The Fed Must Resist Repeating Past Mistakes

Economic

Forex

Summary:

It’s easy to think that the Jerome Powell-led Federal Reserve has been one of the unluckiest on record. From the 2020 pandemic and its messy aftermath to the current tariff-induced economic and financial volatility, it has faced one big external shock after the other. Powell has had repeated run-ins with President Donald Trump, lost key officials over insider trading allegations, seen the institution’s credibility eroded by the misguided 2021 transitory inflation judgement, and more.

Yet what has made this bad luck worse and more consequential for overall economic wellbeing is that it has interacted with self-created weaknesses. Unlike other Feds, those have extended to analysis, forecasts, communication, and policy responses, repeated missteps that were aggravated by a distinct lack of humility and learning. The result is a Fed whose political independence and market credibility are as shaky as they have been since the late 1970s and early 1980s. And that is bad news for a central bank that, in the next few months, will face difficult policy judgements. It’s also bad news for the world’s largest economy that has lost other anchors and is suffering its own period of instability at the center of the global economic and financial order.

The Fed’s latest stroke of bad luck is highlighted by the recent rush of major Wall Street firms to revise US economic forecasts. One after the other has lowered its growth projections, hiked up inflation, and warned that the balance of risks to the economy remains unfavorable even after these revisions. The policy dilemma for the Fed’s pursuit of its dual mandate was made vivid by JPMorgan Chase & Co.’s upward revisions in unemployment to 5.3% and inflation all the way up to 4.4%, an adverse move of 1.4 percentage points.

While the Fed navigated under the first Trump administration the main driver of these revisions — the effects of higher tariffs on America’s trading partners — this round is significantly more challenging. It involves much more extensive surcharges, can trigger a range of possible reactions from trading partners, and it confronts companies with a spaghetti bowl of dynamic supply and demand uncertainties to deal with.

Also, whereas the required Fed policy response was obvious when the pandemic imposed a sudden stop on the economy, and unlike the aftermath when the central bank’s initial mischaracterization of inflation left no doubt as to what needed to follow interest rate wise, the Fed’s current policy formulation is fraught with uncertainties and danger. Managing the challenges got off to a troubling start when, in his March press conference, Powell eagerly dismissed the information content of the weakening soft data and reintroduced the concept of “transitory” when opining on the inflationary effects of the tariffs. Fortunately, he walked back both statements last week rather than wait for many months as he did in 2021.

Now the Fed needs to judge whether it should respond to the prospects of higher unemployment by cutting interest rates aggressively, or to hotter inflation by staying put or even opening the door to considering the possibility of a rate hike. For their part, market participants have rushed to price in more than four reductions this year, with some even calling for an emergency inter-meeting cut.

The reaction of traders and investors should not come as a surprise. It reflects how they have been trained repeatedly by the Fed to expect looser financial conditions the minute there are any signs of unusual market volatility or economic weakness. And, judging from its history, it is probably what this Fed will be tempted to do.

Yet the expected rise in inflation makes such a policy response far from straightforward. Indeed, it could even be dangerous.

Having failed to bring inflation back down to its often-repeated target three years after annual consumer price rises topped 9%, the Fed faces the risk of protracted inflation that would quickly undermine its efforts to counter the potential rise in unemployment. Moreover, lessons from central banking history suggest that when faced with both parts of the dual mandate going against it, the Fed should give priority to putting the inflation genie back in the bottle.

This is a particularly relevant consideration in the current situation where the sensitivity of unemployment to interest rates pales in comparison to the uncertainties companies and households feel due to the manner tariff policy has been designed, communicated and implemented. Indeed, to quote the guidance provided on Bloomberg Television last week by Eric Rosengren, the former president of the Boston Fed, the issue of rate cuts should be approached “slowly, gradually and reluctantly.”

What the Fed needs more than ever is a good dose of humility, something that it has lacked in recent years to its and the economy’s detriment. Such humility would help reduce the risk of another bout of slippages in analysis, forecasts, communication and policy design. It would also help counter the threat of a prolonged and damaging period of stagflation.

