Logan Signals It May Be Quite Some Time Before Fed Adjusts Rates

Summary:

Federal Reserve Bank of Dallas President Lorie Logan signaled it may take a while before officials know how the economy will respond to tariffs and other policy changes and thus how they should adjust interest rates.

In prepared remarks for an event in Waco, Texas on Thursday, Logan outlined a variety of risks to the economic outlook.

Tariffs could drive up price growth — temporarily or more persistently should inflation expectations rise. Fiscal policy or regulatory changes could boost demand, but economic uncertainty and market volatility may also cause a pullback among consumers and businesses, weighing on growth.

“For now, with the labor market holding strong, inflation trending gradually back to target, and risks to the FOMC’s objectives roughly balanced, I believe monetary policy is in a good place,” Logan said, referring to the interest-rate setting Federal Open Market Committee.

“It could take quite some time to know whether the balance of risks is shifting in one direction or another,” she added.

The Fed has left interest rates unchanged at each of its three meetings so far this year and is expected to do so again when officials gather in June. Minutes from policymakers’ May 6-7 meeting showed officials broadly agreed that heightened economic uncertainty meant they should remain patient in adjusting borrowing costs.

Last month, when the Trump administration had initially announced higher-than-expected tariffs on US trade partners, Logan said they would likely drive up prices and unemployment. Many tariffs have been paused or temporarily reduced as the administration negotiates deals with countries.

The latest de-escalation between the US and China has renewed optimism among consumers, with confidence rebounding this month after dropping to nearly a five-year low in April, according to data released earlier this week. At the same time, continuing claims for unemployment insurance benefits have climbed to the highest level since 2021, increasing concern that the unemployment rate may rise.

Fed officials have expressed concern that tariffs may put them in the tough spot of having to choose between keeping rates high to cool renewed inflationary pressures or lowering them to bolster a flagging economy.

Logan emphasized on Thursday that the economic outlook is hard to forecast right now. She also sounded a warning on the effects of higher inflation expectations.

“If expectations of higher inflation became entrenched, inflationary pressures could persist and become very costly to reverse,” she said.

Logan also spoke about central bank independence, a topic that has resurfaced recently with Trump’s repeated pressure on the Fed and Chair Jerome Powell to lower rates.

“Research shows that central banks perform better on inflation when they are independent from short-term political considerations,” Logan said. “The pattern is clear around the world and over history.”

Source: Bloomberg Europe

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Henry Thompson

Citigroup’s U.S. equity strategist, Scott Chronert, has delved into the potential consequences of the growing budget deficit on the American economy. Chronert highlighted that the recent bill passed by the U.S. House of Representatives is unlikely to reduce the deficit. Instead, he pointed out that the new regulations might increase the deficit by approximately $600 billion by the year 2025.

Increasing Budget Deficit

Chronert’s analysis suggests that the widening budget deficit could have some positive effects in certain areas. He emphasized that financing the deficit might stimulate the economy, predicting higher treasury issuances and consequently higher interest rates. This scenario is expected to positively influence economic conditions and the earnings of S&P 500 companies.

Moreover, Chronert noted that the newly implemented tariffs could offset parts of the budget shortfall. These tariffs might contribute about $200 billion, potentially keeping the total deficit at the $2 trillion level, consistent with the current year’s budget deficit figure.

Stock Market and Interest Rates

Chronert highlighted the potential constraint of high interest rates on the stock markets. The importance of high interest rates in discounting future cash flows was noted, which could exert pressure on stock valuations.

Despite this, the expanding budget deficit might generally have a positive impact on the earnings of S&P 500 companies, indirectly benefiting cryptocurrencies as well. Chronert stated that even though the financing of the budget deficit can cause valuation pressure, it can still support economic growth and corporate earnings.

He warned about the risk that expansive financial conditions pose over stock prices. Investors were advised to consider the importance of long-term financing costs.

Analytic insights suggest that the new bill may increase the budget deficit rather than reduce it. However, this expansion could yield some favorable outcomes for the economy and major corporations. The management of fiscal deficits and their impact on markets in the U.S. continues to be a topic of discussion.

