Fed's Waller Highlights A Path To 2025 Rate Cuts

Summary:

By Matt Grossman A short-lived bump in tariff-driven inflation could pass quickly enough to allow U.S. interest-rate cuts later

A short-lived bump in tariff-driven inflation could pass quickly enough to allow U.S. interest-rate cuts later this year, especially if tariffs themselves ease, Fed governor Christopher Waller said.

New trade barriers are likely to push up prices in the short term, Waller said in a speech at a conference in Seoul, South Korea Monday morning local time. But the inflation probably won't stick around as stubbornly as it did in the early 2020s, in part because labor-market tightness and government stimulus are no longer pushing the economy to its limits, Waller said.

That could put the Federal Reserve in position to cut interest rates later this year not because the economy is faltering, but because inflation will be under control, Waller said.

"I would be supporting 'good news' rate cuts later this year" assuming that tariffs level are moderate and inflation and unemployment look healthy, Waller said, according to a published text of his speech.

The Fed has held interest rates steady so far in 2025 at 4.25% to 4.5% after lowering them by a percentage point over the last four months of 2024. Those cuts came as rising unemployment suggested the Fed might need to cushion a slowing economy. Investors widely expect the central bank to stand pat once more at its next meeting on June 17-18.

In 2025, unemployment has stayed in check at 4.2% through April, and the Fed's preferred measure of inflation has come down to just a hair above target, at 2.1% over the past 12 months. The central bank's policy committee entered the year projecting further rate reductions, but the White House's steep and fast-changing new tariffs have left Fed officials reluctant to ease monetary policy before seeing how the trade barriers affect the economy.

Waller has set himself apart from his colleagues by emphasizing his preference for returning to rate cuts in 2025 in recent remarks. To be sure, the median Fed policymaker forecast two rate cuts this year at the central bank's March meeting, before President Trump rolled out his broad program of bilateral tariffs. But in their own comments since then, most Fed officials have been hesitant to lay out the path to more cuts, saying they want to see more data before they settle on their next move.

Trump has lambasted Fed Chair Jerome Powell for his reluctance to cut rates, most recently in a private meeting at the White House last week. Trump has walked back his threats to fire Powell but will get to nominate Powell's successor as Fed chair next year.

Write to Matt Grossman at matt.grossman@wsj.com

Source: Dow Jones Newswires

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Daniel Carter

Economic

US President Donald Trump on Friday said he planned to increase tariffs on foreign imports of steel and aluminum to 50% from 25%, ratcheting up pressure on global steel producers and deepening his trade war.

"We are going to be imposing a 25% increase. We're going to bring it from 25% to 50% — the tariffs on steel into the United States of America, which will even further secure the steel industry in the United States," he said at a rally in Pennsylvania.

Trump announced the tariff increase on steel products at a speech given just outside of Pittsburgh, Pennsylvania, where he was talking up an agreement between Nippon Steel and US Steel. Trump said the US$14.9 billion (RM63.4 billion) deal, like the tariff increase, will help keep jobs for steel workers in the US.

Later, he added the increased tariff would also apply to aluminium products and that it would take effect on June 4. "Our steel and aluminium industries are coming back like never before," Trump said in a post on Truth Social.

Shares of steelmaker Cleveland-Cliffs Inc surged 26% after the market close as investors bet the new levies will help its profits.

The doubling of steel and aluminium levies intensifies Trump's global trade war and came just hours after he accused China of violating an agreement with the US to mutually roll back tariffs and trade restrictions for critical minerals.

Trump spoke at US Steel's Mon Valley Works, a steel plant that symbolises both the one-time strength and the decline of US manufacturing power as the Rust Belt's steel plants and factories lost business to international rivals. Closely contested Pennsylvania is also a major prize in presidential elections.

The steel and aluminium tariffs were among the earliest put into effect by Trump when he returned to office in January. The tariffs of 25% on most steel and aluminium imported to the US went into effect in March, and he had briefly threatened a 50% levy on Canadian steel but ultimately backed off.

