Powell Vs. Waller: Inside The FED’s Battle Over Rate Cuts And Inflation

Central Bank

Summary:

President Trump and his team are not happy with Jerome Powell. Russell Vought, Trump’s budget chief, says Powell has “grossly mismanaged the FED.” Vought points to expensive renovations at the FED’s D.C. offices, calling them wasteful. Trump wants lower rates, but Powell is holding back. This tension is shaking up the world of finance.

Trump has been pressing the FED for aggressive rate cuts. He believes lower rates will ease inflation concerns and fuel growth. Powell, however, stays cautious. He points to a strong economy that can handle current rates. Yet with inflation still above 2%, the debate over rate cuts keeps heating up.

FED Faces Rate Cut Pressure as Inflation Fears Linger

FED Governor Christopher Waller is clear: a rate cut should happen soon. He says the current policy is “too tight.” Inflation, driven by Trump’s tariffs, is a big worry, but Waller believes it will only be a temporary spike. He argues the FED should not fear a small bump in inflation.

Waller is not alone. Michelle Bowman also supports a cut at the FED’s July meeting. But others, like St. Louis FED President Alberto Musalem, are cautious. Musalem wants to see more data on inflation before making a move. The FED’s June meeting minutes show a split, with some ready for cuts and others warning that inflation might stick around.

Despite the divide, Waller insists the FED needs to move now. “It’s not political,” he says, aligning his stance with Trump’s calls for easier policy. This clash inside the FED could shape finance markets in the coming weeks.

FED’s Balance Sheet Shrink Continues, but For How Long?

Waller also addressed the FED’s massive balance sheet. The FED’s holdings once peaked at $9 trillion during COVID-19. Now, the FED is cutting back, reducing its bond holdings to drain excess liquidity. Waller says the FED can keep shrinking its balance sheet for “some time.”

The FED currently holds around $6.7 trillion, but Waller sees it dropping to a “hypothetical” $5.8 trillion. He believes the FED should aim for about $2.7 trillion in reserves, down from the current $3.3 trillion. This drawdown, known as quantitative tightening (QT), is part of the FED’s plan to return to a normal policy stance.

However, there are challenges. The FED’s holdings are heavy with long-term bonds. Waller suggests shifting toward shorter-term Treasury bills. This process will take time, but it may help manage inflation and support future rate cuts if needed. The FED must find the right balance between reducing its holdings and keeping the financial system stable.

FED Debates Rate Cut as Finance Markets Watch Closely

The FED is under intense pressure from Trump, who sees lower rates as key to fighting inflation and boosting finance markets. Waller and Bowman push for a rate cut, seeing room to ease policy without sparking runaway inflation. Meanwhile, Powell and others want to wait, fearing tariff-related inflation could last longer than expected.

Markets are watching every signal. If the FED cuts rates in July, it could fuel a rally in finance markets, crypto included. However, if inflation surprises to the upside, the FED may have to tighten again later. The uncertainty keeps traders alert, as Trump continues to push for aggressive rate cuts.

What’s Next for the FED, Trump, and Inflation?

As Trump increases pressure, the FED must decide its next move. Waller’s potential rise as the next FED chair could shape the path forward. Rate cuts may come soon if inflation data stays mild. But if tariffs push prices up, Powell and others may hold back.

Finance markets, including crypto, will react fast to any FED decision. Inflation, Trump’s policies, and the FED’s next steps are all tied together now. The coming weeks will be crucial for rate cuts, inflation control, and the balance of power between Trump and the FED.

Source: CryptoSlate

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Devin

Economic

Most European Union countries have backed plans to agree a deal on their new climate change target by September, sources familiar with the discussions said on Friday.

EU countries are negotiating their new 2040 climate change target, which the Commission last week proposed should be a 90% emissions reduction from 1990 levels, although countries would be allowed to buy international carbon credits to meet a limited share of the goal.

Denmark, which took over the EU's rotating presidency this month and is chairing negotiations among countries on the target, aims to strike a deal at a summit of ministers in September, Denmark's energy and climate ministry said in a statement on Friday.

"It is extremely important that we unite the EU around new climate goals... We have a very small window to put a bow on these negotiations," Danish climate minister Lars Aagaard said, following a meeting of EU countries' climate ministers in Aalborg, Denmark, which concluded on Friday.

In the meeting, most of the EU's 27 member countries backed the plan to land a deal on the 2040 climate target in September, three sources familiar with the talks said.