While the growing budget deficit in the U.S. emits positive signals for short-term economic growth, it also portends higher treasury issuances and interest rates, which may exert value pressure on stocks in the long term. Expected increments in corporate earnings might generate a positive tendency through the financing of the deficit. Investors are advised to monitor the potential implications of financial policies closely.

The post Budget Deficit Shakes U.S. Economy While Creating Market Ripples appeared first on COINTURK NEWS.

Source: CryptoSlate

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James Whitman

Economic

Central Bank

U.S. Federal Reserve policymakers could still cut interest rates twice this year as they projected in March, San Francisco Fed President Mary Daly said on Thursday, but for now rates should remain steady to make sure inflation is on track to reach the central bank's 2% goal.

"As long as inflation is printing above target and there's some uncertainty about how quickly it can come back down to 2%, well, then inflation is going to be my focus because the labor market's in solid shape," Daly said in an interview with Reuters after an appearance at the Oakland Rotary Club. "We need to have policy in this modestly or moderately restrictive space, depending on how you think about it, to continue to bring ourselves to price stability."

The Fed earlier this month kept short-term borrowing costs in the 4.25%-4.5% range where they've been since December. Daly said the decision was an "active" choice as the central bank evaluates the economic impact of the Trump administration trade and other policies -- like a driver holding the wheel steady rather than steering to the left or the right.

Fed policymakers generally feel that Trump's aggressive tariffs risk increasing unemployment, which at 4.2% is comparatively low, and pushing up on inflation, which by the Fed's targeted measure is at 2.3%.

Overall, Daly said, the economy is in solid shape for now.

"I'm looking for any signs that the labor market is weakening. I haven't seen them, but let's continue to look," Daly said. "And I'm also looking for signs about inflation either continuing to gradually come down -- that would be welcome news -- or having any pressure to move either back up or stay sticky."

As part of that effort she is crisscrossing the Western states for clues on how businesses and communities are faring. After her appearance in Oakland, Daly was headed to catch a plane to southern California where she was due to speak at another event on Friday.

"I spend a lot of time counting cranes in cities," she said. "And when I count the cranes, there's certainly more than zero. And there's, in many cities, especially in the Intermountain region, there are more than there were last year...they're not stalled out."

At the same time, she said, businesses are taking fewer risks - opening five stores, for instance, instead of 10.

All that -- along with economic data showing a slowing but not cratering economy and a continued easing of inflation -- shows the Fed is not in the difficult position of having to choose between fighting inflation and bolstering the economy, and feeds into her sense that the Fed could cut rates later this year.

Source: Reuters

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Manuel

Cryptocurrency

Are you watching the financial markets closely? Something significant is happening, and it involves a major Investor Rotation. Recent data highlights a compelling trend: investors are increasingly shifting capital from traditional safe havens like gold into the burgeoning world of digital assets, particularly Bitcoin. This isn’t just a minor fluctuation; it’s a noticeable pivot with potentially long-term implications for asset allocation strategies within the broader Crypto Market.

The Great Rotation: Bitcoin ETF vs. Gold ETF Flows

The most striking evidence of this shift comes from exchange-traded fund (ETF) flows. U.S. spot Bitcoin ETF products have experienced an impressive surge in inflows over the past few weeks, attracting billions in fresh capital. This stands in stark contrast to the performance of Gold ETF products, which have seen significant outflows during the same period.

Let’s look at the numbers reported by Bloomberg:

Bitcoin ETFs: Over $9 billion in inflows in approximately five weeks.

Gold ETFs: Approximately $2.8 billion in outflows during the same timeframe.

This divergence in flows suggests a clear change in investor sentiment and preference. While gold has historically been the go-to asset during times of economic uncertainty, Bitcoin appears to be increasingly filling that role for a segment of the investment community.

Why the Shift? Understanding the Drivers Behind Investor Rotation

Several factors are contributing to this noticeable Investor Rotation. Analysts point to a mix of macroeconomic concerns and the evolving perception of Bitcoin itself.

