US Consumer Sentiment Falls As Inflation Expectations Climb

Economic

Forex

Summary:

US consumer sentiment unexpectedly fell for the first time since April and inflation expectations rose on lingering anxiety about the impact of tariffs.

The preliminary August sentiment index fell to 58.6 from 61.7 a month earlier, according to data from the University of Michigan released Friday.

Consumers expect prices to rise at an annual rate of 4.9% over the next year, wiping out the prior month's improvement. They saw costs rising at an annual rate of 3.9% over the next five to 10 years.

Both the sentiment index and the inflation gauges were worse than economists had anticipated in a Bloomberg survey.

“Consumers continue to expect both inflation and unemployment to deteriorate in the future,” Joanne Hsu, director of the survey, said in a statement.

The survey was conducted from July 29 to Aug. 11. Recent government data showed job growth slowed notably in recent months. Roughly 62% of consumers expect unemployment to rise in the year ahead, an increase from the prior month.

A separate report released by the University of Michigan Friday showed 58% of consumers plan to cut back on spending this year as they brace for further inflation. Respondents cited anticipating pulling back on purchases including cars, household items and meals out.

“Consumers expressed throughout the interviews that their concerns about current high prices have returned to prominence this month after waning somewhat earlier in the summer,” Hsu said.

The group's gauge of buying conditions for durable goods plunged to the lowest level in a year.

A separate report released earlier Friday showed US retail sales rose for a second month in July, fueled by broad-based demand for merchandise.

The sentiment survey showed the current conditions gauge fell to a three-month low of 60.9, while the expectations index notched down to 57.2.

Nearly a third of respondents expect interest rates to fall in the year ahead, largely driven by partisan differences. The gap between Republicans, who generally expect borrowing costs to fall, and Democrats, who do not, is the largest on record, according to the report.

Source: Bloomberg Europe

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Warren Takunda

Economic

One major question will be front and center for Federal Reserve policymakers as they prepare for an annual conference in Jackson, Wyoming next week and a crucial policy meeting in September: Which is a bigger problem for the economy right now, stubborn inflation or slower hiring?

Weak job gains since April have pushed some officials toward supporting a cut in the Fed’s key rate as soon as next month, but speeches and comments by other Fed policymakers show that inflation is still a concern.

That could make the Fed’s ultimate move at its September 16-17 meeting a close call. There will be another jobs report and another inflation report before then, and both will likely heavily influence the decision of whether to cut or not. The uncertainty also means that Fed Chair Jerome Powell’s speech next Friday in Jackson will be closely watched for any clues about next steps.

If Fed officials worry more that unemployment will start to rise and the economy falter, they are more likely to reduce their rate in order lower borrowing costs and spur borrowing and spending. Yet if their concerns grow that inflation will stay high or worsen as tariffs ripple across global supply chains, they will lean more towards keeping borrowing costs high to cool the economy and lower prices. The rate currently stands at 4.3%.

Wall Street investors are pretty certain — for now — that the central bank will reduce rates in September, with futures prices putting the odds of a cut at 93%, according to CME Fedwatch.

Those odds jumped after the monthly jobs report Aug. 1 showed that hiring was sluggish in July and was much lower than previously estimated in May and June. Average job gains over those three months fell to just 35,000, down from 123,000 a year ago.

And Tuesday’s inflation report, which showed only a mild pickup in inflation at the consumer level and limited signs that tariffs were pushing goods prices higher, underscored the view of some officials that they could put inflation concerns aside and focus on shoring up the job market instead.

“With underlying inflation on a sustained trajectory toward 2%, softness in aggregate demand, and signs of fragility in the labor market, I think that we should focus on risks to our employment mandate,” Michelle Bowman, a member of the Fed’s governing board, said last week.

Yet Austan Goolsbee, president of the Federal Reserve’s Chicago branch, downplayed the weakness in hiring in remarks to reporters Wednesday. The slowdown in job gains could partly reflect the drop in immigration stemming from President Donald Trump’s border crackdown, Goolsbee said, rather than a weaker economy. He also pointed to the still-low unemployment rate of 4.2% as evidence that the job market is solid.

This week’s inflation report included some warning signs, Goolsbee added: Prices of many services that aren’t affected by tariffs, such as dental care and air fares, jumped, a sign that inflation may not be in check.

“That was the most concerning thing in the inflation report, and if that persisted, we would have a hard time getting back to 2%,” Goolsbee said, referring to the central bank’s inflation goal. “I am still hopeful that will not be a lasting problem.”

