The Fed's rate debate rages on as central bank flies blind in shutdown

Central Bank

Economic

Summary:

The rate debate within the Fed has only intensified in the weeks since the last meeting, as policymakers go public with their views on the path ahead for monetary policy.

Fed officials are still split about how much to cut interest rates as the government shutdown deprives policymakers of key data, with some worried more about inflation and others more concerned about the job market.

The newest Fed governor appointed by President Trump, Stephen Miran, reiterated Tuesday that he wants to reach a so-called neutral level on interest rates much faster than his colleagues at the central bank. Neutral is a level designed to neither boost nor slow economic growth.

"I do think that the neutral rate has come down relative to a year ago," Miran said during a conversation at the Managed Funds Association Policy Outlook 2025 conference. "That makes monetary policy more restrictive than a couple quarters ago."

"Additional restrictiveness of monetary policy poses some risks going forward," he added, because "with some lags to policy you would expect the economy to weaken. So in the near term, I'm not very pessimistic at all about the economy, but I do see some risks lurking there if we don't adjust policy."

One voice arguing instead for more focus on inflation is Kansas City Fed president Jeff Schmid, who said Monday night that he thinks the current levels of interest rates are "slightly restricting" the economy, which he said is the "right place to be."

The Fed has a dual mandate to maintain price stability and maximize employment.

"With inflation still too high, monetary policy should lean against demand growth to allow the space for supply to grow and relieve price pressures in the economy," Schmid added in a speech in Kansas City.

The rate debate within the Fed has only intensified in the weeks since the last meeting, as policymakers go public with their views on the path ahead for monetary policy.

On Sept. 17, Fed policymakers offered a median estimate of two more cuts in 2025, although there was widespread divergence among the individual policymakers about those predictions. Miran openly disagreed with the quarter-point cut, saying it should have been larger.

Since that meeting, Miran has repeatedly called for deeper cuts, saying the Fed's current level poses risks to the US economy. He has penciled in five more rate cuts this year.

Miran said Tuesday he expects housing inflation to come down as falling rents are factored into measures of inflation with a lag. Housing accounts for the largest part of the Consumer Price Index, but not the Fed's most favored inflation gauge, the Personal Consumption Expenditures index.

One of the other reasons Miran favors much lower interest rates is that immigration is now declining rapidly, and he expects tariffs to lower the deficit. He doesn't see tariff-induced inflation, though he admitted that it's possible we haven't yet seen those effects.

Schmid, on the other hand, worries that "aggressively boosting demand could raise the risk of an outsized increase in prices, as firms gain pricing power and increase the passthrough of tariffs to consumers."

Schmid noted that prices of durable goods, such as washing machines, refrigerators, and televisions, are increasing and that outside of the pandemic, prices of durable goods have declined consistently for the past three decades.

At the same time, Schmid pointed to increases in the prices of services — haircuts to electricity to landscaping — of 3.5% in recent months, well above the Fed's 2% target.

What also worries Schmid is that price increases are becoming more widespread. At the start of the year, 70% of consumption categories reported price increases, he said. By August, prices in almost 80% of categories were increasing.

Schmid said the Fed "must" maintain its credibility on inflation. He added that he will remain data-dependent, but with the government shutdown, he is relying on alternative private sector data on the job market and inflation, as well as data collected by the Kansas City Fed through surveys.

Miran, on the other hand, said private sector data is not a "sufficient replacement" for the government data.

"During this period of the government shutdown we are deprived of most of the data that we would need to be making monetary policy," he added.

He remains optimistic, however, that the government will reopen in time for the Fed to make its next rate decision at its meeting on Oct. 28-29.

Another Fed official, Minneapolis Fed president Neel Kashkari, sounded concerned Tuesday about both inflation and the labor market.

He said that economic data is sending stagflationary signals as the job market is slowing and inflation is sticking around 3%.

"So the big question is will tariff inflation be short-lived or sticky?" Kashkari said. "It's too soon to reach a firm conclusion."

Source: Yahoo Finance

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Manuel

Stocks

Cryptocurrency

S&P Global announced plans to launch the S&P Digital Markets 50 Index, a benchmark that combines 15 cryptocurrencies with 35 publicly traded crypto-linked equities, offering a single gauge of the broader digital-asset economy.

