US Economy may be on the Brink of Price-Hike Wave, Fed's Bostic Says

Central Bank

Economic

Summary:

"Every time something like this happens, investors just think maybe they should shift a little more out of the U.S.," said Campe Goodman, fixed-income portfolio manager at Wellington Management Company.

Moody's U.S. debt downgrade is raising concerns that investors could reevaluate their appetite for U.S. government bonds, with the potential for rising yields to put pressure on stocks that are trading at elevated valuations.

Moody's decision to downgrade the U.S. debt rating by a notch late last week due to mounting government debt and rising interest expenses has rekindled fears of a broader investor reappraisal of U.S. sovereign debt, which could drive up borrowing costs across the economy.

Benchmark 10-year yields, which influence mortgage rates as well as borrowing costs for companies and consumers, rose to over 4.5% early on Monday but the selloff then moderated. Yields move inversely to prices. On Tuesday, the bond market selloff continued, with the 10-year yield last seen at 4.48%, slightly above where it closed on Monday.

Longer-dated 30-year yields rose more sharply, hitting a high of over 5% on Monday, the highest since November 2023, and flirting with that level again on Tuesday.

Higher yields have repercussions for stocks, analysts and investors say, as they represent higher borrowing costs for companies as well as greater investment competition from fixed income.

Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments, said a rise in 10-year yields beyond 4.5% could be a headwind for stocks. "I think what markets are grappling with, is if the 30-year is breaking out, does that mean the rest of the curve is next?" Miskin said.

Over the past few years, stocks have come under pressure during some instances when Treasury yields moved above 4.5%, with sharply rising yields often negatively correlated with stock performance. One prominent example is late 2023 when the S&P 500 slid sharply as the 10-year yield ascended to 5%.

In a note on Monday, Morgan Stanley equity strategist Michael Wilson said 4.5% on the 10-year yield has been "an important level" for equity market valuation over the past two years, with stocks tending to face valuation pressure when 10-year yields breach that threshold.

The price-to-earnings ratio for the S&P 500, based on earnings estimates for the next 12 months, was at 21.7 as of Monday, well above its long-term average of 15.8, according to LSEG Datastream.

Wilson, however, said while a break above 4.5% in the 10-year yield "can lead to modest valuation compression ... we would be buyers of such a dip," he said in the note, citing the recent U.S.-China trade truce as positive for equity markets.

The downgrade has come as Republicans in Congress seek to approve a sweeping package of tax cuts aimed at boosting economic growth that at the same time could add trillions to the $36 trillion U.S. public debt pile, exacerbating concerns highlighted by Moody's over the U.S. fiscal trajectory.

It also follows a detente in the trade war sparked by President Donald Trump's imposition of tariffs on U.S. trade partners. While tariffs are largely seen as being a drag for the economy, a recent trade breakthrough with China had sparked market optimism that their impact would be more muted than feared.

"You move from fears of stagflation, which was low growth and tariff-led inflation, to a better growth backdrop but probably not a better inflation or fiscal backdrop, as you still have this big tax bill getting pushed through," said Ross Mayfield, investment strategist at Baird.

Federal Reserve officials on Monday said the Moody's downgrade could have repercussions for the U.S. economy by raising the cost of capital.

The ratings cut was unlikely to trigger forced selling of Treasuries, as major fixed-income indices only require securities to maintain an investment-grade rating or have no specific sovereign rating guidelines, analysts at BofA Securities said in a note on Monday.

Still, it could cause the yield curve to steepen, they said, with long-dated yields rising due to worsening investor sentiment around the long-term prospects of U.S. debt.

"There could be a time when the bond market gets quite worried that we're continuing to stimulate an economy that's not weak," Goodman said.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Add to Favorites

Manuel

Cryptocurrency

In a move that sent ripples through the cryptocurrency world and traditional finance alike, Circle, the company behind the popular USDC stablecoin, reportedly signed a significant Memorandum of Understanding (MOU) with BlackRock, the world’s largest asset manager. This agreement, first reported by Odaily in March, isn’t just a handshake; it outlines a deep collaboration regarding USDC reserves and places interesting restrictions on BlackRock, potentially reshaping the future of the Stablecoin partnership landscape.