Fed officials also disagree on how tariffs will affect inflation going forward. Many increasingly believe the duties will result in simply a one-time boost to prices that will quickly fade and not lead to ongoing inflation.

“Tariffs will boost inflation in the near term, but likely not in a persistent way” that would require the Fed to keep rates elevated, Mary Daly, president of the Fed’s San Francisco branch, said in a recent speech.

Daly also said the labor market has “softened” and suggested the Fed “will likely need to adjust policy in the coming months.”

However, Raphael Bostic, president of the Fed’s Atlanta branch, said Wednesday that the tariffs could lead to longer-term inflation if they cause more manufacturers to shift output from lower-cost locations overseas back to the United States, or to other countries with higher wages. Such a change would be more than just a one-time shift.

“You’re going to see fundamental structural changes if this is successful,” Bostic said in remarks in Red Bay, Alabama. “It is actually a different economy.”

In that scenario, Bostic said, he would prefer to wait “until we have a little more clarity.” And he added that with unemployment low, “we have the luxury to do that.”

Thursday’s July wholesale price report, which showed a sharp jump in goods and services prices before they reach the consumer, did make one move less likely: A half-point cut in September, as suggested by Treasury Secretary Scott Bessent.

Alberto Musalem, president of the Fed’s St. Louis branch, who votes on Fed policy this year, said that a reduction of that size is “unsupported by the current state of the economy, and the outlook for the economy,” in an interview on CNBC.

Tim Duy, an economist at SGH Macro, said Thursday that the Fed may have to raise its inflation forecast at its September meeting when it provides its latest set of quarterly economic projections. The central bank’s policymakers currently expect inflation, excluding volatile food and energy, to reach 3.1% by the end of this year, yet inflation is already near that level.

Cutting rates at the September meeting would be hard for the Fed if it is also forecasting higher inflation, DuyJ said.

“There are things that could happen that would push the Fed off the path” toward a rate cut, he said. “We’re not paying adequate attention to those risks.”

Source: AP

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Winkelmann

Economic

Political

Taiwan is set to revise its estimate for growth in 2025, providing the first glimpse of how it expects the economy to perform since the Trump administration imposed a 20% duty on exports to the US.The statistics bureau in Taipei will release the figure on Friday afternoon, after saying in May that it expected an expansion of 3.1%. The median forecast of 22 economists who have made their predictions following the US levies is for 4.1% growth this year.The bureau will also provide its first forecast for 2026 gross domestic product (GDP), along with inflation calls for this year and next.

Taiwan’s economy has roared because its tech exports have been in great demand during the artificial intelligence (AI) boom and companies front-loaded purchases before tariffs landed. The archipelago that specialises in advanced chip production recently reported one of the world’s quickest growth rates for the last quarter.

Taiwan recorded a historic US$154 billion (RM649.52 billion) in exports in the period, risking the ire of US President Donald Trump, as its trade imbalance with the US widens. The surge has also kept up pressure on the local currency to appreciate.The question now is whether Taiwan can keep up the sizzling numbers for the rest of 2025. Bloomberg Economics economist Hyosung Kwon predicted growth would slow in the second half, as the front-loading ends and higher US duties hit.

“While the global AI boom will continue to support Taiwan’s tech-driven economy for some time, uncertainty over US trade policy — especially relating to chips — poses a key risk to the outlook,” he wrote.The government in Taipei has said that the 20% tariff level is temporary, and that it will continue negotiating with the US to secure “a better and more reasonable rate”.

The tariff blow could ultimately be smaller than feared for Taiwan. Trump has also said that he planned to impose a 100% levy on semiconductor imports, but that firms investing in the US would be exempt.A Taiwanese official said that Taiwan Semiconductor Manufacturing Co — the self-ruled archipelago’s largest company and a key supplier of advanced chips to Nvidia Corp and Apple Inc — shouldn’t be subject to those duties because it has plants in the US.

Source: Theedgemarkets

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Adam

Cryptocurrency

Bitcoin (BTC-USD) retreated almost 2% on Friday from its record highs on Thursday after hotter-than-expected inflation soured expectations of a large rate cut in September and Treasury Secretary Scott Bessent signaled the US won't be purchasing bitcoin for its strategic reserve.

On Wednesday, bitcoin touched an all-time high past $123,500 per token in anticipation of looser monetary policy and corporate purchases. Crypto rolled over after July's Producer Price Index came in much higher than expected.

During an interview with Fox Business, Bessent said US reserves of bitcoin amount to around $15 billion or $20 billion at today's prices.

"We've also started to get into the 21st century — a bitcoin strategic reserve. We're not going to be buying that, but we are going to use confiscated assets and continue to build that up," he said.

