CNBC Daily Open: Stagflation on the Fed's mind
At U.S. Federal Reserve Chair Jerome Powell's post-meeting press conference, the topic of tariffs — specifically, their impact on prices — was a recurring one.
"Everyone that I know is forecasting a meaningful increase in inflation in coming months from tariffs because someone has to pay for the tariffs," Powell said. "And some of it will fall on the end consumer."
Granted, recent economic data has been upbeat, suggesting the U.S. economy has been able to — and could still — escape from tariffs mostly unscathed.
In May, a better-than-expected 139,000 jobs were added and the unemployment rate was unchanged at 4.2%. Consumer sentiment in early June was much more optimistic than forecast, according to a University of Michigan survey. And, most crucially, inflation in May — based on the consumer price index — ticked up just 0.1% for the month, lower than estimated.
But that string of positive data might have to thank the slow process by which tariffs move through the economy.
"It takes some time for tariffs to work their way through the chain of distribution to the end consumer. A good example of that would be goods being sold at retailers today may have been imported several months ago before tariffs were imposed. So we're beginning to see some effects, and we do expect to see more of them over the coming months," Powell said.
And even though Fed officials, at present, "don't see signs" of the U.S. economy weakening, Powell acknowledged growth will slow "eventually." In other words, stagflation — the toxic mix of higher prices and slower growth — could be a possibility in the months ahead.
The song "I Got Summer on My Mind" went viral in 2022. "I Got Stagflation on My Mind" could be the Fed's — and market watchers' — earworm this summer.
U.S. central bank holds rates, sees two cutsThe U.S. Federal Reserve on Wednesday kept interest rates in a range between 4.25%-4.5%, where it has been since December. Along with the rate decision, the committee indicated, through its closely watched "dot plot," that two cuts by the end of 2025 are still on the table. Earlier Wednesday, President Donald Trump said the fed funds rate should be at least 2 percentage points lower, and again slammed Chair Jerome Powell, calling him "stupid."
Fed hikes inflation and lowers growth forecastsInflation in the U.S., measured by the personal consumption expenditures price index, will rise beyond 3% in 2025, according to an updated Fed forecast. The central bank had in March expected the PCE to hit 2.8%. The PCE came in at just 2.1% in April. The Fed also sees economic growth slowing to 1.4% this year, down from an earlier estimate of 1.7%. In combination, both forecasts point to early signs of stagflation.
Markets and oil prices were flat in U.S.U.S. stocks hovered around the flatline Wednesday. The S&P 500 slipped 0.03%, the Dow Jones Industrial Average closed 0.1% down, but the Nasdaq Composite inched up 0.13%. Oil prices, likewise, were little changed. Europe's regional Stoxx 600 index lost 0.36%. The FTSE 100, however, ticked up 0.11% as data showed U.K. annual inflation coming in at an expected 3.4% in May.
Trump says he hasn't decided on Iran strikesFor the second time in two days, Trump on Wednesday met his national security team in the White House amid the Israel-Iran conflict. The closed-door gathering took place as Trump insisted he had not yet decided whether to order a U.S. strike on Iran. The same day, U.S. Ambassador to Israel Mike Huckabee said evacuation flights and cruise ship departures were being arranged for American citizens seeking to leave Israel.
[PRO] 'Profound impact' on oil market: JPMorganThe current jump in oil prices because of the simmering conflict in the Middle East might not lead to a long-term price shock, according to historical data analyzed by JPMorgan. A regime change in Iran resulting from U.S. or Israeli military action, however, can have a "profound impact" on the global oil market, the bank said.
These are the sticking points holding up a U.S.-EU trade deal
The U.S. and European Union are running out of time to strike a deal on trade tariffs — and analysts say several key sticking points could make an agreement impossible.
Negotiations have been slow since both the U.S. and EU temporarily cut duties on each other until July 9. If a deal is not agreed by then, full reciprocal import tariffs of 50% on EU goods, and the bloc's wide-spanning countermeasures are set to come into effect.
"We're talking, but I don't feel that they're offering a fair deal yet," Trump told reporters Tuesday, further dashing hopes of an imminent agreement.
So what's holding things up between the two sides, which had a relationship worth 1.68 trillion euros ($1.93 trillion) in 2024?
