Trump Pressures Fed Chair Powell to Cut Interest Rates, Highlighting Ongoing Tensions Over Monetary Policy

Core inflation in Japan's capital hit 3.6% in the year to May, data showed on Friday, marking a more than two-year high in a sign persistent rises in food costs will keep the central bank under pressure to hike interest rates further.

The data highlights the dilemma the Bank of Japan (BOJ) faces in balancing mounting inflationary pressures and the hit to Japan's economy from steep U.S. tariffs.

The increase in the Tokyo core consumer price index (CPI), which excludes volatile fresh food costs, exceeded a median market forecast for a 3.5% gain and followed a 3.4% rise in April. It was the fastest annual pace of increase since January 2023, when it hit 4.3%.

A separate index that strips away the effects of both fresh food and fuel costs, closely watched by the BOJ as a broader price trend indicator, rose 3.3% in May from a year earlier after a 3.1% rise in March.

Part of the rise was due to the base effect of last year's sharp drop caused by the launch of school education subsidies and the phase-out of nationwide subsidies to curb utility bills.

But the data showed signs of sticky food inflation with non-fresh food prices up 6.9% in May from a year earlier. The price of rice soared 93.2% from year-before levels.

While uncertainty over U.S. tariffs will likely keep the BOJ on a holding pattern, the price pressure may not allow the bank to pause on rate hikes for too long, some analysts say.

BOJ Governor Kazuo Ueda said on Tuesday the central bank must be vigilant to the risk rising food prices could push up underlying inflation that is already near its 2% target.

The BOJ ended a decade-long, massive stimulus programme last year and in January raised short-term interest rates to 0.5% on the view Japan was on the cusp of durably meeting its 2% inflation target.

While the central bank has signalled readiness to raise rates further, the economic repercussions from higher U.S. tariffs forced it to cut its growth forecasts and complicated decisions around the timing of the next rate increase.

A Reuters poll, taken on May 7-13, showed most economists expect the BOJ to hold rates steady through September with a small majority forecasting a hike by year-end.

Source: Reuters

U.S. trade talks with China are "a bit stalled" and getting a deal over the finish line will likely need the direct involvement of President Donald Trump and Chinese President Xi Jinping, U.S. Treasury Secretary Scott Bessent said on Thursday.

Two weeks after breakthrough negotiations led by Bessent that resulted in a temporary truce in the trade war between the world's two biggest economies, Bessent told Fox News that progress since then has been slow, but said he expects more talks in the next few weeks.

"I believe we may at some point have a call between the president and party Chair Xi," Bessent said.

"Given the magnitude of the talks, given the complexity ... this is going to require both leaders to weigh in with each other," he said. "They have a good relationship, and I am confident that the Chinese will come to the table when President Trump makes his preferences known."

The U.S.-China agreement to dial back triple-digit tariffs for 90 days prompted a massive relief rally in global stocks. But it did nothing to address the underlying reasons for Trump's tariffs on Chinese goods, mainly longstanding U.S. complaints about China's state-dominated, export-driven economic model, leaving those issues for future talks.

Since the mid-May deal, the Trump administration has concentrated on tariff negotiations with other major trading partners, including India, Japan and the European Union. Trump last week threatened 50% tariffs on EU goods, only to delay that threat.

A U.S. trade court on Wednesday ruled that Trump overstepped his authority in imposing the bulk of his tariffs on imports from China and other countries under an emergency powers act. But less than 24 hours later, a federal appeals court reinstated the tariffs, saying it was pausing the trade court ruling to consider the government's appeal. The appeals court ordered the plaintiffs to respond by June 5 and the administration to respond by June 9.

Bessent said earlier that some trading partners, including Japan, were negotiating in good faith and that he detected no changes in their postures as a result of the trade court ruling. Bessent said he would meet with a Japanese delegation on Friday in Washington.

Source: TradingView

A senior UN official on Thursday said there was little hope that the negotiations between Russia and Ukraine would produce a deal to halt fighting between the two sides.

"The massive wave of attacks over the weekend is a stark warning of how quickly this war can reach new destructive levels. Further escalation would not only aggravate the devastating toll on civilians but also endanger the already challenging peace efforts," UN Under-Secretary-General for Political Affairs Rosemary DiCarlo told the Security Council on Thursday.

"According to Ukrainian officials, with 355 drones, Monday's attack was the largest drone attack on Ukraine since the start of Russia's full-scale invasion," she said, adding: "This topped the previous record from the night before."

The UN official noted that the "cautious hope" she expressed a month ago has diminished in the face of recent developments.

"The hope that the parties will be able to sit down and negotiate is still alive, but just barely," she added.