According to the Oct. 7 announcement, S&P Dow Jones Indices developed the index in collaboration with Dinari, which will issue a token tracking the benchmark on its dShares platform, thereby expanding access for investors seeking exposure to both sides of the crypto ecosystem in a single product.

S&P said the equity portion will include companies involved in digital-asset operations, infrastructure, financial services, and blockchain applications, while the crypto portion will be drawn from the firm’s existing Broad Digital Market (BDM) family.

Initial methodology details published by financial media indicated the index will cap individual constituents at 5% and apply minimum market-cap thresholds, about $100 million for equities and $300 million for cryptocurrencies, with quarterly rebalancing under S&P’s governance framework.

The launch adds to S&P’s expanding suite of digital-asset benchmarks alongside its crypto and DeFi indices, part of a broader push by major providers to supply rules-based tools for institutions as tokenized markets mature.

Dinari, which develops tokenized U.S. equities and has advanced regulatory approvals this year, said the product demonstrates how blockchain can modernize established benchmarks by making them more accessible and globally relevant.

The move comes amid renewed interest in diversified crypto exposure and follows competing efforts by other index providers to track the “crypto economy,” though most alternatives to date focus solely on tokens or on blockchain-related equities rather than both.

Source: Cryptoslate

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Manuel

Economic

Political

President Donald Trump said he expects the US and Canada can “get there” on a resolution to their dispute over sectoral tariffs on steel, aluminum and autos.

Trump made the remarks in an Oval Office meeting with Canadian Prime Minister Mark Carney on Tuesday, where the president described the disagreements between the countries as “natural conflicts” because they’re competing for the same business.

“That’s why I keep mentioning one way to solve that problem is a very easy way,” Trump said, an apparent reference to his suggestion that Canada should be the 51st US state, an idea that is widely opposed by Canadians.

“He wants to make cars, we want to make cars, and we’re in competition. And the advantage we have is we have this massive market,” Trump said as he sat next to Carney.

The meeting marks Carney’s second visit to the White House since becoming prime minister earlier this year — with a trading relationship worth $900 billion on the line. The former central banker won an election in April on a promise to negotiate a new trade and security deal with the US, but Trump has only hiked tariffs since then.

Carney told Trump that Canada is the US’s largest foreign investor, and suggested the pace of investment may accelerate — “probably $1 trillion in the next five years, if we get the agreement we expect to get. “

“There are areas where we compete, and it’s in those areas where we have to come to an agreement that works,” Carney said. “But there are more areas where we are stronger together, and that’s what we’re focused on.”

US tariffs on steel, aluminum, autos and lumber are battering key Canadian industries. And on Aug. 1, Trump raised levies on goods that don’t comply with the US-Mexico-Canada Agreement to 35% from 25%. The trade war has caused job losses and put a chill on business investment, pushing Canada’s economy to contract in the second quarter.

Canada is the largest foreign buyer of US-made vehicles, and exports most of its own automotive production to the US market.

Carney offered an olive branch to Trump in August when he announced the lifting of most of Canada’s retaliatory tariffs on imports from the US. Carney’s predecessor, Justin Trudeau, imposed counter-tariffs on about C$60 billion ($43 billion) of US products. Canada’s new policy on counter-tariffs is to apply them to areas where US tariffs are in place, such as steel and aluminum.

“We’re working on formulas and I think we’ll get there,” Trump said of the trade discussions.

Carney’s top negotiators, including his cabinet minister responsible for US trade, Dominic LeBlanc, and Canada’s ambassador to the US, Kirsten Hillman, are still pushing for a near-term deal that would see some sectoral tariffs lowered or dropped.

But Carney has begun to signal a shift in focus somewhat to the 2026 review of the North American free trade deal Trump signed in his first term.

Carney traveled to Mexico last month and pledged deeper cooperation with President Claudia Sheinbaum ahead of the review process. His officials have tried to pitch the US on the importance of fortified North American supply chains, especially in Canada’s wealth of critical minerals, as a counter to China’s dominance.

He has also attempted to address long-standing US complaints about Canada’s low military spending, agreeing to meet the North Atlantic Treaty Organization’s target of spending 2% of gross domestic product on defense this year and pledging to ramp up to 5% by 2035. Trump said he expected the two leaders would discuss the US’s proposed Golden Dome missile defense system during Tuesday’s meeting.