Under the so-called Section 232 national security authority, the import taxes include both raw metals and derivative products as diverse as stainless steel sinks, gas ranges, air conditioner evaporator coils, horseshoes, aluminium frying pans and steel door hinges.

The total 2024 import value for the 289 product categories came to US$147.3 billion with nearly two-thirds aluminium and one-third steel, according to Census Bureau data retrieved through the US International Trade Commission's Data Web system.

By contrast, Trump's first two rounds of punitive tariffs on Chinese industrial goods in 2018 during his first term totalled US$50 billion in annual import value.

The US is the world's largest steel importer, excluding the European Union, with a total of 26.2 million tons of imported steel in 2024, according to the Department of Commerce. As a result, the new tariffs will likely increase steel prices across the board, hitting industry and consumers alike.

Source: Theedgemarkets

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Economic

Post-Pandemic Recovery Overshadowed by Escalating Debt

While the global economy has so far managed to avoid a systemic financial crisis, the accumulated consequences of low interest rates, repeated external shocks, and expansive fiscal responses have led to an unsustainable debt trajectory—particularly in developing economies. Total global debt now exceeds its pre-COVID-19 level by nearly a quarter, undermining fiscal flexibility at a time when new threats—such as intensified trade tariffs—are emerging.

This rising debt burden reflects a structural mismatch between short-term stimulus and long-term revenue generation. Borrowing, while beneficial for economic stabilization and long-term public investment, becomes problematic when income growth fails to outpace the cost of debt service. In that case, taxation becomes the only available mechanism to repay obligations, which often exacerbates inequality and stagnation.

Developing Countries Trapped in a Debt Vortex

Over the past 15 years, developing nations have experienced debt accumulation at unprecedented speeds, averaging an annual increase equivalent to 6 percentage points of GDP. This accelerated pace has placed numerous low-income countries, especially the 78 nations eligible for concessional loans from the World Bank’s International Development Association (IDA), in a precarious financial position.

These countries, which collectively house one-quarter of the global population and a large share of the world’s upcoming labor force, are now cutting investments in education, healthcare, and infrastructure in order to service debt. The effect is cyclical: debt repayments erode the very foundations needed for future growth, further delaying structural recovery.

The relationship between debt levels and development stagnation here is not merely correlative. It is increasingly deterministic, as prolonged debt service obligations crowd out critical public investment, leaving economies with limited fiscal maneuverability.

The Interest Rate Shock Intensifies the CrisisCompounding the challenge is the most rapid rise in global interest rates in over four decades. Borrowing costs have more than doubled for half of all developing countries, with net interest payments rising from under 9% of government revenues in 2007 to around 20% in 2024.

This escalation in debt servicing costs converts a previously manageable fiscal strategy into a structural liability. The ability to refinance, extend maturities, or rely on concessional terms has diminished. The implications are clear: countries now face a narrowing path between austerity and default.

Weak Global Growth Outlook Limits Escape RoutesInitial hopes that global growth and falling interest rates would relieve pressure are quickly fading. By early 2025, consensus forecasts had already downgraded expected global GDP growth from 2.6% to 2.2%—well below the 2010s average. Central bank interest rates in advanced economies are expected to remain elevated at 3.4% in 2025–2026, five times higher than their 2010–2019 average.

These projections illustrate a tightening trap: low growth and high borrowing costs reinforce each other. As a result, the ratio of public debt to GDP is poised to climb further, particularly in the absence of meaningful fiscal consolidation or productivity gains.

Structural Reforms and Debt Reduction as Priorities

In this context, debt reduction is no longer optional—it is a prerequisite for unlocking investment and reigniting sustainable growth. Governments must curb their reliance on domestic borrowing, which currently constrains private sector expansion. Furthermore, attracting foreign capital into debt-laden economies with poor growth prospects is increasingly unrealistic without structural change.

Policy strategies must prioritize simplification of trade regimes, removal of tariff and non-tariff barriers, and liberalization of investment policies. For many developing nations, equalized tariff reduction across all partners represents the fastest route to restoring competitiveness and re-engaging with global supply chains.