What Does the Circle BlackRock Agreement Entail?

At its core, the reported Circle BlackRock MOU establishes a strategic relationship focusing primarily on how Circle manages the vast reserves backing its USDC stablecoin. According to the details that emerged:

Primary Partner Status: BlackRock is designated as Circle’s primary partner for managing its U.S. dollar-denominated stablecoin reserves. This is a massive vote of confidence from a leading crypto firm in a traditional finance behemoth.

Significant Reserve Allocation: Circle commits to allocating a substantial portion of its U.S. dollar reserves to BlackRock. Specifically, at least 90% of these reserves, excluding bank deposits, will be managed by BlackRock. This represents billions of dollars in assets flowing under BlackRock’s management umbrella.

The Non-Compete Clause: Perhaps the most talked-about aspect is the clause preventing BlackRock from developing or launching its own competing U.S. dollar stablecoin. This effectively gives Circle a four-year window without direct stablecoin competition from the financial giant managing its money.

Duration: The agreement is set to remain in effect for a period of four years, providing a clear timeframe for this exclusive arrangement.

This arrangement goes beyond a simple vendor relationship; it’s a deep integration of Circle’s operational needs with BlackRock’s asset management expertise, all while navigating the competitive waters of the stablecoin market.

Why is this Stablecoin Partnership a Big Deal for Crypto News?

The collaboration between Circle and BlackRock is significant for several reasons, impacting both the crypto ecosystem and traditional finance’s view of digital assets:

Institutional Validation: Having BlackRock, an institution managing trillions of dollars, partner so closely with a crypto company like Circle lends immense credibility to the stablecoin model and the broader digital asset space. It signals that major financial players see long-term value and stability in assets like USDC.

Scale and Expertise: BlackRock brings unparalleled experience in managing large-scale financial reserves with a focus on safety and liquidity. This expertise is crucial for maintaining the stability and trustworthiness of USDC reserves, which is paramount for a stablecoin aiming for widespread adoption.

Competitive Dynamics: The clause preventing a BlackRock stablecoin for four years is a major strategic advantage for Circle. It reduces the immediate threat of a direct competitor entering the market with BlackRock’s significant brand recognition and resources. This could allow USDC to further solidify its position, particularly in attracting institutional users who might trust BlackRock’s involvement.

Impact on USDC Reserves and Market Position

The agreement is designed to enhance the safety and efficiency of USDC reserves. By entrusting the management of a large portion of its reserves to BlackRock, Circle aims to reinforce confidence in USDC’s 1:1 peg to the U.S. dollar. BlackRock’s rigorous approach to asset management, focusing on conservative investments like U.S. Treasuries and repurchase agreements, aligns with the requirements for stablecoin reserve stability.

This move could potentially strengthen USDC’s competitive position against other stablecoins, most notably Tether (USDT). While Tether has faced scrutiny regarding the composition and transparency of its reserves in the past (though they have made efforts to improve), USDC has generally been perceived as more transparent and regulated, partly due to Circle’s U.S. base and regulatory engagements. Partnering with BlackRock amplifies this perception of stability and trustworthiness, which is vital for attracting larger institutional flows and mainstream adoption.

The BlackRock Stablecoin Question: A Strategic Delay?

The non-compete clause raises an interesting question: Was BlackRock considering launching its own stablecoin? While BlackRock has shown increasing interest in crypto, including launching a spot Bitcoin ETF, a proprietary stablecoin would be a significant undertaking with regulatory complexities. The MOU suggests that while a BlackRock stablecoin might have been on the table internally, the strategic value of partnering with an established player like Circle and gaining exposure to the management of stablecoin reserves was a more immediate priority. The four-year ban could be seen as a trade-off – exclusivity in reserve management for a delay in entering the stablecoin issuance market directly.