Source: Bloomberg

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Kevin Du

Central Bank

Federal Reserve Bank of Minneapolis President Neel Kashkari on Tuesday cautioned that any drastic cuts to interest rates would risk stoking inflation.

“You would expect to see the economy have a burst of high inflation,” Kashkari said Tuesday during a panel discussion on artificial intelligence and the economy hosted by the Minnesota Star Tribune. “Basically, if you try to drive the economy faster than its potential to grow and its potential to produce prices, you end up just going up across the economy.”

The Minneapolis Fed chief, who doesn’t vote on monetary policy this year but participates in the Federal Open Market Committee’s deliberations, cautioned that current economic data is showing some signs of stagflation given growth is slowing and inflation remains persistent.

“Some of the data that we’re looking at is sending some stagflationary signals,” he said.

Source: Bloomberg Europe

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Adam

Commodity

One of the biggest gold bulls on Wall Street is starting to sound a little more cautious as the precious metal pushes closer to $4,000 an ounce.

The commodity team at Bank of America was among the first to highlight the $4,000 target at the start of the year, saying it wouldn’t take much renewed investment demand to reach those levels.

However, with the target now in sight, BofA technical analyst Paul Ciana said the precious metal has achieved much of its upside potential and now appears slightly overbought.

“A variety of multiple time-frame technical signals and conditions warn of uptrend exhaustion as gold nears $4,000/oz,” he said. “If so, a consolidation or correction could follow in Q4. Trend-following/risk management favors raising stops, hedging, or reducing some long exposure. A contrarian trader view can consider 4–6-week puts.”

The comments come as spot gold trades at $3,960 an ounce, up nearly 2% on the day. Meanwhile, the precious metal has gained 50% so far this year, marking its best annual rally since 1979.

Ciana noted that this year’s rally is comparable to major bull markets in recent history. However, he added that those bull markets were often preceded by significant selloffs.

He pointed out that from the lows of 2015 to 2020, gold prices rallied 85% before sharply correcting 15% in 2022, and that the current rally has since lifted prices another 130%. However, he also noted that gold’s latest bullish cycle remains smaller compared to the rallies seen in the early 2000s and the 1970s.

“The 1970–1980 boom totaled +1,725% with a correction in the middle. The bust from 1980 into 1999 was about -59%,” said Ciana. “The 1999–2011 advance was about +640%, with a mid-cycle correction also occurring. A -38% bear market followed into 2015.”

Looking at gold’s potential, Ciana said that if the current bull rally matched the 400% gains seen after 2015, prices could break through $5,000 an ounce. If it mirrored the 2000s bull market, gold could trade closer to $7,000 an ounce.

Ciana added that while he doesn’t rule out those moves, he warns that the current rally is already mature and could be vulnerable to a mid-cycle correction, similar to previous bullish phases.

One particular technical pattern Ciana is watching is gold’s impressive weekly streak: the precious metal has closed higher for seven consecutive weeks.

However, he added that in all 11 previous instances, gold prices were lower four weeks later.

Ciana is also paying close attention to gold’s long-term moving averages. He noted that the yellow metal is currently about 21% above its 200-day moving average, “where peaks are increasingly common.”

He also observed that gold is roughly 70% above its 200-week moving average, “a condition seen only three times (Sept 2011, Mar 2008, May 2006).” Finally, gold is 140% above its 200-month moving average.

On the downside, Ciana sees initial support at $3,790 and warns of potential risks extending as low as $3,525.

Source: kitco

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Adam

Economic

The Covid pandemic, the war in Ukraine, questions about transatlantic relations... "There is clearly a growing awareness of the need for European sovereignty," said Thomas Zlowodzki, head of equity strategy at Oddo BHF, at a press lunch held at its headquarters on Friday, October 3.

He says that European sovereignty has indeed become an economic and security imperative, with profound implications for investors. "Europe has realized that it must take greater responsibility for its defense, secure its supplies and build champions in critical sectors."

A doubled European financing plan

The bank reports that the issue of EU sovereignty has not escaped the attention of EU politicians, as evidenced by the 2028-2034 multiannual financing plan, which has been increased to €2 trillion, double the previous amount, and which focuses on energy, digital technology, research, and defense. "Even though the European Union is a slow-moving beast due to its size, there are still some fairly positive signs," Thomas Zlowodzki notes.