The evidence supports a causative relationship between open, investment-friendly policy environments and economic resilience. Where private investment flows freely, public resources can be redirected toward long-term development sectors—such as education, health, and infrastructure—that underpin inclusive growth.

The global debt overhang is evolving into a structural threat, especially for the developing world. Without decisive debt reduction efforts and trade liberalization, many economies risk slipping into prolonged stagnation or crisis. Reforms must balance fiscal discipline with renewed investment in growth-enabling sectors. Failure to act may not only jeopardize economic recovery but also undermine future human development for the next generation entering the global workforce.

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Economic

Shift Away from U.S. Dollar Bonds Gains Momentum

In the first five months of 2025, the volume of sovereign bonds issued in U.S. dollars by countries outside the United States dropped by 19% year-over-year to $86.2 billion, according to data from Dealogic. This marks the first decline in three years and reflects a growing aversion to dollar-denominated debt as interest rate volatility, U.S. fiscal concerns, and geopolitical uncertainty intensify.

Governments are increasingly wary of rising U.S. Treasury yields, which directly elevate the cost of issuing debt in dollars. The policy direction of the U.S. administration, particularly its protectionist trade measures and fiscal trajectory, has further eroded investor confidence in the perceived safety and dominance of U.S. financial markets.

Country-Level Shifts Reflect Broad-Based Trend

Several major issuers have drastically reduced their dollar bond activities. Canada and Saudi Arabia cut issuance by 31% and 29% respectively, while Israel and Poland saw declines of 37% and 31%. Brazil recorded the sharpest pullback—down 44% to just $2.4 billion in new dollar-denominated sovereign debt.

Instead, many of these governments are turning to local-currency markets. Global local-currency sovereign bond issuance reached a five-year high of $326 billion in the same period. This shift reflects both strategic recalibration and improved market infrastructure in emerging economies.

Interest Rate Environment Favors Domestic Markets

A major driver behind this transition is the relative decline in domestic interest rates across several economies. With inflationary pressure easing, central banks in India, Indonesia, and Thailand have cut benchmark rates, improving the attractiveness of issuing debt locally.

In India’s case, market reforms have expanded investor access. Indian rupee-denominated sovereign bonds are now included in global bond indices, broadening the investor base and prompting further domestic issuance. This reflects a maturing of financial markets, whereby sovereigns increasingly rely on internal resources rather than external dollar flows.

Structural Diversification and the Rise of Regional Markets

The redirection of issuance aligns with broader financial strategy shifts. Saudi Arabia, for example, issued €2.25 billion in euro-denominated bonds, including its first green bond. This aligns with Riyadh’s long-term plan to diversify away from dollar-linked financing and reduce vulnerability to U.S. policy shifts.

Brazil is even considering issuing its first yuan-denominated sovereign bond, following renewed investment ties and a currency swap deal with China. Such moves point to a growing appetite among emerging markets to establish non-dollar financing alternatives, particularly amid rising multipolarity in global capital flows.

Asia's Domestic Bond Markets Reach Maturity

A key development supporting this global trend is the emergence of deep local bond markets in Asia. According to the Asian Development Bank (ADB), the combined local-currency bond market of ASEAN nations plus China and South Korea has grown from near zero in 1997 to an estimated $25 trillion today—comparable in size to the U.S. Treasury market and larger than Europe’s bond market.

ADB advisor Satoru Yamadera emphasizes that this growth represents a fundamental shift in financial architecture: Asian economies are increasingly capable of self-financing through domestic capital markets, reducing the need to tap volatile dollar-denominated markets during crises.

This realignment is not simply a response to global headwinds—it is part of a longer-term evolution toward fiscal autonomy and resilience. The connection between domestic capital market depth and sovereign financial independence is becoming more direct and pronounced.

Liquidity and Scale Challenges Remain

Despite these advances, challenges persist. As Kenneth Orchard from T. Rowe Price notes, local-currency bond markets—while growing—still tend to lack the liquidity and issuance scale of U.S. dollar markets. Investor participation remains concentrated, and benchmark infrastructure is still developing in many countries.