Source: Bloomberg Europe

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Michelle Reid

Economic

Forex

The USDJPY pair is slightly declining, currently trading at 147.70. Find more details in our analysis for 8 April 2025.

USDJPY forecast: key trading points

Donald Trump announces readiness to begin trade talks with Japan
Japan posts a record current account surplus in February 2025
USDJPY forecast for 8 April 2025: 146.25

Fundamental analysis

The USDJPY rate is retreating after Monday’s sharp rally, where the pair tested the key resistance level at 148.00. The Japanese yen temporarily weakened against the US dollar amid growing uncertainty around global trade — typically a driver of safe-haven demand.

On the political front, Donald Trump confirmed his readiness to start trade negotiations with Japan following a phone call with Prime Minister Shigeru Ishiba. The upcoming talks will address a wide range of issues, including tariffs, currency policy, and state subsidies.

Robust economic data keeps the yen from further weakening. In February 2025, Japan recorded a record current account surplus of 4.0607 trillion yen, driven by strong export growth amid high external demand and a decline in imports due to lower energy prices and subdued domestic consumption.

USDJPY technical analysis

The USDJPY rate is falling after rebounding from the 148.00 resistance level, remaining within the boundaries of an ascending corrective channel. The USDJPY forecast for today suggests a potential breakout below the lower boundary of this channel and a decline to the 146.25 support level. Technical indicators support the bearish outlook, with Moving Averages indicating a downtrend and the Stochastic Oscillator turning downwards from the overbought area, signalling a fading bullish impulse and a possible price reversal.

Summary

The USDJPY rate is undergoing a short-term correction, with strong Japanese economic data limiting further yen weakness. The USDJPY technical analysis points to a potential bearish move, with the price likely to break below the lower boundary of the ascending channel and dip to 146.25.

Source: RoboForex

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Warren Takunda

Stocks

London stocks rose in early trade on Tuesday, recovering from whopping losses in the previous session, as investors mulled the latest developments in the Trump trade war.

At 0830 BST, the FTSE 100 was up 1.2% at 7,796.42, having closed down 4.4% on Monday as the Trump tariff selloff continued.

The early gains came despite escalating tensions between the US and China, after the latter said it would "fight to the end" as Washington threatened an additional 50% tariff if Beijing went ahead with retaliatory measures of its own against American imports.

US President Donald Trump made the threat late on Monday, a move described as "a mistake on top of a mistake, which once again exposes the US’s blackmailing nature", Agence France-Presse quoted a Commerce Ministry spokesperson as saying on Tuesday.

"China will never accept this. If the US insists on going its own way, China will fight it to the end. If the US escalates its tariff measures, China will resolutely take countermeasures to safeguard its own rights and interests."

Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: "Investors are waking up to a positive sight for once, with markets opening higher across a broad range of European indices and the FTSE 100 up 0.9% at the open.

"However, this should hardly be seen as the end of the trouble, especially with President Trump showing no signs of easing his stance on perceived trade imbalances, having doubled down on China.

"Still, there is a glimmer of hope, as Japanese markets are up nearly 6% following news that trade talks will begin in a few days. The sooner deals are reached, the quicker companies and investors can gain some clarity on the lay of the land."

In equity markets, BA and Iberia owner IAG flew to the top of the FTSE 100, closely followed by engine maker Rolls-Royce.

Scottish Mortgage Investment Trust, which is heavily- exposed to the US tech sector, was also a high riser.

Building materials group CRH - which has a large exposure to the US market - advanced.

Hilton Foods was in focus as it said it was on track to deliver 2025 earnings in line with guidance after a sharp jump in profits last year, driven by its core retail meat business which outperformed total market growth in every region.

The company posted a 25% rise in pre-tax earnings to £61m and hiked its dividend 7.8% to 34.5p.

Elsewhere, Howden Joinery announced that its chief financial officer was set to step down and be replaced by Coats Group's Jackie Callaway. Paul Hayes, 58, will retire as finance chief and from the board at the end of May, following five years in the role.

Recruiter Hays jumped after an upgrade to ‘equalweight’ at Morgan Stanley. The bank previously had an ‘underweight’ rating on the shares as it saw risk from Hays' large exposure to Germany combined with a weaker balance sheet and higher likelihood of a dividend cut.