Talks and ceasefire demands

Russia and Ukraine held a first round of direct talks in Istanbul on May 16.

But both sides failed to reach an agreement on a ceasefire.

Moscow, which said it is impossible to achieve a truce before certain conditions are met, suggested a second round of direct talks take place on Monday.

The Kremlin said Thursday that it was awaiting Kyiv's response to its proposal for holding a fresh round of talks.

Russian Foreign Minister Sergei Lavrov said this week that Moscow had drafted a memorandum outlining its terms for settling the Ukraine war.

But Ukraine said Moscow has not yet shared its proposal.

After the May 16 talks, Kyiv accused Russia of outlining unrealistic demands, including calls to cede territory that is still under Ukrainian control.

Russia launched its full-scale invasion of Ukraine in February 2022.

The war has resulted in tens of thousands of deaths and the destruction of large parts of eastern and southern Ukraine.

Russian forces have moved forward on the battlefield while pushing peace demands that include Ukraine abandoning its NATO ambitions and giving up around a fifth of its land.

Zelenskyy says Russia engaging in 'yet another deception'

Ukrainian President Volodymyr Zelenskyy on Thursday slammed Russia, saying that it was engaging in "yet another deception" by failing to hand over its peace settlement proposal ahead of a potential meeting between Moscow and Kyiv.

"Even the so-called 'memorandum' they promised and seemingly prepared for more than a week has still not been seen by anyone," Zelenskyy said in his nightly video address.

"Ukraine has not received it. Our partners have not received it. Even Turkey, which hosted the first meeting, has not received the new agenda," he added. "Despite promises to the contrary, first and foremost to the United States of America, to President (Donald) Trump: Yet another Russian deception."

Zelenskyy urged Ukraine's allies to intensify pressure on Moscow.

What did the US say?

Turkish President Recep Tayyip Erdogan told reporters that Russia's invitation for more talks had heightened Ankara's hopes for peace.

Erdogan, who is hosting the talks, has maintained good ties with both sides.

"The road to a resolution goes through more dialogue, more diplomacy. We are using all our diplomatic power and potential for peace," Erdogan's office quoted him as saying.

The United States, meanwhile, said prolonging the war was not in anyone's best interest and that its proposal for a ceasefire in Ukraine was "Russia's best possible outcome" and President Vladimir Putin should take the deal.

"We want to work with Russia, including on this peace initiative and an economic package. There is no military solution to this conflict," Acting Deputy US Ambassador John Kelley told the UN Security Council.

"The deal on offer now is Russia's best possible outcome. President Putin should take the deal," he added.

"If Russia makes the wrong decision to continue this catastrophic war, the United States will have to consider stepping back from our negotiation efforts to end this conflict," Kelley stressed. "Additional sanctions on Russia are still on the table."

Source: DW

Federal Reserve Bank of Dallas President Lorie Logan signaled it may take a while before officials know how the economy will respond to tariffs and other policy changes and thus how they should adjust interest rates.

In prepared remarks for an event in Waco, Texas on Thursday, Logan outlined a variety of risks to the economic outlook.

Tariffs could drive up price growth — temporarily or more persistently should inflation expectations rise. Fiscal policy or regulatory changes could boost demand, but economic uncertainty and market volatility may also cause a pullback among consumers and businesses, weighing on growth.

“For now, with the labor market holding strong, inflation trending gradually back to target, and risks to the FOMC’s objectives roughly balanced, I believe monetary policy is in a good place,” Logan said, referring to the interest-rate setting Federal Open Market Committee.

“It could take quite some time to know whether the balance of risks is shifting in one direction or another,” she added.

The Fed has left interest rates unchanged at each of its three meetings so far this year and is expected to do so again when officials gather in June. Minutes from policymakers’ May 6-7 meeting showed officials broadly agreed that heightened economic uncertainty meant they should remain patient in adjusting borrowing costs.

Last month, when the Trump administration had initially announced higher-than-expected tariffs on US trade partners, Logan said they would likely drive up prices and unemployment. Many tariffs have been paused or temporarily reduced as the administration negotiates deals with countries.

The latest de-escalation between the US and China has renewed optimism among consumers, with confidence rebounding this month after dropping to nearly a five-year low in April, according to data released earlier this week. At the same time, continuing claims for unemployment insurance benefits have climbed to the highest level since 2021, increasing concern that the unemployment rate may rise.

Fed officials have expressed concern that tariffs may put them in the tough spot of having to choose between keeping rates high to cool renewed inflationary pressures or lowering them to bolster a flagging economy.

Logan emphasized on Thursday that the economic outlook is hard to forecast right now. She also sounded a warning on the effects of higher inflation expectations.