This partnership allows BlackRock to gain invaluable insights into the operational and financial mechanics of running a major stablecoin without immediately taking on the full issuance risk and regulatory burden. It’s a foot in the door to a rapidly growing segment of the crypto market.

Broader Implications for Crypto News and Institutional Adoption

This development is significant for the overall narrative in crypto news. It underscores a growing trend of convergence between traditional finance and the crypto world. Major players like BlackRock are no longer just observing; they are actively participating and forming strategic alliances. This kind of partnership can pave the way for greater institutional adoption of stablecoins and other digital assets by building bridges of trust and familiarity between the two ecosystems.

It highlights that stablecoins, particularly regulated and transparent ones like USDC, are increasingly viewed as critical infrastructure for the digital economy, not just speculative crypto assets. Their use cases in payments, settlements, and as a bridge between fiat and crypto are becoming clearer, attracting the attention of the largest financial institutions.

Potential Challenges and What’s Next?

While the MOU seems mutually beneficial, potential challenges remain. Regulatory clarity around stablecoins globally is still evolving, which could impact the terms or execution of such agreements. Furthermore, the success of the partnership hinges on seamless operational integration between Circle and BlackRock’s systems.

Over the next four years, we can expect to see how this partnership influences USDC’s market share, how it impacts the broader stablecoin landscape, and whether BlackRock decides to enter the stablecoin issuance market after the non-compete period expires. This Stablecoin partnership is a fascinating case study in the ongoing integration of crypto into the global financial system.

Conclusion: A Landmark Stablecoin Partnership

The reported MOU between Circle and BlackRock marks a landmark moment, solidifying a strategic alliance that benefits both parties. Circle gains the immense credibility and expertise of BlackRock in managing its critical USDC reserves, enhancing trust and stability. BlackRock secures a significant asset management mandate in the digital asset space and gains invaluable insights, while agreeing not to launch a competing BlackRock stablecoin for four years. This development is crucial crypto news, signaling deeper institutional involvement in the stablecoin market and potentially setting a precedent for future collaborations between crypto native firms and traditional finance giants. It underscores the growing importance of stablecoins as a bridge between the old and new financial worlds.

Source: BitcoinWorld

Risk Warnings and Disclaimers

Add to Favorites

Manuel

Economic

Central Bank

Even after the recent U.S. and China trade detente, the labor market looks likely to weaken and prices to head higher, St. Louis Federal Reserve President Alberto Musalem said on Tuesday - though if the de-escalation proves durable the Fed's current monetary policy stance could "remain appropriate."

Eased trade tensions, Musalem told the Economic Club of Minnesota, would allow the labor market to stay strong and inflation to remain on path to the Fed's 2% goal.

"In this scenario, the current stance of monetary policy, which is focused on bringing inflation back to 2% in the context of a full-employment labor market, will remain appropriate," he said. But that's only the case, he said, if the public continues to believe that inflation will come down, a faith that could be shaken if prices stay elevated.

"I believe policy should prioritize price stability in the face of persistent inflationary pressures that threaten to dislodge long-term inflation expectations," Musalem said.

And, he added in a discussion following his prepared remarks, even with anchored inflation expectations the Fed wouldn't necessarily lower rates if inflation remained too high and the economy wasn't weakening too much.

The Fed earlier this month left short-term borrowing costs in the range of 4.25%-4.50%, and Fed policymakers speaking since then have signaled they plan to leave them there while they wait for more clarity on how trade and other Trump administration policies play out.

The ongoing and unusually high uncertainty over economic policy under the Trump administration, Musalem said on Tuesday, is prompting households and businesses to pause spending and investment, which will slow the economy in a "meaningful" way if it continues.

But with tariffs equally likely to lead to more persistent inflation as to only temporary inflation, the Fed should not commit to rate cuts to cushion the economy until there is more certainty about how inflation actually behaves, Musalem said.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Manuel

Russia-Ukraine Conflict

Political

The EU adopted four sets of sanctions against Russia over the war in Ukraine on Tuesday, including a 17th package targeting Moscow's shadow fleet, and measures related to chemical weapons, human rights and hybrid threats, the European Commission said on Tuesday.