"While these risks remain, we think they are now better reflected in the valuation, and our price target implies limited further downside," it said. "We therefore neutralise our rating."

Source: Sharecast

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Laura Fletcher

Economic

U.S. President Donald Trump’s newly confirmed 25% global tariffs on foreign autos and parts are set to disrupt the global automotive landscape, triggering production shifts, halting asset sales, and pressuring margins across regions.

Analysts at JPMorgan expect widespread earnings downgrades and strategic adjustments as companies react to what they call “a net negative for the earnings momentum” of the automakers.

European and Japanese automakers appear especially vulnerable. Analysts forecast average earnings cuts of around 30% for Toyota (NYSE:TM), Honda (NYSE:HMC), and most EU OEMs, excluding Volvo (ST:VOLVb).

German automakers and Stellantis (NYSE:STLA) face ~25% reductions in fiscal year 2025 (FY25) earnings projections, driven largely by vehicle exports to the U.S. that are now subject to the full tariff.

Mass-market automakers are expected to struggle to pass on higher costs, unlike premium and luxury brands that may preserve margins through price increases. General Motors Company (NYSE:GM) and Ford face differing exposures, with GM “worst positioned of all companies in our coverage,” according to JPMorgan analysts.

The carmaker imports about 40% of its U.S. vehicle sales from Canada and Mexico, compared to just 7% for Ford. Analysts estimate GM’s total tariff cost could reach $13 billion, while Ford’s may rise to $4.5 billion.

Meanwhile, the pressure on U.S. truckmakers is compounded by softening demand. “Order intake in North America has been slowing over the past few months owing to the economic uncertainty created by the U.S. tariff negotiations,” analysts noted, expecting this to weigh on Q2 results.

In response to the new tariffs, automakers are accelerating localization efforts. Honda is shifting Civic hybrid production from Mexico to Indiana.

Volvo Cars is expanding output in South Carolina. Mercedes Benz (ETR:MBGn) is considering U.S. production shifts, while Volkswagen (ETR:VOWG_p) has paused imports and is working on long-term backup plans.

Asian and Latin American suppliers are also adjusting. Tariffs on key auto parts, including transmissions and engines, are likely to be felt unevenly, with suppliers like Aptiv (NYSE:APTV) seen as more vulnerable.

On the other hand, JPMorgan sees Brazil-based parts firms relatively well-positioned, given their exposure to heavy vehicles and exemptions under the USMCA.

Although OEMs are generally well-capitalized, with ~15% net cash to sales ratios, the Wall Street firm warns that “production stoppages and high levels of inventory in transit” may strain balance sheets and force delays in share buybacks and dividends in the first half.

In the near term, some planned asset disposals in the auto sector are likely to be put on hold due to tariff uncertainty, while automakers are expected to modestly increase capital spending to support production shifts from Mexico to the U.S.

Source: Investing

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FastBull Featured

Daily News

[Quick Facts]

1. Mexico to advance tariff negotiations with the U.S. but retains possibility of equivalent retaliation.

2. Trump says no pause in tariffs but open to negotiations.

3. Kugler: Controlling inflation remains top priority.

4. "Delay Tariffs by 90 Days" rumors trigger market volatility; U.S. Stocks resume decline after White House denial.

5. EU Trade Ministers unanimously agree to prepare comprehensive countermeasures against U.S. tariffs.

6. Bank of Canada: 32% of firms expect recession within a year.

7. EU plans to impose two-part tariffs on the U.S. on April 15 and May 15.

[News Details]

Mexico to advance tariff negotiations with the U.S. but retains possibility of equivalent retaliation

On April 7 (local time), Mexican President Claudia Sheinbaum stated that Mexico would not rule out equivalent retaliatory tariffs on U.S. steel and aluminum products (25% levy) but pledged diplomatic efforts to avoid domestic price hikes. Economic Minister Raquel will visit Washington this week for further talks. Mexico aims to protect its industries while prioritizing dialogue over confrontation.