“If expectations of higher inflation became entrenched, inflationary pressures could persist and become very costly to reverse,” she said.

Logan also spoke about central bank independence, a topic that has resurfaced recently with Trump’s repeated pressure on the Fed and Chair Jerome Powell to lower rates.

“Research shows that central banks perform better on inflation when they are independent from short-term political considerations,” Logan said. “The pattern is clear around the world and over history.”

Source: Bloomberg Europe

Citigroup’s U.S. equity strategist, Scott Chronert, has delved into the potential consequences of the growing budget deficit on the American economy. Chronert highlighted that the recent bill passed by the U.S. House of Representatives is unlikely to reduce the deficit. Instead, he pointed out that the new regulations might increase the deficit by approximately $600 billion by the year 2025.

Increasing Budget Deficit

Chronert’s analysis suggests that the widening budget deficit could have some positive effects in certain areas. He emphasized that financing the deficit might stimulate the economy, predicting higher treasury issuances and consequently higher interest rates. This scenario is expected to positively influence economic conditions and the earnings of S&P 500 companies.

Moreover, Chronert noted that the newly implemented tariffs could offset parts of the budget shortfall. These tariffs might contribute about $200 billion, potentially keeping the total deficit at the $2 trillion level, consistent with the current year’s budget deficit figure.

Stock Market and Interest Rates

Chronert highlighted the potential constraint of high interest rates on the stock markets. The importance of high interest rates in discounting future cash flows was noted, which could exert pressure on stock valuations.

Despite this, the expanding budget deficit might generally have a positive impact on the earnings of S&P 500 companies, indirectly benefiting cryptocurrencies as well. Chronert stated that even though the financing of the budget deficit can cause valuation pressure, it can still support economic growth and corporate earnings.

He warned about the risk that expansive financial conditions pose over stock prices. Investors were advised to consider the importance of long-term financing costs.

Analytic insights suggest that the new bill may increase the budget deficit rather than reduce it. However, this expansion could yield some favorable outcomes for the economy and major corporations. The management of fiscal deficits and their impact on markets in the U.S. continues to be a topic of discussion.

While the growing budget deficit in the U.S. emits positive signals for short-term economic growth, it also portends higher treasury issuances and interest rates, which may exert value pressure on stocks in the long term. Expected increments in corporate earnings might generate a positive tendency through the financing of the deficit. Investors are advised to monitor the potential implications of financial policies closely.

The post Budget Deficit Shakes U.S. Economy While Creating Market Ripples appeared first on COINTURK NEWS.

Source: CryptoSlate

U.S. Federal Reserve policymakers could still cut interest rates twice this year as they projected in March, San Francisco Fed President Mary Daly said on Thursday, but for now rates should remain steady to make sure inflation is on track to reach the central bank's 2% goal.

"As long as inflation is printing above target and there's some uncertainty about how quickly it can come back down to 2%, well, then inflation is going to be my focus because the labor market's in solid shape," Daly said in an interview with Reuters after an appearance at the Oakland Rotary Club. "We need to have policy in this modestly or moderately restrictive space, depending on how you think about it, to continue to bring ourselves to price stability."

The Fed earlier this month kept short-term borrowing costs in the 4.25%-4.5% range where they've been since December. Daly said the decision was an "active" choice as the central bank evaluates the economic impact of the Trump administration trade and other policies -- like a driver holding the wheel steady rather than steering to the left or the right.

Fed policymakers generally feel that Trump's aggressive tariffs risk increasing unemployment, which at 4.2% is comparatively low, and pushing up on inflation, which by the Fed's targeted measure is at 2.3%.

Overall, Daly said, the economy is in solid shape for now.

"I'm looking for any signs that the labor market is weakening. I haven't seen them, but let's continue to look," Daly said. "And I'm also looking for signs about inflation either continuing to gradually come down -- that would be welcome news -- or having any pressure to move either back up or stay sticky."

As part of that effort she is crisscrossing the Western states for clues on how businesses and communities are faring. After her appearance in Oakland, Daly was headed to catch a plane to southern California where she was due to speak at another event on Friday.

"I spend a lot of time counting cranes in cities," she said. "And when I count the cranes, there's certainly more than zero. And there's, in many cities, especially in the Intermountain region, there are more than there were last year...they're not stalled out."

At the same time, she said, businesses are taking fewer risks - opening five stores, for instance, instead of 10.

All that -- along with economic data showing a slowing but not cratering economy and a continued easing of inflation -- shows the Fed is not in the difficult position of having to choose between fighting inflation and bolstering the economy, and feeds into her sense that the Fed could cut rates later this year.

Source: Reuters