Expectations of Fed rate cuts, coupled with heavy purchases from corporate treasuries, have driven up the price of the asset this year.

The cryptocurrency has gained 25% year to date and has rallied roughly 57% since the April lows.

Inflows into spot exchange-traded funds, along with purchases from public companies copying the blueprint of software firm-turned-bitcoin juggernaut Strategy (MSTR) by adding bitcoin to their balance sheets, have been key drivers of this year's rally.

Strategists also point to the Trump administration’s pro-crypto stance as a major catalyst.

"The administration is pushing crypto. They are pushing bitcoin. Bitcoin is the lead dog in the crypto market," Tom Essaye, founder of Sevens Report Research, told Yahoo Finance earlier this week.

"So is it short-term a little frothy? Sure," he added. "But longer term, there are some fundamental changes here that I think are bullish for it."

Last week, President Trump issued an executive order directing the Labor Department to explore allowing 401(k) plans to hold cryptocurrencies and other alternative assets, a move that could significantly expand retail investor access to crypto.

The price surge also comes as US equities have notched all-time records on expectations the Federal Reserve will cut interest rates in September and that Trump's next Fed chair pick will likely favor looser monetary policy.

Meanwhile, ethereum (ETH-USD) prices also retreated more than 2% on Friday after rising to near record levels as Wall Street grows increasingly bullish on the world's second-largest cryptocurrency by market cap.

Companies have been adding ether to their balance sheets as a way to gain exposure to the tech infrastructure behind decentralized finance and digital assets, such as stablecoins.

source :finance.yahoo

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Michelle

Economic

Stocks

President Donald Trump said he would set levies on semiconductors in the coming two weeks, the latest indication he’s readying a substantial expansion of his tariff regime.

“I’ll be setting tariffs next week and the week after, on steel and on, I would, say chips — chips and semiconductors, we’ll be setting sometime next week, week after,” Trump told reporters on Friday aboard Air Force One en route to Alaska for a summit with Russian President Vladimir Putin.

It wasn’t clear if Trump misspoke about steel tariffs. He already hiked duties on steel and aluminium imports to 50% in June.

The president has repeatedly promised that levies on chips and pharmaceuticals are coming within weeks, but no formal announcements have yet been made.

Both sectors have been under Commerce Department investigation since April, a prerequisite for Trump to impose tariffs on national security grounds. That process can prove complicated and probes can take months or longer to resolve.

Manufacturers and artificial intelligence firms have been eager for more clarity about his plans for semiconductor rates, since chips are included in a wide range of modern consumer products.

Last week, Trump said during an event with Apple Inc chief executive officer Tim Cook that he planned a 100% tariff on semiconductors, while exempting products from companies that are moving manufacturing to the US.

The White House hasn’t offered a subsequent explanation for how that exemption would work, but Trump implied that Apple — which has pledged a US$600 billion (RM2.52 trillion) domestic manufacturing initiative — could be exempt.

On Friday, Trump suggested the charge on imported semiconductors could be even higher.

“I’m going to have a rate that is going to be 200%, 300%?” Trump said.

The US president indicated that he could speak about tariffs with Putin, and said he believed the Russian leader planned to bring business leaders to the summit.

“I noticed he’s bringing a lot of business people from Russia, and that’s good I like that because they want to do business,” Trump said. “But they’re not doing business until we get the war settled.”

Trump in recent weeks has threatened to impose higher tariff rates on purchasers of Russian energy, including a pledge to impose a 50% levy on goods from India. He has also suggested he could ratchet up economic costs on Moscow if the meeting does not go well.

Source: Theedgemarkets

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Glendon

Economic

Forex

A Federal Reserve interest rate cut in September, the first this year, followed perhaps by another before year-end remains the base forecast for most economists polled by Reuters amid rising concerns about the health of the world's biggest economy.

U.S. inflation is rising again, with more upward pressure expected from President Donald Trump's tariffs, and there have been big downward revisions to hiring figures over recent months that suggest the job market is weakening.Trump has berated Fed Chair Jerome Powell over his reluctance to cut rates. And at the July meeting there was clear divergence from the steady rates position among a minority of Federal Open Market Committee members.

Alongside simmering doubts over the Fed's independence from political interference and declining reliability of economic data, it has become more difficult for economists to make predictions with great conviction.

August is not typically a month for big forecast changes either. Many are waiting for the next round of inflation and jobs data, as well as a speech from Powell, his last at the Fed's annual Jackson Hole conference held this month as his term as Fed chief ends in May.