However, the trajectory is clear. As regulatory frameworks evolve and more international investors enter these local markets, the gap between domestic and dollar bond ecosystems is expected to narrow. This trend will further reduce global reliance on the U.S. dollar, reshaping capital flows and potentially altering the dynamics of global financial stability.

The retreat from dollar-denominated sovereign bonds underscores a fundamental shift in global debt strategy. With U.S. monetary and trade policy creating volatility, countries are turning inward—building deeper domestic markets, seeking regional alternatives, and reducing their dependence on a single currency for sovereign financing. As these markets mature, they offer not only insulation from global shocks but also a pathway to more balanced and diversified financial systems.

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Economic

China–U.S. Trade War

Trade Pressures Weigh on South Korea’s Export Performance

South Korea, widely regarded as a bellwether for global trade activity, recorded a 1.3% year-on-year decline in exports in May 2025, falling to $57.27 billion. This downturn marks the first contraction in outbound shipments since January, ending a short-lived recovery period driven primarily by strong semiconductor sales.

Minister of Trade, Industry and Energy Ahn Duk-geun attributed the decline to heightened global trade uncertainty caused by U.S. tariff initiatives. With exports to both the United States and China falling sharply—by 8.1% and 8.4% respectively—the data signals that South Korea’s economy remains highly exposed to policy-induced disruptions in major global markets. This pattern highlights a dependent relationship where South Korea’s trade volumes are sensitive to shifts in external tariff structures, particularly those imposed by key partners.

Semiconductor Strength Offsets Broader Weakness

Despite the headline decline, some sectors demonstrated resilience. Exports of semiconductors—especially advanced memory chips—surged by 21.2%, reflecting robust global demand. This sectoral growth softened the broader trade contraction and illustrates a partial offsetting effect rather than a reversal of downward pressure.

The sharp increase in chip exports is strongly correlated with technological upgrade cycles in global electronics markets, suggesting that structural demand continues to support South Korea’s core tech industries, even amid geopolitical tension.

Sectoral and Geographic Divergences Emerge

In contrast, other key industries were not spared. Automotive exports declined by 4.4%, hindered by U.S. tariff pressure and operational disruptions linked to Hyundai Motor’s new facility in Georgia. The simultaneous drop in car shipments and U.S.-bound exports indicates an intertwined vulnerability, as the automotive sector faces both regulatory and logistical constraints in key export destinations.

Geographically, export patterns varied significantly. While trade with the EU grew by 4.0%, and Taiwan-bound shipments surged 49.6%, exports to Southeast Asia fell by 1.3%. This suggests that South Korea’s trade performance is not uniformly constrained but shaped by a complex mix of external demand dynamics, regional policy shifts, and tariff exposure.

Tariff Uncertainty Clouds Outlook

The recent trade truce between the U.S. and China, agreed to mid-May for 90 days, offered a brief reprieve from escalating tariff retaliation. However, President Trump’s subsequent accusations of Chinese non-compliance and announcement to double global tariffs on steel and aluminum to 50% reintroduced volatility. This has undermined business sentiment and blurred forward-looking assessments for Korean exporters.

Additionally, the 25% retaliatory tariffs on South Korean goods—currently under a 90-day suspension for negotiation—remain a latent threat. Their potential activation could amplify existing trade shocks, adding further downward pressure on export-oriented manufacturing sectors.

Trade Surplus Reflects Resilient Balance, But Outlook Remains Fragile

Despite falling imports (down 5.3% to $50.33 billion), South Korea maintained a strong trade surplus of $6.94 billion in May—its highest since June 2024. This surplus reflects relatively stable internal demand and external competitiveness, but it may not be sustainable if export conditions continue to deteriorate under tariff strain.

The surplus should therefore be interpreted with caution. It does not signal strengthening fundamentals but rather reflects a temporary decoupling of export contraction and declining import needs. This divergence may narrow if tariff-related disruptions intensify, leading to more synchronized declines.

South Korea’s May export figures underscore the growing tension between industrial resilience in specific sectors and vulnerability to global trade policy shifts. While semiconductors continue to provide a buffer, declining shipments to the U.S. and China expose the limits of sectoral insulation. With U.S. tariff risks re-emerging and negotiations still fragile, South Korea faces a precarious path in maintaining export momentum. The coming months will test the agility of its trade strategy and the resilience of its core industries amidst escalating geopolitical headwinds.