But a handful of countries, including Poland, Hungary and the Czech Republic, opposed a fast-tracked deal - while others demanded changes to the Commission's proposal, the sources said.

"This is not a decision that we can just take lightly, it's affecting the whole economy. Working under such time pressure is just not reasonable," Polish deputy climate minister Krzysztof Bolesta told Reuters, of the proposed September deadline.

Spokespeople for Hungary and the Czech Republic's EU representations each confirmed their governments opposed the September deadline.

Climate change has made Europe the world's fastest-warming continent, fuelling deadly heatwaves and fires. But the 2040 target has stoked political tensions over how ambitious to be in tackling climate change, at a time when Europe is sharply raising defence spending and attempting to support struggling local industries.

To attempt to win over sceptical governments, the Commission proposed flexibilities that would soften the 90% emissions target for European companies.

Bolesta said countries had raised concerns in Friday's meeting over issues including a lack of clarity on how these flexibilities would work.

The EU faces a mid-September deadline to submit a new 2035 climate target to the U.N. - which the Commission has said should be derived from the 2040 goal.

Source: Reuters

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Adam

Economic

The U.S. tariff saga has stolen global spotlight from trade tensions between China and the European Union, which are now heating up.

Accusations and investigations over each other’s trade practices have long been a staple of EU-China trade relations, underpinned by concerns over how domestic economies are likely to be impacted by competing imports.

In recent weeks, EU restrictions on Chinese companies taking part in public tenders for medical devices were quickly met with China imposing import curbs on such products. Separately, long-threatened Chinese duties on brandy from the EU came into force earlier this month, and both Beijing and Brussels have ramped up criticism of each another.

Altogether, EU-China trade relations are now “quite poor,” according to Marc Julienne, director of the Center of Asian Studies at the French Institute of International Relations (Ifri).

“What was once a domain of great opportunity and enthusiasm for the bilateral relationship has now become more about risks than opportunities,” he told CNBC earlier this week.

A sour relationship

EU and China relations are encumbered by many challenges and risks often linked to clashing economic positions, Grzegorz Stec, senior analyst at the Mercator Institute for China Studies, suggested.

“The EU and China are broadly on a colliding trajectory in terms of their trade and industrial policy concerns,” he told CNBC. Bones of contention include the challenge of China’s overcapacity and trade diversion to Europe, Stec, who is also head of the Mercator Institute’s Brussels office, explained.

“Beijing’s increasingly pressing need to export contradicts the EU’s need to protect its own industrial base,” he added.

China’s economy is facing a gap between its production capacity and demand. It is also struggling with sluggish growth, while exports, which long boosted the economy, have been under pressure amid global trade tensions and lower demand.

Ifri’s Julienne also flagged a series of concerns that make the EU-China relationship tricky, including an increasingly difficult environment for foreign companies operating in China and Europe’s growing trade deficit. Additionally, he said Beijing was “weaponizing” trade to put pressure on Europe — like they did with the brandy tariffs.

China first started investigating European brandy imports after the EU began slapping levies on Chinese-made electric vehicles last year, which pose steep competition to Europe-made alternatives.

U.S. tariffs impacting EU-China relations

U.S. President Donald Trump’s recent tariff regime could have been an opportunity for China and the EU to improve their relations, according to Ifri’s Julienne.

“It should have had a positive impact on the bilateral relationship, in the sense that — facing economic coercion from the United States — [the EU and China] — might have been expected to negotiate and compromise in order to make the most of their trade relationship amid the US tariff war,” he said.

This has yet to materialize.

Jean-Marc Fenet, senior fellow at the ESSEC Institute for Geopolitics & Business, suggested one reason for this failure could be that Beijing feels it has come out on top in its own trade drama with Washington.

“The need for a common front with the EU is therefore less necessary,” Fenet said. “In fact, the fear now in Beijing is rather that the EU will accept an alignment with an anti-Chinese line that the American administration would impose on the sidelines of the trade negotiations.”

After initial sharp escalations and tense negotiations, China and the U.S. confirmed a trade framework agreement in June, including provisions around hotly contested rare earths and tech regulations. Earlier this year, Beijing had imposed export restrictions on several rare earth elements and magnets, which are often used in the automotive, defense and energy sectors, as part of its response to initial U.S. tariffs.

Light at the end of the tunnel?

The Mercator Institute’s Stec argued that a solution is “unlikely to be found” on the lingering points of trade contention between Beijing and Brussels, instead foreseeing further issues.