Trump says no pause in tariffs but open to negotiations

President Donald Trump stated that despite trade partners eager to avoid tariffs extending "olive branches," he does not consider suspending the full implementation of "reciprocal tariffs." However, he signaled openness to negotiations. "We are not considering this," Trump said during a meeting with Israeli Prime Minister Benjamin Netanyahu in the Oval Office on Monday. Trump emphasized that tariffs are a "very important" component of his economic agenda and will remain largely intact. He added that "the door is open" for "fair and good agreements" with "every country." Notably, he stated: "Tariffs can be permanent, but they can also be negotiated, because we also need things beyond tariffs."

Kugler: Controlling inflation remains top priority

Federal Reserve Governor Kugler stated on Monday that recent increases in goods and services inflation may reflect "expectations" of the Trump administration's current policies, adding that maintaining inflation control remains the Fed's "top priority." Kugler emphasized: "When considering issues like tariffs, core import price metrics and shortage indices could become critical factors in simulating inflation drivers." "All of us at the Fed remain fully committed to achieving the 2% target and ensuring well-anchored inflation expectations—a priority amid recent short-term expectation surges, though long-term anchors remain stable."

"Delay Tariffs by 90 Days" rumors trigger market volatility; U.S. Stocks resume decline after White House denial

On April 7 (local time), multiple U.S. media outlets reported that Kevin Hassett, Director of the National Economic Council, stated President Donald Trump was considering suspending tariffs on select countries for 90 days. Prompting a rally, U.S. stocks initially plummeted before reversing gains following the report. However, Hassett later clarified in a Fox News interview that his remarks were limited to "the president will make the decisions he deems appropriate," with no explicit mention of tariff delays. White House Press Secretary Karoline Leavitt dismissed the reports as "fake news," triggering another selloff. By market close, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite had erased nearly all gains linked to the tariff delay speculation.

EU Trade Ministers unanimously agree to prepare comprehensive countermeasures against U.S. tariffs

In response to President Donald Trump's sweeping tariffs, EU trade ministers unanimously pledged readiness to implement comprehensive countermeasures, including potential levies on digital companies. EU Trade Commissioner Maros Sefcovic stated after a Luxembourg meeting with ministers on Monday that the EU would not wait indefinitely for the U.S. to engage in negotiations to resolve the ongoing trade dispute, and the EU was not seeking tit-for-tat confrontation. German Vice Chancellor and Economy Minister Robert Habeck earlier emphasized the need to "take a closer look" at the EU's anti-coercion toolkit, a mechanism that could pave the way for future taxes on U.S.-headquartered tech giants. European Commission President Ursula von der Leyen meanwhile announced plans to establish a Monitoring Task Force in Brussels to track tariff impacts, aiming to "prevent indirect impacts from trade diversion."

Bank of Canada: 32% of firms expect recession within a year

The Bank of Canada's business outlook index dropped from -1.2 to -2.1 in Q1. Its quarterly survey revealed that 32% of firms now anticipate a recession within the next year, up sharply from 15% in Q4. Meanwhile, 65% of firms expect cost increases if tariffs are widely imposed, leading 45% to plan price hikes. Fewer businesses forecast improved sales growth over the next year. Inflation concerns also rose, with 23% of companies projecting inflation exceeding 3% in the next two years (up from 20% in Q4). However, reports of declining sales softened slightly: 28% of firms noted significant sales drops in the past 12 months, down from 33% in Q4.

EU Plans to Impose Two-Part Tariffs on the U.S. on April 15 and May 15

Valdis Dombrovskis, Commissioner for Trade and Economic Security at the European Commission, stated on April 7 (local time) that the EU's first tranche of tariffs on U.S. goods would take effect on April 15, followed by the second tranche on May 15. Dombrovskis clarified that EU member states will vote on April 9 on countermeasures against U.S. steel and aluminum tariffs. If approved, the two-part tariffs will commence on the specified dates. Under the terms, the EU's countermeasures will automatically take effect unless opposed by 15 member states representing 65% of the EU population.