The EU and its Western allies have been progressively cracking down on Russia's shadow fleet of tankers and related actors, which work to circumvent the Group of Seven nations (G7) price cap on Russian crude in place since late 2022.

The cap was designed to allow Russian oil to be sold to third countries using Western insurance services provided the price was no more than $60 a barrel.

However, the crackdown has started to bite and the EU will push for a lower price cap this week during a meeting of G7 finance ministers in Canada. Oil and gas exports are one of Russia's main sources of revenue, which finance its war in Ukraine.

The four new sets of measures will hit over 130 entities and individuals. As part of the 17th package, the EU will list 75 new entities including major Russian oil firm Surgutneftegaz, a shipping insurance company and four shadow fleet management firms involved in the UAE, Turkey and Hong Kong, EU sources said.

EU diplomats briefly weighed imposing sanctions on the Dubai branch of Litasco, the trading arm of Russia's No. 2 oil producer Lukoil, but it was deleted from the list owing to Hungarian opposition and a weak legal basis, EU sources said. However, they did list Litasco's Dubai shipping arm Eiger Shipping DMCC.

Another 189 vessels, of which 183 are oil tankers, have been added to the list, taking the total number of listed vessels to 324.

The EU has been in dialogue with countries that provide tanker registrations in an effort to cut off Moscow's use of so-called flags of convenience, referring to those registered to countries other than their actual owner.

In the latest round, the flags used included African countries such as Sierra Leone, Gabon and Comoros, Caribbean and Pacific islands, India, Azerbaijan and the landlocked European state of San Marino, the sources added.

The package also tightens measures around the sale of dual-use items, which are products or technology that can be repurposed by Russia's military, and lists entities which support Russia's military industrial complex in China, Belarus and Israel.

Source: Reuters

Risk Warnings and Disclaimers

Add to Favorites

Owen Li

Russia-Ukraine Conflict

President Trump following Monday's phone calls with Russia's Vladimir Putin and Ukraine's Volodymyr Zelensky said that the United States should have never intervened in Ukraine in the first place.

He blasted his predecessor Joe Biden for sinking boundless billions in arms and aid into Kiev's coffers and yet it has only been a "death trap" and "real mess" which US decision-makers should have avoided altogether. "This is not my war. We got ourselves entangled in something we shouldn't have been involved in, and we would have been a lot better off. It's a real mess. It's a death trap," he said before reporters Monday afternoon.

"I do have a certain line, but I don't want to say what that line is because I think it makes the negotiation even more difficult than it is," Trump asserted. When pressed, he refrained from divulging what precisely that red line is in the press briefing.

Trump also addressed the ever-present potential for the US to get drawn in deeper, which is why he said this should be Europe's mess and responsibility, and not the United States'.

"We don’t have boots on the ground, we wouldn’t have boots on the ground. But we do have a big stake. The financial amount that was put up is just crazy," he added.

"Again, this was a European situation. It should have remained a European situation. But we got involved – much more than Europe did – because the past administration felt very strongly that we should," he said. "We gave massive amounts, I think record-setting amounts, both weaponry and money."

Watch a key segment of the Trump presser:

Meanwhile, in the wake of the Trump-Putin call, which lasted over two hours, the mainstream media has been slamming the US president as essentially giving Putin a free hand. President Trump had said it went "very well" and that he seems "an imminent end to the war".

For example, below is The Washington Post's perspective in a fresh Tuesday report:

A phone call between President Donald Trump and Russian President Vladimir Putin shut down an effort to pressure Russia into an immediate ceasefire and instead opened the way for continued fighting while lengthy negotiations take place — much to the consternation of Ukraine and its European allies Tuesday.