Source: CNBC

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Economic

Political

Sweden Moves to Reinforce Maritime Controls

On May 31, the Swedish government announced new regulations aimed at strengthening inspections of foreign ships operating in the Baltic Sea. These measures are designed to enhance maritime safety and environmental protection while directly targeting Russia’s so-called “shadow fleet”—a collection of vessels used to bypass Western oil sanctions since the start of the Ukraine conflict in February 2022.

The decision comes amid mounting concerns from European states regarding the role of Russian-affiliated tankers in both illicit trade and alleged damage to undersea infrastructure, including power and communication cables. The Swedish Coast Guard and maritime authorities will now be mandated to inspect not only vessels entering national ports but also those merely transiting Sweden’s territorial waters or exclusive economic zone. These inspections will focus particularly on insurance documentation, a key factor in identifying and regulating sanction-evading ships.

This regulatory expansion illustrates a responsive mechanism grounded in recent incidents and strategic shifts. The Swedish government’s decision is less about broad maritime enforcement and more closely tied to a pattern of suspicious activity in a volatile geopolitical context.

Baltic Security in the Post-NATO Accession Context

Both Sweden and Finland, having recently joined NATO, are increasingly sensitive to security incidents in the Baltic Sea. Prime Minister Ulf Kristersson emphasized the rise in concerning maritime events, citing them as justification for enhanced preparedness. He also highlighted that data gathered through the new inspection regime would be shared with allies, potentially feeding into international sanctions enforcement databases.

This shift in policy indicates a more integrated approach between maritime regulation and foreign policy. It demonstrates Sweden’s alignment with NATO’s strategic posture, using national tools such as port access control and insurance verification to indirectly support broader sanctions policy.

The correlation between NATO accession and the intensification of these maritime controls is evident, though not purely causal. Rather, the expanded scrutiny emerges from a cumulative pattern of regional instability and infrastructure sabotage that Sweden now feels compelled to confront more proactively.

EU Sanctions Escalation and Regional Alignment

Sweden’s action is also in step with the European Union’s broader sanctions strategy. On May 20, the EU adopted its 17th sanctions package against Russia, adding 189 oil tankers to its blacklist and bringing the total to nearly 350 vessels. These vessels are part of what is often called Russia’s “shadow fleet”—a term used to describe ships engaged in opaque oil trading, often via third countries, to circumvent international restrictions.

The EU’s message is clear: continued aggression from Moscow will be met with increasingly stringent countermeasures. Vice President of the European Commission Kaja Kallas reinforced this stance, stating that the longer the conflict continues, the harsher the EU’s response will be. This rhetoric underscores a graduated and scalable sanctions framework that expands with geopolitical escalation.

Sweden’s policy announcement therefore reflects not an isolated initiative but a coordinated regional reinforcement of the EU’s punitive framework. The alignment is not accidental—it mirrors shared concerns over security vulnerabilities, sanctions evasion, and the need for systemic enforcement mechanisms that go beyond declarations.

Russian Reaction and Narrative Divergence

Predictably, the response from Moscow was critical. Grigory Karasin, Chairman of the Foreign Affairs Committee in Russia’s Federation Council, accused the EU of obstructing constructive peace efforts and pursuing a confrontational agenda designed to prolong the conflict. His statements reflect a wider narrative from Russia portraying Western policies as escalatory rather than defensive.

While such rhetoric is typical of diplomatic sparring, it signals that Moscow views the maritime inspections and sanction expansion as strategic threats, rather than merely administrative measures. This perception could fuel further countermeasures or shifts in Russian oil logistics, reinforcing the cycle of adaptation and retaliation in the broader sanctions landscape.