Key drivers include: Concerns over U.S. Fiscal Stability: Rising government debt and ongoing fiscal stimulus measures are prompting some investors to seek assets outside the traditional financial system. Both gold and Bitcoin are seen as potential hedges against inflation and currency devaluation, but Bitcoin’s fixed supply offers a unique appeal.

Bitcoin’s Growing Role as a Hedge: While historically volatile, Bitcoin’s low correlation with traditional assets like stocks and bonds makes it attractive as a portfolio diversifier. As confidence in traditional hedges wavers, Bitcoin’s digital scarcity and decentralized nature are gaining attention.

Accessibility via ETFs: The introduction of spot Bitcoin ETF products in the U.S. has significantly lowered the barrier to entry for institutional and retail investors who were previously hesitant to hold Bitcoin directly. This ease of access is undoubtedly fueling the recent surge in inflows.

Bitcoin: The Digital Store of Value?

For decades, gold has reigned supreme as the ultimate Store of Value, a tangible asset believed to retain its worth over long periods, especially during economic turmoil. However, the digital age is challenging this notion, with Bitcoin emerging as a credible alternative.

While gold still holds significant appeal and a long history, Bitcoin’s digital properties make it potentially superior in terms of portability, divisibility, and verifiability in the modern era. The increasing acceptance of Bitcoin as a legitimate asset class, partly facilitated by the success of the Bitcoin ETF, is solidifying its position as a potential digital Store of Value.

What This Means for the Crypto Market

The strong performance of Bitcoin ETF inflows and the corresponding outflows from Gold ETFs signal growing institutional and retail confidence in Bitcoin. This trend could have several implications for the broader Crypto Market:

Increased Legitimacy: The influx of traditional investment capital through ETFs lends significant legitimacy to Bitcoin and the wider crypto space.

Potential for Further Adoption: As more investors become comfortable with Bitcoin via regulated products, it could pave the way for interest in other digital assets.

Market Dynamics: Large capital flows can influence market prices and volatility. Understanding these flows is crucial for anyone participating in the Crypto Market.

Despite gold’s historically stronger year-to-date performance leading up to this period of rotation, the momentum behind Bitcoin, driven by its low correlation with traditional assets and its appeal amid financial system risks, is undeniable. The ease of access provided by the Bitcoin ETF has clearly played a pivotal role in accelerating this trend, allowing more investors to participate in Bitcoin’s journey to becoming a recognized Store of Value.

Conclusion: A New Era for Asset Allocation?

The recent surge in Bitcoin ETF inflows coinciding with outflows from Gold ETFs marks a potentially significant moment in the evolution of investment strategies. While gold retains its historical importance, Bitcoin is rapidly gaining traction as a digital alternative, driven by macroeconomic factors and its unique properties as a potential Store of Value. This Investor Rotation highlights the increasing acceptance of Bitcoin within traditional finance and signals a potential shift in how investors think about hedging risk and preserving wealth in the 21st century Crypto Market.

Source: ItsBitcoinWorld

Risk Warnings and Disclaimers

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James Whitman

Economic

Central Bank

Key points:

● BoE's Bailey sticks to 'gradual and careful' rate stance

● April CPI showed less volatile components falling 'very slowly'

● Bailey does not expect US dollar to lose reserve currency status

Bank of England Governor Andrew Bailey said on Thursday that the central bank's "gradual and careful" approach to future interest rate cuts was justified by ongoing uncertainty about the global trade picture and its impact on domestic inflation.

"Reading that is very hard at the moment......It's why we keep using, as you know, these terms 'gradual and careful' in our approach," he said in a question and answer session at a finance industry dinner in Dublin.

Bailey voted with a narrow majority of the Monetary Policy Committee to cut interest rates to 4.25% from 4.5% earlier this month, though other policymakers wanted either faster or no loosening of policy.

