Fed's Waller Outlines Path To Rate Cuts Later This Year

Central Bank

Economic

Summary:

Federal Reserve governor Christopher Waller said he continues to see a path to interest-rate cuts later this year amid his expectations that tariffs will boost unemployment and temporarily increase inflation.

Waller said tariffs will raise inflation in the “coming months,” but he supports looking through any near-term rise in price growth when setting policy as long as inflation expectations remain anchored.

“Assuming that the effective tariff rate settles close to my lower tariff scenario, that underlying inflation continues to make progress to our 2% goal, and that the labour market remains solid, I would be supporting ‘good news’ rate cuts later this year,” Waller said in remarks prepared for a Bank of Korea conference in Seoul on Monday.

Waller referenced a speech he gave in mid-April, in which he outlined two scenarios for how trade policy may unfold.

His “large-tariff” scenario assumed an average trade-weighted tariff on goods of 25% that remained in place for “some time.” The “smaller-tariff” scenario assumed a 10% average tariff, and that higher country and sector-specific duties would be negotiated lower over time.

In both scenarios, Waller expects the impact of tariffs on inflation would be temporary. He also anticipates the levies will cause an increase in the unemployment rate that will “probably linger.” That said, job cuts would likely be “modest,” he said, under the smaller-tariff option.

“Reported progress on trade negotiations since that speech leaves my base case somewhere in between these two scenarios,” Waller said. He now estimates a 15% trade-weighted tariff on goods imports.

Waller largely dismissed a 2025 surge in the University of Michigan's gauge of consumers’ inflation expectations over the next five to 10 years. He said he prefers to look at market-based measures of inflation compensation and professional forecasters' expectations, which have not seen a similar increase.

Waller said the “strong” labour market and recent progress toward the Fed's 2% inflation goal offer policymakers time to see how trade negotiations unfold, echoing many of his colleagues.

Fed officials have largely indicated rates are in a good place to gain further clarity on President Donald Trump's policies — particularly tariffs — and their impact on the economy before adjusting borrowing costs.

Waller underscored that considerable uncertainty remains around the ultimate level of duties imposed on other countries and sectors. Trump announced Friday that he would be increasing tariffs on steel and aluminum to 50%, from 25%.

“As of today, I see downside risks to economic activity and employment and upside risks to inflation in the second half of 2025, but how these risks evolve is strongly tied to how trade policy evolves,” Waller said.

Source: Theedgemarkets

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Michelle Reid

Oil prices rebounded more than $1 a barrel in early Asian trade on Monday after OPEC+ decided to increase output in July by the same amount as it did in each of the prior two months, in line with market expectation.

Brent crude futures climbed $1.06, or 1.69%, to $63.84 a barrel by 2244 GMT while U.S. West Texas Intermediate crude was at $61.95 a barrel, up $1.16, or 1.91%.

The Organization of the Petroleum Exporting Countries and their allies decided on Saturday to raise output by 411,000 barrels per day in July, the third straight month of increase by the same amount, as the group known as OPEC+ looks to wrestle back market share and punish over-producers.

The group had been expected to discuss a bigger production hike.

"Had they gone through with a surprise larger amount, then Monday’s price open would have been pretty ugly indeed," analyst Harry Tchilinguirian of Onyx Capital Group wrote on LinkedIn.

Oil traders said the decision for a 411,000-bpd output hike has already been priced into Brent and WTI futures which slipped more than 1% last week.

Source: Yahoo Finance

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James Whitman

Australia's house prices rose for a fourth straight month to hit a record high in May as another interest rate cut fuelled expectations of more to come, with every state capital posting a rise in prices.

Figures from Cotality, formerly CoreLogic, showed national prices rose 0.5% in May from April to hit a peak price of A$831,288 ($536,015). That compared with a 0.3% gain the previous month and brought the annual growth to 3.3%.

Prices in Darwin jumped 1.6%, followed by a 0.7% rise in Perth and a 0.6% increase in Brisbane. Prices in Sydney and Melbourne also gained.

"The continued momentum we're seeing across almost all markets is no doubt being fuelled by rate cuts - both those that have already happened, but also potential cuts in the coming months," Cotality Research Director Tim Lawless said.

Those cuts could boost sentiment in June and through the rest of the year with home prices expected to post "a modest rise" this year, though at slower pace recorded in 2024, Lawless said.

The Reserve Bank of Australia cut interest rates to a two-year low last month, the second such move in the current easing cycle following a cut in February. It also left the door open to more policy easing as cooling inflation at home offered scope to counter global trade risks.

Swaps imply a total easing of 85 basis points by mid next year - about three or four more rate cuts.

Strong immigration and tight supply has helped Australia's property market to end a year-long slide much earlier than the expectations of many experts.

"Some renewed confidence in decision making after the federal election and an ongoing undersupply of newly built homes are other factors that are likely to support further price growth," noted Cotality.

Source: Reuters

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James Riley

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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Gerik

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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Gerik

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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