“The overcapacity and trade diversion issues paired with Beijing’s willingness to use rare earths export controls as leverage in EV tariffs negotiations signal more turbulences to come,” he said.

Tensions over the EU’s measures to boost its autonomy and China’s attempts to prevent these efforts can also be expected according to Stec.

Fenet struck a similarly skeptical tone.

“The significant hardening of the European Commission’s positions and the increase in the power of the protection tools it has equipped itself with in recent years, make it likely that there will be growing frictions, as shown by the recent measures taken against Chinese medical equipment and as we will undoubtedly see at the EU-China Summit on July 24th in Beijing,” he added.

His hopes for the summit — which sources told CNBC will include a meeting between European Commission President Ursula von der Leyen and Chinese President Xi Jinping — are also low.

“The two parties already seem to be anticipating a difficult and probably inconclusive meeting,” Fenet said.

Source: cnbc

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Olivia Brooks

Cryptocurrency

●Bitcoin hits new all-time high as ETF inflows surge.

●Altcoin market gains momentum following Bitcoin’s dominance decline.

●Institutional investors drive fresh capital into the crypto market.

Bitcoin reached a new all-time high on Friday, trading above $118,000 during the mid-North American session. The price movement came just a day after the asset breached May’s previous peak, supported by a sharp increase in trading activity and institutional demand.

The daily average trading volume for Bitcoin rose over 50 percent in the last 24 hours to around $66 billion. This volatility led to over $325 million being liquidated on leveraged Bitcoin positions over the same period of time. With a rise in market activity, the outlook is on increased investor presence and confidence.

The steady capital inflow into spot Bitcoin ETFs can be considered one of the major factors in Bitcoin’s rallying. Based on the daily net cash flows, iBitcoin Trust (IBIT), created by BlackRock, has been dominating the list. Even on Wednesday alone, at least $125 million worth of new investments were registered by IBIT, indicating that the interest of institutional players is still there.

Increased global money supply has also been linked to the rise in the value of Bitcoin. The current passing of the One Big Beautiful Bill Act in America is estimated to inflate the federal deficit by 3.3 trillion dollars in the years to come.

This is likely to cause more growth in the M2 money supply, which in most cases favors non-inflationary properties such as Bitcoin.

Source: CryptoBoss

Altcoins Respond as Bitcoin Dominance Declines Slightly

The altcoin market saw a modest rally following Bitcoin’s price surge. Ethereum gained over 2 percent on Thursday, trading around $2,830 by late afternoon. Bitcoin’s dominance in the crypto market dropped to 64.7 percent, indicating a shift in investor focus toward altcoins.

Traders are now predicting an altcoin season, as crypto market observer CryptoBoss believes the altcoin bull run might have begun. He further noted that the development, when the momentum is maintained, will continue throughout the rest of the year.

The ability of futures markets has also instigated the surge in Bitcoin. According to Coinglass statistics, the open interest of Bitcoin grew by almost 10 percent (to about 80 billion dollars). The increase depicts a high level of speculation and faith in an upward direction.

Bitcoin’s breakout above $113,700 highlights renewed strength in the crypto market. With institutional inflows and elevated trading volume, momentum is building across both Bitcoin and the broader digital asset landscape.

The post Bitcoin Surges Past $118,000 as Trading Volume and ETF Inflows Accelerate appeared first on 36Crypto.

Source: CryptoSlate

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Adam

Bond

Stocks

Global markets are telling conflicting stories about the possible longer-term impact of U.S. tariffs on growth, a schism that investors say means either stocks or bonds could see a steep correction once it's clear which is right.

U.S. President Donald Trump's erratic approach to trade policy that generated so much volatility earlier this year seems to have left markets wary of reacting to his near-daily announcements on who, or what, might get hit with tariffs.

The latest target is Canada, which on Thursday Trump said will face a 35% duty, while most other trading partners will get blanket tariffs of 15% or 20%, eliciting barely a flutter in the broader markets. An announcement on Europe is imminent.

Investors say this apparent composure is less about confidence in an ultimately benign longer-term outlook, and more typical of a late-stage bull market, where the optimists scramble to catch the rally before it fizzles out, while the pessimists quietly prepare for trickier times ahead.

In one corner are riskier assets like stocks and cryptocurrencies. Shares on Wall Street have hit record highs, powered by enthusiasm around artificial intelligence and the prospect of a string of interest-rate cuts from the Federal Reserve as the economy gradually slows and the hit to inflation from tariffs proves mild so far. Bitcoin is near a record $112,000.

