Trump Imposes 25% Tariff on Nations Trading With Iran

Fitch Ratings said on Monday it views the Federal Reserve's independence as a key supporting factor for its AA+ U.S. sovereign rating.

The credit rating agency will continue to monitor evolution of governance, including "institutional checks and balances," as well as the performance of the Fed in delivering low and stable inflation in its assessment of the U.S. sovereign rating, said Richard Francis, senior director at Fitch Ratings, in emailed comments.

The Fitch comments come after the Trump administration threatened to indict Federal Reserve Chair Jerome Powell over Congressional testimony he gave last summer about a Fed building project, an action Powell called a "pretext" to gain more influence over the central bank and monetary policy.

Credit ratings agency S&P Global Ratings has also cited the credibility of the Fed as a key ratings strength for the U.S. sovereign rating. In an October report, S&P Global said ratings "could come under pressure if political developments weigh on the strength of American institutions and the effectiveness of long-term policymaking or independence of the Fed."

"We continue to view the credibility of the Fed as unparalleled," S&P Global said in the October report. "This supports U.S. monetary flexibility and the role of the dollar as the premier international reserve currency—both of which are key components of the sovereign rating."

Asked on Monday to comment on the latest developments, an S&P spokesman referred to the credit agency's previous reports.

Source: Reuters

Argentina has repaid a $2.5 billion currency swap to the U.S. Treasury after securing funds from an undisclosed multilateral institution, a central bank official confirmed.

The financing arrangement was not publicly announced. While the official declined to name the lender, they specified that it was not the International Monetary Fund (IMF), with whom Argentina already has a separate $20 billion loan program.

A Flurry of Debt Obligations

Last Friday, Argentina settled the $2.5 billion debt, which was drawn from a $20 billion swap line established with the Trump administration. The payment was part of a broader effort to manage its financial commitments, which also included a critical $4.3 billion payment to bondholders.

To cover the bond payments, the government used a combination of its own reserves and a $3 billion repurchase agreement, also known as a repo loan, from a consortium of six international banks.

US Treasury Confirms Repayment and Profit

U.S. Treasury Secretary Scott Bessent confirmed the transaction in a post on X, stating that the U.S. had been fully repaid. He noted that the deal generated "tens of millions in USD profit for the American taxpayer."

Bessent also commended Argentina for recent "encouraging changes to its monetary and exchange rate policy framework" and for successfully tapping financial markets.

Political Context: From Peso Volatility to Market Favor

The original U.S. support was extended as Argentina’s peso faced extreme volatility ahead of a key midterm vote in October. At the time, traders were betting against President Javier Milei’s party.

However, Milei's libertarian party ultimately prevailed in the election, leading to a significant turnaround in market sentiment. This improved outlook has helped stabilize the country's financial position. Despite the recent developments, both U.S. and Argentine officials have released minimal information regarding the original conditions of the swap line.

New York Federal Reserve President John Williams stated Monday that he expects a healthy economy in 2026 and sees no immediate reason to lower interest rates, reinforcing the central bank's current wait-and-see approach.

Speaking before the Council on Foreign Relations, Williams characterized the Fed's monetary policy as moving from a "modestly restrictive" stance "closer to neutral."

New York Fed President John Williams outlined his economic outlook and stance on interest rates in a recent speech.

"Monetary policy is now well positioned to support the stabilization of the labor market and the return of inflation to the FOMC's longer-run goal of 2 percent," he said.

Balancing Inflation and Employment Risks

Williams, a key voice on the interest-rate-setting Federal Open Market Committee (FOMC), emphasized that the central bank's primary challenge is guiding inflation back to its 2% target "without creating undue risks" for employment.

He noted a recent shift in the balance of these risks. "In recent months, the downside risks to employment have increased as the labor market cooled, while the upside risks to inflation have lessened," Williams explained.

His comments, the first of the year, align with the broader view that the Fed has entered a holding pattern after cutting its benchmark interest rate by three-quarters of a percentage point last year. The federal funds target rate currently stands in a range of 3.5% to 3.75%.

Those earlier rate cuts were a response by policymakers attempting to navigate a weakening job market while inflation remained above the 2% goal.

A Favorable Economic Outlook

In his speech, Williams described his economic forecast as "quite favorable." He projects:

• GDP Growth: Between 2.5% and 2.75% for the year.

• Unemployment: The rate is expected to stabilize this year before declining in subsequent years.

• Inflation: Price pressures are forecast to peak between 2.75% and 3% in the first half of the year, easing to 2.5% for the year as a whole. Williams sees inflation returning to the 2% target by 2027.

This outlook is consistent with the Fed's December meeting, where officials penciled in one additional rate cut for this year. The consensus assumed the job market would remain stable and inflation would cool as the effects of President Donald Trump's trade tariffs diminish.

Fed Holds Firm Amid Political Pressure

Williams' stance echoes his comments from a December television interview, where he stated he saw no urgent need for another rate cut. Other Fed officials have recently offered similar outlooks.

This patient approach persists even as the central bank faces continued pressure from President Trump and his associates to cut rates more aggressively, despite inflation running above the Fed's target.

Unprecedented Legal Challenge to Fed Independence

The speech comes at a time of an extraordinary attack on the central bank's independence. On Sunday, Fed Chair Jerome Powell announced that the institution had been served with grand jury subpoenas threatening a criminal indictment related to cost overruns in the renovation of its headquarters.

In a statement, Powell dismissed the legal moves as "pretexts." He argued, "This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions—or whether instead monetary policy will be directed by political pressure or intimidation."

While the immediate market impact has been less severe than some anticipated, the threat has reportedly sparked significant bipartisan pushback in Congress. This could potentially prevent the president from installing new members on the central bank's board until the legal challenges are withdrawn.