Last week official data showed consumer price inflation jumped more sharply than markets or the BoE had expected to 3.5% from 2.6%, reflecting a rise in regulated household energy and water bills and unusually high airfares over the Easter period.

Bailey said it was unclear how much of the rise was due to seasonal effects and said the central bank would have another month's data to consider before its June rate decision.

"The less volatile part (of inflation), again it's gradually grinding down but very slowly," he said.

However, he also noted a rise in food price inflation. While Britain was not alone in that, it was something that had a "very big" impact on the public's perception of inflation, he said.

Labour market data had been largely in line with expectations, he added.

In a speech earlier in the evening, Bailey called for stronger trade and financial services ties with the European Union. Later he said he hoped it would be possible to fully resolve the United States' trade dispute with Britain.

"We don't want to lose the relationship with the U.S. We really want to get to the issues that are underlying this and help to solve them," he said.

Speculation that fragmentation in the global economy might cause the dollar to lose its reserve currency status was also wide of the mark, he said.

"We may see some rebalancing of activity (away from the dollar), but I don't think we're anywhere near that and I don't think we should want to be anywhere near that frankly," he said.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

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Manuel

China–U.S. Trade War

Political

A federal appeals court temporarily reinstated the most sweeping of President Donald Trump's tariffs on Thursday, a day after a trade court had ruled Trump had exceeded his authority in imposing the duties and ordered an immediate block on them.

The United States Court of Appeals for the Federal Circuit in Washington said it was pausing the lower court's ruling to consider the government's appeal, and ordered the plaintiffs in the cases to respond by June 5 and the administration by June 9.

Wednesday's surprise ruling by the U.S. Court of International Trade had threatened to kill or at least delay the imposition of Trump's so-called Liberation Day tariffs on imports from most U.S. trading partners and additional tariffs on goods from Canada, Mexico and China. The latter was related to his accusation that the three countries were facilitating the flow of fentanyl into the U.S.

The trade court's three-judge panel ruled that the Constitution gave Congress, not the president, the power to levy taxes and tariffs, and that the president had exceeded his authority by invoking the International Emergency Economic Powers Act, a law intended to address threats during national emergencies.

Senior Trump administration officials had said they were undeterred by the trade court's ruling, saying they expected either to prevail on appeal or employ other presidential powers to ensure they go into effect.

Trump has used the threat of charging U.S. importers costly tariffs for goods from almost every other country in the world as leverage in international trade talks, a strategy the trade court's ruling would upend. The trade court ruling had not interfered with any negotiations with top trading partners that are scheduled in the days ahead. A fourth round of talks with Japan is set for Friday in Washington, and a trade negotiating team from India is headed to the U.S. next week for talks.

Many U.S. trading partners offered careful responses. The British government said the trade court's ruling was a domestic matter for the U.S. administration and noted it was "only the first stage of legal proceedings." Both Germany and the European Commission said they could not comment on the decision.

Canadian Prime Minister Mark Carney welcomed the trade court's finding, saying it was "consistent with Canada's longstanding position" that Trump's tariffs were unlawful.

Financial markets, which have whipsawed wildly in response to every twist and turn in Trump's chaotic trade war, had reacted with cautious optimism to the trade court ruling, though gains in stocks on Thursday were largely limited by expectations that the court's ruling faced a potentially lengthy appeals process.

Indeed, analysts said broad uncertainty remained regarding the future of Trump's tariffs, which have cost companies more than $34 billion in lost sales and higher costs, according to a Reuters analysis.

Some sector-specific tariffs, such as those on imports of steel, aluminum and automobiles, were imposed by Trump under separate authorities on national security grounds and were unaffected by the ruling.

The Liberty Justice Center, the nonprofit group representing five small businesses that sued over the tariffs, said the appeals court's temporary stay was a procedural step.

Jeffrey Schwab, senior counsel for the center, said the appeals court would ultimately agree with the small businesses that faced irreparable harm of "the loss of critical suppliers and customers, forced and costly changes to established supply chains, and, most seriously, a direct threat to the very survival of these businesses."