[Today's Focus]

UTC+8 17:00 ECB Vice President Luis de Guindos speaks

UTC+8 18:00 U.S. March NFIB Small Business Optimism Index

UTC+8 21:00 ECB Governing Council Member Robert Holzmann speaks

UTC+8 00:00 EIA releases Monthly Short-Term Energy Outlook

UTC+8 02:00 San Francisco Fed President Mary Daly speaks

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Katherine Pierce

Economic

Forex

(Reuters) - Tech-billionaire and Tesla CEO Elon Musk made direct yet unsuccessful appeals to U.S. President Donald Trump to reverse tariffs over the past weekend, Washington Post reported on Monday citing two people familiar with the matter.

This exchange marks the highest profile disagreement between the President and Musk, the report said. It follows Trump's unveiling of a 10% baseline tariff on all imports to the U.S. along with higher duties on dozens of other countries.

The White House and Musk did not immediately respond to Reuters requests for comment.

Musk, a Trump adviser who has been working to eliminate wasteful U.S. public spending, called for zero tariffs between the U.S. and Europe during a virtual interaction at a congress in Florence of Italy's right-wing, co-ruling League Party over the weekend.

Tesla has seen its quarterly sales drop sharply amid a backlash against Musk's work with a new "Department of Government Efficiency." The company's shares are trading at $233.29 as of its last close on Monday, down over 42% since the beginning of the year.

Musk has previously said that the impact of U.S. President Donald Trump's auto tariffs on Tesla is "significant."

Economists say the tariffs could reignite inflation, raise the risk of a U.S. recession and boost costs for the average U.S. family by thousands of dollars - a potential liability for a president who campaigned on a promise to bring down the cost of living.

Source: Yahoo Finance

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Thomas

Cryptocurrency

The tokenization of real-world assets has emerged as one of the most talked-about topics in the finance sector. Key figures like Ripple CEO Brad Garlinghouse, Coinbase CEO Brian Armstrong, and XRP legal advisor John Deaton have expressed that this process can lead to fundamental changes in the financial system. The advantages provided by digital asset technologies, such as flexibility and accessibility, have further amplified the discussion surrounding the topic. Comments indicating the inevitability of tokenization signal strong prospects for the future of the industry.

The Digitalization of Real-World Assets: A New Financial Era

XRP legal advisor John Deaton emphasized via social media that the tokenization of real-world assets marks an irreversible transformation. He pointed out that influential figures like Ripple’s Brad Garlinghouse, Coinbase’s Brian Armstrong, and BlackRock’s Larry Fink are at the forefront of this change. According to him, these individuals are presenting significant ideas at the intersection of traditional finance and digital assets.

Coinbase CEO Brian Armstrong argues that all asset classes will eventually transition to blockchain-based systems. He showcases the increase in on-chain credit and borrowing instruments as a practical example of what tokenization offers. Deaton supports this view, labeling Armstrong’s approach as being “on the right track.”

Brad Garlinghouse’s comments focus on the XRP Ledger (XRPL) infrastructure developed by Ripple. He states that the tokenization of real-world assets is restructuring the financial system. In his view, this transition not only enhances asset accessibility but also elevates transaction efficiency to new heights.

XRPL and Tokenization: Performance and Potential

Recent posts from Ripple’s social media have highlighted how the XRP Ledger has become a hub for tokenized treasury, commodities, and stable assets. The updates also included current performance metrics of the network. These insights demonstrate that Ripple is positioned not only as a provider of technological infrastructure but also as a pioneer in the sectoral transformation.

Galaxy Digital CEO Mike Novogratz provided another significant comment on the tokenization trend. He mentioned that this growing trend on a global scale will accelerate in the coming years. According to him, tokenization will open new doors for both investors and financial institutions.

John Deaton does not view the process merely as a technical advancement. He believes that the ability to divide tokenized assets into smaller shares can help reduce income inequality. Moreover, he argues that digital assets can establish a more accessible financial structure by diminishing reliance on traditional financial intermediaries.

The transition of real-world assets into the digital realm has the potential to transform not only the technological landscape but also the social and economic structures of the industry. Each new announcement in this context signals the construction of a future rooted in stronger foundations within the cryptocurrency world.

The post Tokenization of Real-World Assets Sparks Exciting Changes in Finance appeared first on COINTURK NEWS.