Economists are broadly sticking to a more cautious outlook than interest rate futures traders, whose pricing suggests a near-certainty of a September cut and strong likelihood of another, and the possibility of a third by year-end.

A 61% majority, 67 of 110, predicted the Fed would lower its benchmark interest rate by 25 basis points to 4.00%-4.25% on September 17 for the first time this year, up from 53% in July's survey. One forecast a 50 basis point move.

The remaining 42 said the Fed would hold rates again.

"We think that market participants are excessively confident in a September cut, as they are misinterpreting both the FOMC's assessment of labor market conditions and its reaction function," wrote economists at Barclays in a note.

"In our view, the main question is not so much about whether the Fed needs to ease policy to lean against job declines, but whether the situation warrants cuts on the grounds that the balance of risks has shifted away from inflation and toward the full employment mandate."Over 60% of respondents, 68 of 110, predicted there would be either one or two rate cuts this year, broadly unchanged from last month. But there was no consensus on where the federal funds rate would be at end-2025.

A near-80% majority of economists who answered an extra question, fewer than the usual sample, said the inflation impact from tariffs would be temporary.

A 68% majority also expected no serious erosion of the Fed's independence during the remainder of Powell's term.

Inflation forecasts were broadly unchanged from last month, averaging above the Fed's 2% target through at least 2027.

The unemployment rate was expected to be around the current 4.2% or slightly above over the next few years, suggesting economists have not yet fully responded to the recent sharp downward revisions to hiring and may do so in the next poll if August jobs data are also weak.

"We come down on the side of thinking the Fed would prefer to retain optionality," said Michael Gapen, chief U.S. economist at Morgan Stanley.

"This would leave room for a soft August employment report to open the door for cuts, or a reasonably strong employment report plus another round of firming in CPI inflation to keep the Fed on hold."

Source: Reuters

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Winkelmann

Political

Economic

Key points:

● Lee to restore suspended 2018 military pact with North Korea

● South Korea halts propaganda efforts against North

● Lee eyes pragmatic diplomacy with Japan amid historical tensions

South Korea intends to restore a pact to suspend military activity along its border with North Korea, President Lee Jae Myung said on Friday, as his government seeks to improve ties between the neighbouring countries still technically at war.In a speech to mark the 80th anniversary of Korea's liberation from Japanese colonial rule, Lee said he would restore the so-called September 19 Comprehensive Military Agreement. The pact was signed at an inter-Korean summit in 2018 and designed to de-escalate tension along the border between North Korea and South Korea.

Pyongyang later tore up the agreement and said it would restore all military measures after Seoul suspended parts of the agreement amid a spike in tensions.President Lee, who won a snap election in June, has sought to re-engage Pyongyang after a period of cross-border tension and shown a willingness to return to dialogue.

"Everyone knows that the long drawn-out hostility benefits people in neither of the two Koreas," Lee said during his speech in Seoul.Lee said South Korea had no intention of absorbing North Korea for unification and respected Pyongyang's current system.The president cited his government's efforts to lower tensions, including halting the launch of balloons floated by activists with anti-North Korea leaflets and dismantling loudspeaker propaganda broadcasts across the heavily-militarised border.

"In particular, to prevent accidental clashes between South and North Korea and to build military trust, we will take proactive, gradual steps to restore the September 19 Military Agreement," Lee said.In June 2024, former South Korean President Yoon Suk Yeol declared a complete suspension of the military pact in response to North Korea's move to send hundreds of rubbish-stuffed balloons across the border."I hope that North Korea will reciprocate our efforts to restore trust and revive dialogue," Lee said.

Earlier this month, South Korea and the U.S. announced a delay in parts of their annual joint military exercises that have been a source of tension with North Korea.

Top North Korean officials have, however, in recent weeks dismissed moves taken by Lee's new liberal government aimed at easing tension between the two Koreas.Lee would keep seeking to peacefully denuclearise North Korea through cooperation with the international community and dialogue between Pyongyang and Washington, he said.Turning to South Korea's ties with Japan, Lee said the relationship should be "forward-looking", based on pragmatic diplomacy focusing on Seoul's national interest.

Ties between the U.S. allies have often been strained, rooted in historical disputes stemming from Japan's colonial rule over the Korean peninsula from 1910-1945.The South Korean president will visit Japan on August 23 for a summit with Prime Minister Shigeru Ishiba, as both countries grapple with the implications of U.S. tariffs imposed by the administration of President Donald Trump.Lee has in the past been critical of efforts by administrations in Seoul to improve ties with Tokyo, though he pledged to deepen the relationship with Japan at a meeting with Ishiba on the sidelines of a G7 meeting in Canada in June.