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That's likely to leave some Fed officials still balancing the two sides of its mandate, rather than shifting focus to upside inflation risks.' — Estelle Ou, Anna Wong, Stuart Paul, Eliza Winger and Chris G. Collins, economists. For full analysis, click here Along with the May inflation data, the government's report on Friday is projected to show a second month of modest growth in household spending on goods and services. The last two months included a steep downturn in sentiment, related in part to heightened anxiety about the possible impact on prices from higher tariffs. Economists will also look to the report's personal income data to gauge the ability of consumers to continue spending. In the three months through April, inflation-adjusted disposable income growth averaged 0.6%, the strongest in more than two years. Other US data in the coming week includes May existing- and new-home sales, as well as two surveys of June consumer confidence. On Thursday, the government will issue its advance economic indicators report that includes an initial estimate of the merchandise trade deficit for May. In addition to Powell delivering the Fed's semi-annual policy report — he testifies to a House panel on Tuesday and the Senate Banking Committee on Wednesday — a slew of other central bankers, including New York Fed President John Williams, hit the public speaking circuit. For more, read Bloomberg Economics' full Week Ahead for the US Further north, Statistics Canada will release the first of two inflation prints before the Bank of Canada's July rate decision. Policymakers are closely watching firmer-than-expected core inflation and have signaled they'll remain on hold unless underlying price pressures ease. Industry-based gross domestic product data for April and a flash estimate for May are likely to show a pullback in exports and business investment as Trump's tariffs took hold. Elsewhere, multiple inflation releases in Asia, appearances by the euro-zone and UK central bank chiefs, and a prospective rate cut in Mexico may be among the highlights. Click here for what happened in the past week, and below is our wrap of what's coming up in the global economy. Asia It's a data-heavy week in Asia, with inflation figures due from four economies as well as fresh reads on industrial output, trade and consumer demand. For investors navigating geopolitical flare-ups and a fragmenting trade environment, the week's releases will offer timely clues about inflation persistence, consumer strength, and industrial momentum across Asia's most influential economies. Price prints from Singapore, Malaysia and Australia will help guide central banks as they tread cautiously on rate decisions. Singapore reports CPI on Monday, followed by Malaysia on Tuesday and Australia on Wednesday. Tokyo CPI — a leading indicator for Japan's nationwide gauge of prices — is due Friday. Beyond inflation, the slate offers insight into how Asia's trade-driven economies are faring amid global demand shifts. Early in the week, Australia, India and Japan report purchasing manager indexes, while South Korea releases confidence and sentiment surveys, along with exports and retail sales. Singapore's May industrial production data, due on Thursday, will help shed some light on domestic resilience. China publishes industrial profits on Friday, giving investors a read on margin recovery as the economy adjusts to trade frictions and a still-weak property sector. With stimulus measures limited and external demand cooling, Beijing is leaning on targeted support to maintain growth near its official target. Japan will report retail sales and the jobless rate Friday, which together with Tokyo CPI will help inform the Bank of Japan's next policy moves. The BOJ just left rates unchanged and unveiled a plan to step back from the bond market at a slower pace from next year. Thailand's central bank is expected to hold its key rate steady on Tuesday, with car sales and manufacturing data rounding out its domestic picture. The decision comes amid domestic political upheaval after the second-largest party in Thai Prime Minister Paetongtarn Shinawatra's government quit the ruling coalition, an outcome that may concern foreign investors who've dumped a net $2.3 billion of Thai stocks this year. For more, read Bloomberg Economics' full Week Ahead for Asia Europe, Middle East, Africa Business surveys and testimony by central bankers are among the highlights in the euro zone and the UK this week. The flash PMIs for June, due on Monday, will point to whether manufacturing and services are weathering the uncertainty posed by US tariff policies. Germany's Ifo gauge of business sentiment comes the following day, revealing how companies in the region's biggest economy are faring with trade stress in the initial months of Friedrich Merz's term as chancellor. Meanwhile, inflation numbers for France and Spain — the first major readings for June — are due on Friday. European Central Bank President Christine Lagarde will speak in the European Parliament on Monday, and a dozen or so other appearances by euro-area policymakers are on the calendar. Bank of England officials will also be out in force, with more than 10 appearances on the agenda. Among them, Governor Andrew Bailey will testify on Tuesday to the House of Lords, parliament's upper house. Views on a dramatic drop in UK retail sales may be eagerly awaited by investors. In Sweden, the Riksbank will release minutes of its decision to resume its rate-cutting cycle. Bulgaria's application to join the euro may advance on Thursday, with European Union leaders set to approve convergence reports on the country's readiness to adopt the currency. Ukraine's statisticians will release first-quarter growth numbers during the week. The South African Reserve Bank will publish its quarterly bulletin on Thursday, providing data on household debt and shedding light on whether the government achieved its first back-to-back primary surplus since 2008-09. For more, read Bloomberg Economics' full Week Ahead for EMEA Some monetary decisions are also on the calendar: With an inflation rate that's way below the central bank's target for 2025, Moroccan officials will most likely cut borrowing costs by 25 basis points on Tuesday to boost financing for an investment spree led by preparations to co-host the FIFA World Cup in 2030. The same day, Hungary's central bank is poised to keep its key rate unchanged for a ninth month due to inflation and geopolitical risks. Czech policymakers, in a decision on Wednesday, are likely to keep borrowing costs unchanged. Latin America Argentina's output report on Monday is likely to show that the economy expanded for a third straight quarter in the three months through March. Most analysts see faster growth through mid-year, and the consensus puts 2025's expansion at 5%. Analysts expect Mexico's mid-month inflation rate to have slowed, paving the way for Banxico's eighth straight rate cut Thursday. Also due from Latin America's No. 2 economy are retail sales, jobs data and the April GDP-proxy reading. Brazil's central bank on Tuesday posts the minutes of its June rate meeting. The BCB delivered a seventh straight hike, to 15%, and signaled that borrowing costs will likely remain steady for a long period. Brazil watchers can also look forward to the central bank's quarterly monetary policy report, national unemployment data and mid-month consumer prices data, along with a reading of the country's broadest measure of inflation. Colombia's central bankers meeting on Friday may see a bit of daylight for a second straight cut as May consumer prices data were better than expected, but the early call from analysts is for a hold at 9.25% In Paraguay, the central bank isn't expected to tinker with its 6% policy rate on Tuesday, even after May inflation slowed to 3.6%. For more, read Bloomberg Economics' full Week Ahead for Latin America --With assistance from Swati Pandey, Mark Evans, Laura Dhillon Kane, Monique Vanek, Robert Jameson, Ros Krasny and Souhail Karam. Luxury Counterfeiters Keep Outsmarting the Makers of $10,000 Handbags Is Mark Cuban the Loudmouth Billionaire that Democrats Need for 2028? Ken Griffin on Trump, Harvard and Why Novice Investors Won't Beat the Pros The US Has More Copper Than China But No Way to Refine All of It Can 'MAMUWT' Be to Musk What 'TACO' Is to Trump? ©2025 Bloomberg L.P.