Sweden’s enhanced scrutiny of foreign vessels in the Baltic Sea marks a significant escalation in the enforcement of maritime sanctions targeting Russia. By focusing on insurance inspections and port access, Stockholm is joining the EU’s evolving strategy to constrain Russia’s energy exports and bolster regional security. This move, while rooted in domestic regulatory authority, has clear geopolitical implications—contributing to a growing nexus between maritime law, environmental protection, and international sanctions policy. As tensions in the Baltic continue to rise, Sweden’s proactive stance sets the tone for broader regional alignment against economic circumvention and hybrid threats.

Source: Pravda

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Russia-Ukraine Conflict

Economic

A Discrepancy Between Policy and Practice

Since the onset of the Russia–Ukraine conflict, the European Union has publicly positioned itself as a staunch supporter of Ukraine, both financially and politically. Yet, data compiled by the BBC and cited in Giáo dục & Thời đại paints a more contradictory picture: Russia has earned over €883 billion from fossil fuel exports during this period, including €209 billion from EU member states alone. In stark contrast, Ukraine has received just €309 billion in total aid from all allies, including €73 billion from the EU.

This disparity highlights a critical tension in Europe's strategy. While the EU has committed to economic sanctions and military support for Ukraine, it remains a major consumer of Russian hydrocarbons—second only to China—thereby financially fueling the very state it aims to isolate. The relationship observed here is not a direct contradiction of intent, but a coexistence of strategic goals with economic dependencies that remain unresolved.

Gas and Oil Flows Continue Despite Sanctions

Although many Western nations, particularly within the G7, initially pledged to reduce hydrocarbon purchases from Russia, enforcement has been partial and uneven. The EU, in particular, continued to import Russian gas through various routes. Until January, gas was transported via Ukraine. Since then, supplies have increasingly been routed through Turkey, with volumes rising by 26.77% year-on-year.

Moreover, EU countries have been receiving Russian oil indirectly. Crude oil is refined in third-party countries like Turkey and India and then re-exported to European markets. Additionally, Hungary and Slovakia still import Russian crude directly via pipeline, further weakening the effectiveness of sanctions.

While these actions may not represent intentional breaches of policy, they illustrate the logistical and infrastructural difficulties of energy decoupling. The connection between continued imports and elevated Russian revenues suggests an interlinked structure where even partial demand sustains export income for Moscow.

Ineffectiveness of Price Cap Mechanisms

In an effort to reduce Russia’s oil revenue, the G7 introduced a price cap of $60 per barrel on Russian oil. However, market analysts report that this cap has been poorly enforced, limiting its impact. Despite nominal restrictions, the actual price discipline has been insufficient to undercut Russian earnings in a meaningful way. Proposals to lower the cap to $50 per barrel have encountered resistance due to enforcement difficulties and geopolitical divisions within the EU.

The limited success of the price cap reflects not only implementation gaps but also the persistent structural reliance on fossil fuels in European industry and energy generation. The price cap does not automatically dictate trade behavior; rather, its efficacy depends on global cooperation, credible monitoring, and the availability of alternative supply chains—all of which remain fragmented.

Minimal Decline in Russian Fossil Fuel Revenues

Despite Western efforts, Russia's fossil fuel revenue in 2024 only declined by 5% from the previous year, with total export volume falling by just 6%. Even more notably, revenue from pipeline gas rose by 9% year-on-year. This suggests that while Europe’s sanctions and diversification efforts have created some pressure, they have not significantly curtailed Russia’s capacity to monetize its energy resources.

The relationship here is one of resilience rather than reversal. The decline in volume has not translated into proportionate losses in revenue, in part because of continued demand and rising prices. This further illustrates how supply reduction does not necessarily equate to revenue contraction, especially in tightly balanced global energy markets.

The contrast between the EU's financial support for Ukraine and its energy payments to Russia reveals a profound strategic dilemma. On one hand, Europe aims to weaken Russia’s war capabilities; on the other, it continues to channel billions into the Russian economy through energy imports. This paradox reflects deeper structural challenges: insufficient alternative energy infrastructure, fragmented political will, and the complexities of enforcing trade policy in a multipolar world. Unless Europe reconciles these competing priorities, its dual role as both financier of Ukrainian resilience and contributor to Russian resource flows will persist—undermining the coherence of its geopolitical strategy.