In the other corner are government bonds, gold and even crude oil, all of which are reflecting a belief that tariffs could derail the U.S. economy and growth everywhere will falter.

Premier Miton chief investment officer Neil Birrell said the second half of this year will be when the impact of Trump's tariffs becomes obvious.

"It's difficult for me to look at all this with any form of confidence or certainty," he said, referring to the unpredictability of Trump's policymaking and the possible impact of his "One Big Beautiful Bill".

His main concern about stocks was U.S. households' high participation in Wall Street, where a decline could quickly spread globally.

"Any stress in the U.S. economy that impacts the consumer and then impacts equity markets becomes a rather brutal and bloody downward spiral."

'This can't continue'

Trump's 90-day pause after April 2's "Liberation Day" tariff announcement has been replaced by a scattergun application of levies on trading partners large and small, right ahead of the second-quarter earnings season which may yield the first clues about how severe the hit to corporate profits could be.

"Things have settled down but not in a positive way," Amundi's head of global macro Mahmood Pradhan said.

"The effective tariff rate for all imports coming into the U.S., if you calculated an average across the board, would be about 15%," he said. "This is broadly negative for growth in every country that is involved in world trade."

The World Bank last month cut its global growth forecast for 2025 by four-tenths of a percentage point to 2.3%, saying that higher tariffs and heightened uncertainty posed a "significant headwind" for nearly all economies.

With so much uncertainty hanging over U.S. assets, investors' cash has flowed elsewhere for much of this year, into the likes of European stocks and bonds, gold, Chinese tech stocks or emerging market currencies.

Greasing the wheels of the stock market rally has been anticipation that Fed Chair Jerome Powell will cave to pressure from Trump to deliver a rapid string of rate cuts.

Yet the data has been too strong to justify an aggressive loosening of monetary policy and too soft to argue that tariffs are having no effect. U.S. employment figures show the economy is still creating jobs at a firm clip, while business activity surveys show factories and services are flagging.

In the meantime, Trump's landmark tax cut and spending bill will add an extra $3.3 trillion to the national deficit.

Benchmark 10-year U.S. Treasury yields (^TNX) have retreated from January's 15-month peaks at 4.8% to 4.35%.

"Bonds are much more focused on growth (falling) than on inflation so when you see an upturn in trade war announcements bond yields tilt towards lower growth and rate cuts. But equities are emboldened because tariffs haven't shown up in the inflation numbers yet," Joost van Leenders, senior investment strategist at Dutch asset manager Van Lanschot Kempen, said.

"We don't think this can continue," he said, adding he remains neutral on equities, with a small overweight position in government bonds.

Gold (GC=F) has staged a blistering 26% rally this year, topping $3,300 an ounce, serving as a hedge against macro and geopolitical uncertainty, as well as an alternative to the dollar, the biggest tariff casualty, which has lost over 10% in value this year against a basket of currencies .

Kevin Thozet, investment committee member at French asset manager Carmignac, said he is hedging against a fall in the U.S. stock market, but believes this is unlikely right now because retail traders are diving in to buy market dips.

Further out, he said Trump's tax cut bill might offset some of the impact of tariffs, but the extra debt it could take to fund those cuts could drive the 10-year Treasury yield to 5% in the coming three months, a level that policymakers worry about given its impact on households, companies and the government.

"We see significant cracks in U.S. markets, even though the Fed has ample room to cut," he said.

Source: Reuters

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Adam

Economic

From coffee to cars to real estate, there’s a recurring pattern in China: companies rush into an industry, then resort to discounts to stay afloat. That has economists worried.

Natixis’ study of 2,500 listed Chinese companies reinforce how volume is growing while value is being hurt by deflationary pressure, Alicia Garcia Herrero, the firm’s chief economist for Asia-Pacific, said on a webinar Friday. “You can see it sector by sector, company by company.”

“On the surface you’re dominating, but deep inside you’re paying a high price to dominate,” she said. “You don’t get the revenue needed to continue.”

A reflection of the breadth of impact, consumer prices fell by 0.1% in the first six months of the year from a year ago, while factory-gate producer prices dropped by 2.8%, official data shows. In that time, only seven of 48 producer price sub-categories rose, versus about half of the 37 consumer price components.

That fierce and often unproductive competition is described as “involution” in China. The government has picked up on the term in recent policy documents, calling for efforts to tackle the trend.