A separate federal court earlier on Thursday had also found Trump overstepped his authority in using the International Emergency Economic Powers Act for what he called reciprocal tariffs of at least 10% on goods from most U.S. trading partners and for the separate 25% levies on goods from Canada, Mexico and China related to fentanyl.

That ruling was much narrower, however, and the relief order stopping the tariffs applied only to the toy company that brought the case. The administration has appealed that ruling as well.

UNCERTAINTY PERSISTS

Following a market revolt after his major tariff announcement on April 2, Trump paused most import duties for 90 days and said he would hammer out bilateral deals with trade partners.

But apart from a pact with Britain this month, agreements remain elusive, and the trade court's ruling on the tariffs and the uncertainty of the appeals process may dissuade countries like Japan from rushing in to deals, analysts said.

"Assuming that an appeal does not succeed in the next few days, the main win is time to prepare, and also a cap on the breadth of tariffs - which can't exceed 15% for the time being," said George Lagarias, chief economist at Forvis Mazars international advisers.

The trade court ruling would have lowered the overall effective U.S. tariff rate to about 6%, but the appellate court's emergency stay means it will remain at about 15%, according to estimates from Oxford Research. That is the level it has been since Trump earlier this month struck a temporary truce that reduced punishing levies on Chinese goods until late summer. By contrast, the effective tariff rate had been between 2% and 3% before Trump returned to office in January.

Trump's trade war has shaken makers of everything from luxury handbags and sneakers to household appliances and cars as the price of raw materials has risen.

Drinks company Diageo (DGE.L) and automakers General Motors (GM.N) and Ford (F.N) are among those that have abandoned forecasts for the year ahead.

Non-U.S. companies including Honda (7267.T), Campari (CPRI.MI), Roche (ROG.S) and Novartis (NOVN.S) have said they are considering moving operations or expanding their U.S. presence to mitigate the impact of tariffs.

Source: Reuters

Risk Warnings and Disclaimers

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Manuel

Central Bank

Forex

Federal Reserve Bank of San Francisco President Mary Daly said monetary policy is in a “good place” to continue to bring inflation down.

Daly said she doesn’t necessarily expect inflation to reach the central bank’s 2% goal this year, but she emphasized officials are making progress. She expects inflation will continue to decline over time as the labor market slows but remains solid.

Fed policymakers have held interest rates steady so far this year. Officials have said a still-solid economy offers them room to wait for further clarity on a variety of government policy changes, notably tariffs, and their impact on the economy.

“The net net is businesses are still waiting to see, and as they wait to see, we wait to see, because we have policy in a good place for the economy we have,” Daly said in a moderated conversation in Oakland, California. “We have plenty of opportunity then in time to make decisions as the economy evolves.”

Daly said the labor market is in “solid shape.” She noted it may take workers a little longer to find a job, but that is the balance needed to ensure a sustainable job market that is consistent with 2% inflation.

Economists largely see President Donald Trump’s widespread tariffs adding to inflation and weighing on economic growth. The administration’s chaotic roll out of a range of levies has also made it challenging for businesses to make decisions on hiring and investment.

Much remains uncertain. The US Court of International Trade introduced even more uncertainty with a ruling Wednesday that blocked sweeping parts of Trump’s tariffs. The administration appealed, and on Thursday a federal appeals court temporarily paused that ruling while it weighs a longer lasting stay sought by the government.

Political Pressure

When asked about Trump’s pressure on the Fed to lower interest rates, Daly said it’s not the first time an administration has asked the US central bank to move in a way the president prefers.

She said that’s “part of the job” and emphasized the Fed will do what’s right to achieve its congressionally mandated goals of price stability and full employment.

Earlier Thursday, Trump and Fed Chair Jerome Powell met in the White House for their first in-person meeting since the president’s inauguration. The president told Powell that he believes the Fed chair is making a mistake by not lowering rates, White House Press Secretary Karoline Leavitt said.

Powell told the president Fed officials will make decisions based solely on “careful, objective, and non-political analysis,” the central bank said in a statement.