Trump Plans Travel Blitz to Sell Economic Agenda

The European Union's historic free trade agreement with the South American Mercosur bloc is now facing a serious threat. After 25 years of negotiations, EU lawmakers have narrowly voted to challenge the deal in the bloc's highest court, a move that could stall its implementation by at least two years and potentially unravel it completely.

Parliament Triggers Court Review

On Wednesday, a motion to refer the trade pact to the EU Court of Justice passed with 334 votes in favor to 324 against, with 11 abstentions. The challenge was initiated by a group of 144 lawmakers who have raised critical questions about the agreement's legal standing.

Specifically, the court will be asked to rule on two key issues:

• Can the deal be provisionally applied before it is fully ratified by every EU member state?

• Do its provisions unfairly restrict the EU's power to set its own environmental and consumer health policies?

A ruling from the court typically takes around two years.

A Continent Divided: Farmers vs. Global Strategy

The vote exposes a deep rift within the EU over the trade deal, which was signed on Saturday with Mercosur members Argentina, Brazil, Paraguay, and Uruguay.

Opposition From the Agricultural Sector

Opponents, with France's powerful farming lobby at the forefront, argue the deal will flood the European market with cheap agricultural imports. They are primarily concerned about increased competition from beef, sugar, and poultry, which they say will undercut domestic producers who have already staged multiple protests against the pact.

Figure 1: European farmers have been prominent in protests against the Mercosur deal, citing fears that cheap imports will threaten their livelihoods.

Figure 2: Demonstrations, particularly in France, have highlighted the strong opposition from the agricultural sector to the landmark trade agreement.

The Geopolitical Argument for the Deal

On the other side, supporters like Germany and Spain view the agreement as a crucial strategic move. They argue that amid global trade disruptions, such as U.S. tariffs implemented under President Donald Trump, the deal is essential for the EU's economic security.

Proponents believe the pact will:

• Offset business lost due to U.S. trade policies.

• Reduce the EU's economic reliance on China.

• Secure access to critical minerals from South America.

They also warn that the Mercosur nations are growing impatient after decades of talks, and further delays could jeopardize the entire relationship.

An Uncertain Future for the Pact

While the legal challenge proceeds, the EU could technically apply the trade agreement on a provisional basis. However, this would be a politically difficult move given the strong opposition and the risk of a public backlash.

Ultimately, the European Parliament still holds the power to annul the deal later on. With the pact now heading to the courts, the future of the EU's largest-ever trade agreement remains highly uncertain.

Swiss National Bank Chairman Martin Schlegel on Wednesday stressed that central bank independence is essential for controlling inflation, a statement made amid mounting political pressure on the U.S. Federal Reserve and its chair, Jerome Powell.

The SNB joined other central banks last week in supporting Powell after the U.S. Justice Department, under President Donald Trump, threatened him with a criminal investigation. Powell has described the probe, which concerns renovations at two Fed buildings, as a pretext to pressure the central bank into cutting interest rates—a move Trump has repeatedly demanded.

"Central bank independence is very important," Schlegel told Reuters during the World Economic Forum in Davos. "A central bank needs to be independent to fulfil its mandate, which is price stability."

He highlighted the global significance of the Fed's autonomy, adding, "It's really important that the Fed is independent. Typically, when a central bank is not independent, inflation is higher."

Global Turmoil Fuels Swiss Franc's Rally

Schlegel noted that recent global political turbulence has driven up the value of the Swiss franc, which investors traditionally view as a safe-haven asset.

The franc recorded its strongest annual performance since 2002 last year, gaining nearly 14.5% against the dollar as President Trump's global tariff offensive disrupted trade and unsettled investors. Renewed fears of a trade war with Europe have fueled further gains, with the franc climbing 1.4% this week after remaining stable for most of January.

SNB Navigates a Strengthening Franc

The franc's appreciation directly impacts the SNB's balance sheet, reducing the value of its dollar-denominated assets. U.S. dollar holdings constitute approximately 36% of the central bank's 765 billion Swiss francs ($966 billion) in foreign currency reserves.

While Schlegel did not comment on whether the SNB would reduce its dollar holdings, he emphasized that the bank's strategy is built on diversification and liquidity.

"What's important for us is diversification, with currencies, so U.S. dollars, euro, and so on, but also in other instruments, government bonds, corporate bonds, and also equities," he explained. "We are looking at our investment universe constantly, and we are able to make decisions if necessary."

No Changes Planned for Gold or Inflation Outlook

Despite a 36.3-billion-franc profit from its gold holdings last year, driven by investors seeking refuge from economic turmoil, Schlegel confirmed the SNB has no intention of altering its position.

"We have no plan to buy or sell gold," he stated, referring to the bank's 1,040 metric tons of reserves.