While the trend has made tech and products more affordable for the mass market, it has also underscored worries of a vicious cycle that forces businesses to cut more jobs.

“With involution, the Chinese economy feels much colder than the headline growth suggests,” Larry Hu, chief China economist at Macquarie, said in a report Thursday. He pointed out that mainland China-listed “A share” companies expanded their workforces by just 1% in 2024, the slowest on record.

“From a more fundamental perspective, involution is both a feature and a bug of the ‘China model,’” he said. “Massive investment leads to price wars and poor returns for shareholders. But for policymakers, intense competition could help achieve industrial upgrading and self-reliance.”

China’s push into electric cars has been the most apparent example, with industry giant BYD offering some discounts of nearly 30% or more this year and smartphone company Xiaomi pricing its latest SUV below that of Tesla’s Model Y.

U.S. coffee giant Starbucks has struggled in China with falling sales as it maintains prices of around 30 yuan per cup ($4.20) — while a host of rivals from Luckin Coffee to boutiques sell lattes for as low as 9.9 yuan.

Even in commercial real estate, property owners who have tried to raise prices in Beijing ended up facing higher vacancies, Rayman Zhang, managing director for North China, at property manager JLL, told reporters Thursday. He noted that there’s still insufficient demand — with little expectation for a turnaround in the near future.

China is expected Tuesday to report second-quarter gross domestic product growth of 5.2% from a year ago, according to a Reuters poll. That would be slower than the 5.4% increase in the first quarter, but in line with the national target of around 5% growth for the year.

But the second half of the year will likely reveal a far more stressful picture, warned Jianwei Xu, senior economist for Greater China at Natixis. He was also speaking at Friday’s webinar.

“We are seeing the profits especially for manufacturing companies, are still decreasing,” he said. “There could be more households under stress in [the second half of the year] because it will be more difficult to find a job.”

A different challenge

This isn’t the first time China has dealt with overcapacity, analysts pointed out, referencing excessive capacity in the state-dominated commodities sector about a decade ago. But this time, fewer state-owned companies are involved, making it more difficult for policymakers to act.

“The dominance of private firms in industries with overcapacity tends to complicate the coordination of mergers, even with government guidance,” Robin Xing, chief China economist at Morgan Stanley, and a team said in a report Thursday.

“The economy is also starting from a weaker point, which necessitates more demand-side stimulus to counter the impact of supply reduction,” the report said. “However, the government’s debt level is already high (~100% of GDP), which may constrain its willingness and ability to undertake aggressive fiscal expansion.”

China’s top leaders are expected to maintain the current fiscal stimulus at a high-level Politburo meeting late this month. Beijing in March raised the country’s fiscal deficit for the year to 4% — up from 3% last year.

source : cnbc

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Thomas

Economic

Commodity

Oil gained as traders braced for fresh US efforts to crimp Russian energy exports.

West Texas Intermediate advanced more than 2% to top $68 a barrel after President Donald Trump said he plans to make a “major statement” on Russia on Monday and reiterated criticism of President Vladimir Putin. One sanctions bill, which at least 85 senators have endorsed, would levy 500% tariffs on China and India if they make any purchases of Russian energy.

“The US could decide to impose new sanctions on Russia as early as the beginning of next week,” according to a report from Commerzbank AG. “Lower oil supply from Russia is probably one reason why oil prices have so far been able to absorb the significant increase in OPEC+ production so well.”

Limiting the rally, Trump also threatened a 35% tariff on some Canadian goods. The tax doesn’t apply to goods that are traded within the rules of the US-Mexico-Canada Agreement, and the exclusion is poised to remain in place. The US is also expected to keep a lower 10% tariff on some energy-related imports.

Saudi Arabia, meanwhile, raised crude output far above its OPEC+ quota last month, joining other producers in a rush to export oil out of the Persian Gulf as Israel went to war with Iran, according to the International Energy Agency.

“Traders are looking through the report, recognizing that the increase came during a period of extreme regional risk and strong local demand,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group. “Notably, Saudi flows to China appear set to increase in August, with pricing remaining firm — a more important signal for the market than June’s overproduction.”

Separately, OPEC+ has been discussing a pause in further production increases from October, by which time it may have completed its planned revival of 2.2 million barrels a day of idle capacity. World oil consumption will grow by just 700,000 barrels a day in 2025, the slowest pace in 16 years excluding the 2020 pandemic slump, according to the IEA.