Trump’s abandonment of new sanctions on Russian indicated that he may be stepping away from involvement in the talks, something that his team has been flagging for weeks. Trump said Monday that the conditions for a ceasefire could only be agreed by the warring parties “because they know details of a negotiation that nobody else would be aware of.”

European leaders say they had originally been planning with U.S. officials to levy new sanctions on Russia if it did not declare an immediate ceasefire in Ukraine.

And yet the reality is that the sanctions themselves would certainly escalate the conflict and proxy war further, providing even less of an opportunity for a diplomatic off-ramp, and Trump knows this.

Trump had written just after the call: "Russia and Ukraine will immediately start negotiations toward a Ceasefire and, more importantly, an END to the War.

Growing impatience on all sides, even among Trump supporters and conservatives, amid fears that the proxy war could just continue endlessly...

He wrote on Truth Social, "The conditions for that will be negotiated between the two parties, as it can only be, because they know details of a negotiation that nobody else would be aware of.

He then emphasized, "The tone and spirit of the conversation were excellent. If it wasn’t, I would say so now, rather than later."

Fresh remarks from Rubio on Tuesday, defending the president's talks with Putin...

Rubio pushes back against claims about the administration's disengagement, says "I see some of those Foreign Ministers, including individuals from Ukraine, more than i see my own children."

Source: Zero Hedge

Risk Warnings and Disclaimers

Add to Favorites

Adam

Cryptocurrency

A bill to regulate stablecoins passed a key procedural hurdle in the Senate Monday night, paving a path for final passage of legislation pushed by the crypto industry as early as this week.

The bill still faces hurdles from some Democrats, including Sen. Elizabeth Warren, who argued against the proposed legislation on the floor of the Senate Monday night.

Warren argued the bill doesn’t prohibit President Trump and his family from profiting off stablecoins, nor does it provide enough protections for financial system stability.

Other Democrats, including Sens. Kirsten Gillibrand of New York and Angela Alsobrooks of Maryland, pulled together enough support to keep the bill going and overcome opposition from the Warren camp.

Key Democrats who supported Monday's procedural vote include Sens. Mark Warner of Virginia and Ruben Gallego of Arizona.

Stablecoins are cryptocurrencies pegged to other assets, such as the US dollar, but they would not be protected by any sort of deposit insurance, as bank accounts are. This bill, however, would bar stablecoin accounts from offering interest to depositors — in a win for bank lobbyists.

The Trump family is already in the stablecoin business. World Liberty Financial, a new crypto startup backed by Trump and his sons, last month unveiled plans to mint its own US-dollar-pegged stablecoin in partnership with BitGo.

That stablecoin was then picked as the payment vehicle for a $2 billion investment into Binance from state-owned Abu Dhabi investment firm MGX.

Some Democratic opposition to the bill faded, however, as some argued that the Trump ties to crypto should not stand in the way of establishing rules around stablecoins.

Some in the industry argued that without the regulations outlined in the bill, there could be a repeat of what happened in 2022 when the unregulated algorithmic stablecoin Terra Luna crashed.

That wiped out $60 billion in value, including money held by American consumers, in less than 72 hours.

The Senate will now debate the stablecoin bill while also giving senators the option to offer amendments. From there, the Senate would vote on those amendments and would need another 60 votes to gain cloture to proceed to a final vote on the bill.

The legislation that advanced in the Senate Monday night holds stablecoin issuers to strict reserve requirements, requiring them to maintain one-to-one reserves in cash and cash equivalents. It also bans unbacked, algorithmic stablecoins.

Issuers must comply with monthly public disclosures of reserves. Issuers with $50 billion or more in total issuance must submit annual audited financial statements and disclose affiliated transactions to regulators.

It also includes a broad savings clause guaranteeing the application of existing federal consumer protection laws, including but not limited to the protections extended by the Consumer Financial Protection Bureau and the Federal Trade Commission.

The bill also closes a loophole that could have allowed non-permitted offshore stablecoin issuers to offer their products on US-regulated exchanges and empowers the Treasury secretary to delist non-compliant foreign issuers.

