in a pneumatic cylinder export firm, is now a ride-hailing driver in Chengdu. Despite the easing of tariffs, he has no intention of returning to the sector: “Trump’s policies toward China could change at any time… I don’t plan to put any effort into working in the export sector anymore.”

Beijing’s Response: Targeted Stimulus

In an effort to contain job losses, China is deploying fiscal and monetary tools. The People’s Bank of China (PBOC) has introduced new funding support for labor-intensive service sectors, including elderly care.

Jia Kang, a key economic adviser, stated that state investment will be the main driver of job creation this year. While Beijing intends to maintain its budget deficit near 4%, a higher ratio remains an option “if a serious situation arises.”

Exporters Still in Retreat

Though full data on April job losses is lacking, the signal from business confidence is clear: the hiring outlook remains grim. Many exporters are downsizing quietly, focusing on survival rather than expansion — a dynamic that could trap the economy in a deflationary spiral.

An unnamed policy adviser likened the situation to “frost on top of snow,” underscoring that the tariffs are compounding pre-existing economic weaknesses rather than acting as the root cause alone.

The U.S.-China trade truce has averted immediate catastrophe for China’s job market, but it has not reversed the damage. Persistent tariffs, sluggish global demand, and structural uncertainty continue to undermine employment in the export sector. The psychological scars from April’s tariff spike are likely to keep both firms and workers wary — and China’s government under pressure to find alternative engines of job growth.