Member states, starting with Germany and France, are multiplying national measures, whether it be the France 2030 plan or the special German fund of €100bn to modernize its army.

Five pillars for investing in sovereignty

In this context, the financial sector is expected to play an increasingly important role, with the emergence of thematic funds and the mobilization of private capital around strategic projects. With this in mind, Oddo BHF has broken down the theme of sovereignty into five pillars:

Military,

Digital,

Energy and raw materials,

Industrial infrastructure,

Health and food.

In all, the bank has identified 127 listed stocks that fit the sovereignty theme, including "7 magnificent" companies, presented as "undisputed leaders in sovereignty," and "20 rising stars," smaller companies with strong growth potential.

The "Magnificent Seven" champions of sovereignty

The "Magnificent Seven" form the core of Oddo BHF's sovereignty portfolio. They include Rheinmetall, the German defense giant; Thales, the French pillar of security systems and satellites; and ASML, a key player in semiconductors and the world's only supplier of certain lithography technologies.

Alongside them are Schneider Electric, a specialist in energy efficiency and industrial automation; Siemens Energy, committed to energy transition and green electricity production; and SAP, a European heavyweight in management software and artificial intelligence applied to businesses. More surprisingly, Lonza, a Swiss company positioned in pharmaceutical bioproduction, is also included.

These companies share a critical mass, recognized technological expertise, and a strong contribution to European indices. According to data from Oddo BHF, they are expected to post average annual EPS growth of 24% between 2024 and 2027. Since February 2024, the basket of these seven stocks has already risen by 57%, demonstrating investors' growing interest in this theme, the bank points out.

The "rising stars": the future pillars

Alongside these established champions, Oddo BHF highlights twenty smaller stocks, presented as "rising stars," capable of becoming the pillars of sovereignty tomorrow. Their expected earnings growth reaches 44% p.a. over 2024-2027, an even faster pace, but driven by a riskier profile.

In Defense & Security: Hensoldt, Renk, Exosens, Exail Technologies, Frequentis

Tech & Industry: BE Semiconductor, Adesso, Technip Energies, Knorr-Bremse, Sulzer, Vossloh

Energy & transition: Vopak, Elia Group, Nordex, Grenergy Renovables, Nexans, Spie

Raw materials & healthcare: K+S, Sartorius AG

Strategic real estate: Merlin Properties

For Oddo BHF, European sovereignty is thus emerging as the new guiding principle for investment, at the crossroads of security, technology, and energy transition.

Source: marketscreener

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Devin

Central Bank

European Central Bank President Christine Lagarde renewed her call on Tuesday for a beefed-up global role for the euro currency, arguing that the bloc is now an innocent bystander, suffering shocks created in Washington and elsewhere.

The euro, the world's second most-used currency behind the dollar, has appreciated sharply this year as investors fled the U.S. currency on policy uncertainty, picking up safe assets, like gold and top-tier European bonds, among others.

But the 20-nation currency bloc's market for investment grade sovereign debt and stocks is relatively small compared to the U.S., putting it at risk of volatility in case of such flows.

"We are innocent bystanders of policy decisions made in Washington and of portfolio allocation decisions made worldwide, which we don’t have much influence over," Lagarde said in Paris. "It is not a sustainable position."

"We cannot remain a passive safe haven, absorbing the shocks created elsewhere," Lagarde said in a speech. "We need to be a currency that shapes its own destiny."

Critics argue that a larger market share would mean appreciation for the currency, an unwelcome trend putting exporters at a disadvantage.

The argument is that foreign demand for reserve assets would mean a steady inflow into the bloc and that would strengthen the currency and not just lower borrowing costs.

But Lagarde argued that there is no such mechanical relationship and the bloc could mitigate such risks by shifting more of its foreign trade to euros and expanding domestic trade.

In any case, many of Europe's economic difficulties were self-inflicted that could be resolved by bolder policy initiatives, she argued.

"Our weaker performance compared with the United States largely reflects internal barriers of our own making: including fragmented regulations, tax regimes, bankruptcy rules and incomplete capital markets," she said.

"Structural challenges such as high energy costs, low productivity and reluctance to finance common projects are also, to a large extent, within our own control."