Foreign stablecoin issuers in the US will be subject to the same rules as domestic issuers. One current issuer based outside the country, Tether, would either need to make its entire business compliant or create a US subsidiary that is in compliance.

Stablecoin issuers will also be held to bank-like standards regarding anti-money-laundering requirements, sanctions compliance, and requirements under the Bank Secrecy Act.

The bill also prohibits Big Tech companies like Meta (META) and Amazon (AMZN) from issuing stablecoins unless they can meet strict criteria regarding financial risk, consumer data privacy, and fair business standards.

The bill’s sponsor, Sen. Bill Hagerty, has said that Citigroup estimates that a US regulatory framework for stablecoins would drive significant new demand for US Treasurys, which could make them the largest combined holders of Treasurys by 2030.

Currently, if combined, all current US dollar-denominated stablecoins would be the 14th-largest sovereign holder.

Some Democrats criticized that the bill still provides foreign-issued stablecoins, like Tether, multiple avenues to access US markets while evading the bill’s basic regulatory requirements.

They also contend that if enacted in its current form, consumers may have fewer basic protections when using stablecoins than they do when using Venmo or their bank account.

source : finance.yahoo

Risk Warnings and Disclaimers

Add to Favorites

Devin

Economic

Do any Republicans remember 2018?That’s the year President Trump and his GOP allies in Congress expected voters to reward them for cutting everybody’s taxes. But voters weren’t feeling the love and delivered Republicans a resounding midterm election defeat.A rerun is now underway.

Like the 2017 tax bill Trump signed, the 2025 version will primarily benefit wealthy Americans. There are sops to lower earners, as there were in 2017. But the lesson from the first Trump tax-cut bill is that most voters won’t notice small changes — and they’ll catch on if politicians pat them on the head while directing most of the benefits of a tax-cut package to wealthy donors and the shareholder class.

The 2017 tax cuts were a priority for Republicans but not necessarily for the US electorate. Americans disapproved of the package even before it passed, according to Gallup. Net approval of the tax cuts remained negative throughout 2018.

Why would anybody disapprove of a tax cut? Because people thought the 2017 law disproportionately favored businesses and the wealthy. In reality, it did. The law cut the corporate tax rate from 35% to 21% and boosted corporate profits by billions of dollars. The law cut tax rates for most individuals, but the wealthy benefited the most. After-tax earnings of the top 20% of earners rose by 2.9%, according to the Tax Policy Center. Earnings for the lowest quintile rose just 0.4%.

Big and beautiful? President Trump speaks to reporters before a House Republican conference meeting on May 20 at the US Capitol in Washington. (AP Photo/Julia Demaree Nikhinson) · ASSOCIATED PRESS

Republicans made some specious claims about the tax law that skeptical voters didn’t buy. Trump said that “the benefits of tax reform go to the middle class, not to the highest earners.” That was patently false. Mitch McConnell, Senate majority leader at the time, predicted that the tax cuts would be a “revenue producer,” on net, because they would stimulate so much new growth that federal tax revenues would soar. That didn’t happen. Instead, the law added nearly $2 trillion to the national debt.

The 2017 tax cut law probably would have been more popular if it had excluded any tax breaks for top earners, who didn’t need them. It should have made middle-class tax cuts permanent, like the business tax cuts, instead of letting them expire at the end of 2025. The business tax cuts were arguably prudent because they brought those in line with rates in other advanced economies. But it could have tightened up carve-outs such as the carried interest provision, which is a boon to private equity firms.

The law did cut taxes for 65% of Americans, and Republicans figured voters would thank them in the 2018 midterm elections. Bad guess. Democrats snatched 40 seats in the House of Representatives, their biggest gain since 1974. The “blue wave” gave Dems control of the House and an effective block on Trump’s legislative agenda. Several factors fueled the Democratic surge, including Trump’s rocky first year in the White House. But tax cuts clearly didn’t help Republicans, and the impression that they favored the rich may have hurt.