The SNB also remains unconcerned by recent low inflation figures. Switzerland's annual inflation rate was 0.1% in December, sitting at the bottom of the bank's 0%-2% target range. Schlegel said the SNB expects inflation to rise but is prepared for some months of negative inflation.

"If we have some negative prints this year, for example, this is not a problem with the Swiss National Bank," he said, "because we look at the medium-term price stability."

($1 = 0.7917 Swiss francs)

Economists have hit the brakes on their rate cut predictions for the U.S. Federal Reserve. A new Reuters poll indicates a significant shift in expectations, with a majority now forecasting that the central bank will hold its key interest rate steady through the first quarter.

Just a month ago, most experts anticipated at least one rate reduction by March. Now, the consensus suggests that any policy easing is unlikely until Fed Chair Jerome Powell's term concludes in May. This pivot is driven by a surprisingly resilient U.S. economy and escalating political pressures on the central bank's independence.

The Federal Reserve building in Washington, D.C., where policy decisions are being shaped by both economic data and political pressures.

Rate Cut Expectations Shift Dramatically

The January 16-21 poll of 100 economists shows a unified front for the short term. Every respondent expects the Fed to keep rates in the 3.50%-3.75% range at its upcoming meeting on January 27-28.

Furthermore, 58% of those surveyed foresee no change for the entire quarter. This marks a stark reversal from the previous month's poll, where a rate cut was the prevailing view.

Looking beyond the first quarter, the outlook remains uncertain. However, a slight majority of 55 economists believe rate cuts could resume once Powell's tenure ends in May, highlighting the critical role of the Fed's future leadership in shaping monetary policy.

Jeremy Schwartz, a senior U.S. economist at Nomura, noted the complexity of the situation. "The economic outlook on the surface suggests the Fed should remain on hold, maybe even consider putting hikes on the table sometime later this year or next year," he said. "In reality, though, we think the Fed will remain on hold for the remainder of Powell's term through May, but we suspect the new leadership will likely manage to get another 50 basis points of rate cuts later in the year."

Political Pressure Clouds Fed's Independence

The Fed's policy path is complicated by mounting political interference. President Donald Trump has consistently criticized Chair Powell for not cutting rates more aggressively.

These tensions have intensified recently, with the Justice Department bringing criminal charges against Powell concerning renovations at the Fed's headquarters. Concurrently, an attempt by Trump to remove Fed Governor Lisa Cook is awaiting a Supreme Court hearing.

This contentious environment is expected to impact the selection of the next Fed chair, a decision Treasury Secretary Scott Bessent suggested could come as early as next week.

"There's going to be more pushback than ever on the selection of the next chair, all because of the criminal investigation," said Bernard Yaros, lead U.S. economist at Oxford Economics. "I don't expect Trump to be able to really fill the Fed with people who will cut interest rates."

Strong Economy Underpins a Hawkish Stance

Underlying the delayed rate-cut expectations is the sheer strength of the U.S. economy. After expanding at a robust 4.3% pace in the third quarter, growth is now projected to hit 2.3% this year, an upgrade from the 2.0% predicted last month. This forecast is well above the 1.8% level the Fed considers non-inflationary.

Economists at Oxford Economics are even more bullish, forecasting 2.8% growth in 2026. "We are looking for a very strong U.S. GDP growth in 2026 due to further investments in AI, but even more because of the tax cuts under the fiscal bill," Yaros explained. He estimates the bill will add six-tenths of a percentage point to annual GDP growth this year alone.

This sustained economic momentum reduces the urgency for the Fed to stimulate activity with lower interest rates.

Persistent Inflation and a Steady Job Market

A consequence of strong economic growth is that inflation is likely to remain elevated. According to the poll, the Personal Consumption Expenditures (PCE) index—the Fed's preferred inflation gauge—is expected to stay above the 2% target for the rest of this year and through 2028.

Meanwhile, the labor market remains stable, with the unemployment rate projected to average 4.5% this year. With solid growth, a tight job market, and persistent inflation, the economic argument for holding interest rates steady appears compelling.

A fragile U.S.-brokered ceasefire in Gaza is under severe pressure as fresh violence erupts, stalling a 20-point peace plan championed by President Donald Trump. Israeli fire has killed five Palestinians, including two boys, according to local health officials, highlighting the repeated violations that have plagued the truce since it began in October.

The agreement, intended to de-escalate a two-year war that has devastated the region, is struggling to move beyond its initial phase.

October Ceasefire Under Strain as Casualties Mount

In central Gaza, Palestinian medics reported that Israeli tank shelling east of Deir Al-Balah resulted in the deaths of three people, one of whom was a 10-year-old boy. Two other Palestinians, a 13-year-old boy and a woman, were killed in separate shooting incidents in eastern Khan Younis, located in the southern part of the enclave.