A coalition of Japanese lawmakers is pushing a proposal to create a massive sovereign wealth fund, aiming to consolidate roughly ¥500 trillion ($3.2 trillion) in public financial assets to generate new revenue for the nation. The initiative seeks to address Japan's chronic budget deficits by actively managing these assets to fund key policy goals.

The core idea is to bring Japan's foreign exchange reserves, pension assets, and exchange-traded funds held by the Bank of Japan under the management of skilled investment professionals in a single entity. Proponents estimate that even a modest 1% annual return could generate ¥5 trillion.

This new income could be used to eliminate the consumption tax on essential goods like food or to cut annual social insurance premiums for working households by approximately ¥70,000.

The Political Push for a National Fund

The Komeito party, formerly part of the ruling coalition with the Liberal Democratic Party (LDP), is spearheading this effort. An alliance of lawmakers backing the fund is expected to form in the coming weeks, drawing members from the LDP, the main opposition Constitutional Democratic Party, and the Democratic Party for the People. A former finance minister is also reportedly among its supporters.

Komeito's immediate goal is to pass foundational legislation for the sovereign wealth fund during the parliamentary session that convenes this month.

Inspired by the GPIF's Success

The concept of a Japanese sovereign wealth fund isn't new. The LDP explored the idea with a project team back in 2008, but the initiative lost momentum after the global financial crisis.

This time, the proposal is fueled by the successful transformation of the Government Pension Investment Fund (GPIF), one of the world's largest institutional investors. In 2014, the LDP-Komeito government approved a strategic shift for the GPIF, diversifying its portfolio from a heavy concentration in Japanese bonds toward higher-risk domestic and foreign stocks.

The results have been significant. By the end of fiscal 2024, the GPIF's assets under management had grown to about ¥250 trillion, an increase of roughly 80% from fiscal 2014. Komeito hopes to apply the lessons and expertise gained from the GPIF's success to this new, larger fund.

How the Fund Would Be Structured

A significant portion of the proposed fund's capital would be sourced from the government's foreign exchange fund special account. This account, managed by the Finance Ministry to stabilize the exchange rate and fund market interventions, held ¥187 trillion in assets as of the end of March 2025.

Currently, these assets are believed to be heavily invested in U.S. Treasurys. The new proposal would diversify these holdings into a broader range of assets, mirroring the strategy that proved successful for the GPIF.

Key Risks and Hurdles Ahead

Despite its potential benefits, establishing such a fund presents several challenges.

• Governance Conflicts: Fund managers would need to make investment decisions based on profitability, free from political pressure or influence.

• Managing Losses: Since the fund's capital would not be derived from budget surpluses, any investment losses would directly reduce the government's assets. This would require establishing clear rules to manage such scenarios.

• Legislative Changes: If management of the fund were outsourced to private-sector professionals, new legislation would be required.

• Alternative Priorities: A key counterargument is that Japan should prioritize using its available capital to pay down its substantial public debt rather than investing it in financial markets.

Brent futures rose 53 cents, or 0.8%, to settle at $63.87 a barrel. U.S. crude rose 38 cents, or 0.6%, to settle at $59.50. It was Brent's highest settlement since Nov. 18 and WTI's highest since Dec. 5.

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Source: Reuters

Conservatives Defend OBR Against Abolition Threat

The UK's Conservative Party is drawing a clear line against its right-wing rival, Reform UK, over the future of the Office for Budget Responsibility (OBR).

Mel Stride, the Conservative Treasury spokesman, has stated that while the party is open to overhauling the OBR, its continued existence is "non-negotiable." This stance directly opposes calls from Reform UK leader Nigel Farage, who has suggested the fiscal watchdog should be scrapped entirely.

Stride warned that eliminating the OBR would trigger a market backlash, likely leading to "a premium on our borrowing costs." Farage, however, stated earlier this month that he is giving "serious thought" to whether the UK would be "better off without the OBR."

Why the OBR Became a Political Flashpoint

The independent forecaster has become a center of controversy since Chancellor Rachel Reeves's November budget. The OBR's decision to downgrade the UK's growth outlook at the time forced the Labour chancellor to raise taxes to stay within her own fiscal rules.

This move fueled criticism from populists on both the right and left, who argue that the OBR is effectively making tax and spending decisions instead of the elected government. The situation intensified following an unprecedented leak of budget details nearly an hour before Reeves's speech, followed days later by the resignation of OBR chair Richard Hughes.

Cross-Party Attacks Over Fiscal Credibility

In a planned speech at the Institute for Government, Stride is expected to frame the OBR as a pillar of economic credibility for markets, taxpayers, and businesses.

He plans to directly challenge Farage's motives, arguing it's "not hard to see why a politician like Nigel Farage might want to get rid of the OBR when he fought the last election on a manifesto which made £140 billion ($190 billion) of fantasy unfunded commitments."

Labour has also attacked Farage for "fiscal recklessness," describing his proposal to ditch the OBR as "Liz Truss on steroids." The comparison invokes the market chaos that followed former Prime Minister Liz Truss's 2022 mini-budget, which sidelined the OBR. Farage has since said he would prioritize cutting public spending and waste before implementing tax reductions.

The Tory Proposal: Reform, Not Removal

While defending the OBR's existence, the Conservatives are also signaling a desire for change. Stride accused Chancellor Reeves of "sidelining the OBR" by cutting its assessments of fiscal rules from twice a year to just once.

He indicated that a Conservative government would explore reforms to the institution, including "innovative approaches" not yet tried in the UK.

"There will be some aspects that might benefit from reform," Stride is expected to say. "For example, is the economic modeling sufficiently flexible to capture the dynamic impacts of policy. We will look carefully at the way in which the OBR works."