The conflict has created a severe humanitarian crisis, with civilians bearing the brunt of ongoing violence.

Local residents stated these incidents occurred in areas controlled by Palestinians. While the ceasefire involved a partial Israeli military withdrawal, Israeli forces still hold approximately 53% of Gaza and have been gradually expanding their presence, leading to further displacement of Palestinian families.

Earlier on Wednesday, the Israeli military announced its forces had killed a "terrorist" who posed an imminent threat after crossing into an area under their control.

U.S.-Brokered Peace Deal Hits a Wall

The October deal has not progressed past its first stage, which involved a cessation of major fighting, a partial Israeli pullback, and an exchange of Hamas-held hostages for Palestinian detainees and prisoners.

Israeli forces maintain a significant military presence in parts of Gaza, a key issue in the stalled peace negotiations.

Future phases of the plan remain stalled, with no timetable set for their implementation. These steps are supposed to include:

• The disarmament of Hamas.

• A further withdrawal of Israeli forces.

• The installation of an internationally supported administration to oversee the reconstruction of Gaza.

On Thursday, President Trump is scheduled to preside over a ceremony for the Board of Peace, a group he established with the stated aim of redeveloping the coastal territory.

Disputes Over Hostages and Disarmament

Progress is deadlocked over key disagreements. Israel insists it will only proceed to the second phase after Hamas returns the remains of the last Israeli hostage.

In response, Hamas Gaza spokesperson Hazem Qassem said on Wednesday that the group has shared all available information about the body and that its search efforts were unsuccessful, blaming what he termed obstruction by the Israeli military.

Since the ceasefire took effect, more than 460 Palestinians and three Israeli soldiers have been reported killed in clashes. The wider conflict began after a Hamas-led attack on October 7, 2023, which killed 1,200 people, according to Israeli data. Israel's subsequent air and ground assault has killed 71,000 Palestinians, according to Gaza's health authorities.

Source: Theguardian

The European Union has officially decided against forcing the world's largest tech companies to help pay for overhauling Europe's telecommunications infrastructure, ending a long-running and contentious debate.

Brussels announced on Wednesday that instead of mandating "fair share" payments from tech giants like Netflix for their high bandwidth usage, it will pursue a voluntary system. The decision is a setback for European telecom providers, who have long argued that Big Tech should contribute financially to network maintenance and upgrades.

Tech firms have consistently opposed these proposals, warning that such fees would ultimately force consumers to pay twice—first for their internet access and again through higher subscription costs for streaming and cloud services.

A Voluntary Approach Over Mandated Fees

The European Commission is now proposing a "voluntary cooperation mechanism" between connectivity providers and major content and cloud companies. This approach sidesteps direct regulation and aligns with a tariff agreement made last year between the EU and the United States, in which Brussels promised "not to adopt or maintain network usage fees."

"We shouldn't come with very strict rules from the commission," EU tech chief Henna Virkkunen told reporters in Strasbourg.

Henna Virkkunen, European Commissioner for Tech-Sovereignty, outlines the EU's new digital strategy in Brussels.

Tech and Telecoms React to EU Proposal

Despite the EU's lighter touch, both the tech and telecom industries expressed disappointment with the new plan.

Big Tech Remains Wary of "Ambiguous" Plan

The tech sector voiced immediate concern over the proposal's wording, fearing it could still lead to new fees.

"We are deeply concerned by the proposal's ambiguous language," stated Maria Teresa Stecher of the tech lobby group CCIA Europe. "The ecosystem is functioning well, yet this unnecessary mechanism has been introduced, clearly opening the door to network usage fees."

Telecom Industry Laments Lack of Bold Action

Meanwhile, telecom operators argued that the plan fails to address the core issue of funding future investments.

Connect Europe, a group representing European connectivity providers, described the draft law as a "continuation of the status quo." The group added that, "apart from spectrum, [it is] lacking transformative proposals to foster much-needed investment."

The Digital Networks Act: A Broader Revamp

The announcement is part of the EU executive's wider "Digital Networks Act," a legislative package designed to modernize and strengthen Europe's fragmented telecom market. The EU estimates that over €200 billion ($234 billion) is required for this modernization.

Key proposals within the act include:

• Simplified Operations: Allowing companies to register in just one member state to provide services across the entire bloc.

• Predictable Licensing: Granting telecoms longer radio spectrum licenses, currently set for at least 20 years, and making them renewable by default to increase predictability for operators.

As part of the long-term vision, Brussels is also proposing a deadline of 2035 for member states to transition their infrastructure from older copper networks to faster fibre technology. The proposed legislation will now move to the European Parliament and member states for discussion before it can become law.