Latest news with #EuropeanCentralBank
Time of India
2 hours ago
- Business
- Time of India
Trump's economic 'golden age' meets Fed's brass tacks
President Donald Trump 's inauguration promise in January that "the golden age of America begins right now" remains unfulfilled in the outlook of Federal Reserve officials who so far see his policies slowing the economy, raising unemployment and inflation, and clouding the horizon with a still-unresolved tariff debate that could deliver a fresh shock in coming weeks. The U.S. central bank's response has been to put planned interest rate cuts on hold until perhaps the fall while the debates over tariffs and other administration priorities unfold, and to project a slower eventual pace of rate cuts to a higher stopping point. Effectively it embeds steeper borrowing costs into Fed policymakers' outlook to insure against inflation they now see as higher in coming months than they did before Trump took office for a second time. That isn't welcome news for Trump, who has called Fed Chair Jerome Powell "stupid" for not slashing rates immediately. It is no more welcome for U.S. consumers and homebuyers hoping for lower financing costs. And it puts the Fed somewhat out of step with other central banks that continue to lower rates. But it does highlight how much Trump's early policy moves, particularly on tariffs, have reshaped the short-term outlook for the world's largest economy, which at the end of last year was seen on track for continued above-trend growth, full employment and inflation steadily falling to the Fed's 2% target. The steady series of rate cuts policymakers anticipated just six months ago has been replaced with a more tentative path as they wait for Trump's final decisions on tariffs and watch how the job market, consumer spending and inflation evolve. "We feel like we're going to learn a great deal more over the summer on tariffs," Powell told reporters on Wednesday after the Fed held its benchmark overnight rate in the 4.25%-4.50% range for the fourth straight meeting, and issued new projections showing inflation rising substantially by the end of this year and coming down slowly after that point. Trump has latched on to recent weak inflation readings to argue for rate cuts, reiterating on Thursday that the Fed should slash its benchmark rate nearly in half and noting earlier in the week that the European Central Bank and others had kept easing monetary policy. But, referring to the impact of the tariffs imposed so far, Powell said "we hadn't expected them to show up much by now, and they haven't ... We will see the extent to which they do over coming months ... That's going to inform our thinking." Little confidence At this point, investors expect the Fed to cut rates at its September 16-17 meeting, though much will depend on what happens during Powell's summer of watching and waiting. The most aggressive of Trump's tariff plans, levies on most trading partners announced on " Liberation Day " in early April, were postponed after bond yields spiked, stocks dropped, and economists began penciling in a U.S. recession. The pause ends on July 9, with countries, including those in the European Union 's combined trading bloc, supposed to negotiate deals by then or face steep import levies - 50% in the case of the EU. The only completed deal so far is a limited agreement with Britain. Live Events Though the Fed's new policy statement this week said "uncertainty about the economic outlook has diminished" since its May 6-7 meeting, when volatility around the trade issue was still intense, the situation could change quickly based on the July 9 deadline. "We don't yet know with any confidence where they will settle out," Powell said. At the meeting last month, a Fed staff projection regarded a recession this year to be "almost as likely as the baseline forecast" of slowing but ongoing growth. The situation has since improved somewhat. Powell on Wednesday said the economy remains "solid," adding that as the risk of the most severe tariffs has abated, companies have begun to puzzle through how they might adapt to more modest levies. "Businesses were in a bit of a shock after April too ... There's a very different feeling now that people are working their way through this ... It feels much more positive and constructive than it did three months ago," he said. Prices of equities have marched higher as well, and the spike in Treasury yields that drove talk of the diminished status of the dollar has also eased. Dimmer Outlook But skirting a recession is a large step from where the Fed was at the end of last year, when it was in sight of a "soft landing" from the high inflation of the COVID-19 pandemic era. The economy was at full employment and steadily growing above trend, inflation was on track to fall to the Fed's 2% target, and the central bank expected to steadily ease borrowing costs. "The U.S. economy is just performing very, very well," Powell said after the Fed's December 17-18 meeting, a session at which staff and officials had just begun thinking through the implications of a trade war that became much bigger in scope than they expected. "The outlook is pretty bright." It has dimmed since then. In projections issued this week, Fed policymakers' median outlook for gross domestic product growth had fallen to 1.4%, well below trend, from the 2.1% projected in December, with the unemployment rate projected to rise from the current 4.2% to 4.5% by the end of the year. That would be the highest level, outside of the pandemic unemployment spike, since early 2017, when Trump's first term was starting. Inflation that Powell said had been "grinding down" is now anticipated to rise to 3% this year and remain nearly half a percentage point above the Fed's target through 2026. The job market remains solid, Powell said, but he cautioned that assessment could change, and policymakers have said that their policy expectations could shift quickly if employment falters. "Labor demand is softening," Powell said. "There's not a lot of layoffs, but there's not a lot of job creation. If you're out of work, it is hard to find a job ... That is an equilibrium we watch very, very carefully because if there were to be significant layoffs and the job-finding rate were to remain this low, you would have an increase in unemployment fairly quickly."
Wall Street Journal
6 hours ago
- Business
- Wall Street Journal
Almost a Third of Eurozone's U.S. Trade Surplus Is Due to U.S. Firms, Says ECB
Almost a third of the eurozone's goods trade surplus with the U.S. is accounted for by sales of products manufactured by the affiliates of American businesses, which also account for most of the eurozone's deficit in the trade in services, the European Central Bank said Friday. In its latest Economic Bulletin, economists at the central bank said that should the activities carried out by those affiliates be moved back to the U.S. in response to higher tariffs or changes to U.S. tax policy, the eurozone economy would be smaller, but the impact on employment and incomes would likely be limited.
Business Recorder
7 hours ago
- Business
- Business Recorder
Euro zone yields on track for a weekly drop, Middle East in focus
Euro zone government bond yields were on track for a weekly decline as the Israel-Iran air war entered its eighth day, with investors downplaying inflation concerns while awaiting clarity on a potential US involvement in the conflict. President Donald Trump will make a decision in the next two weeks, the White House said on Thursday, raising pressure on Tehran to come to the negotiating table. German 10-year yields, which serve as the benchmark for the wider euro zone, fell 2.5 basis points (bps) to 2.49%, and were set to end the week 4.5 bps lower. Money markets priced in a European Central Bank deposit facility rate at 1.77% in December, compared with 1.75% last week. The yield on the German two-year bonds, which are more sensitive to expectations for ECB policy rates, was down 1.5 bps at 1.83%. Euro zone bond yields steady before Fed, traders await new catalysts A drop in appetite for risk assets widened yield spreads for government bonds of highly indebted countries, such as Italy and France, against safe-haven German Bunds. Italy's 10-year yields dropped 4.5 bps to 3.50%. Italian yield gap against Bunds - a market gauge of the risk premium investors demand to hold Italian debt – tightened to 100 bps on Friday, but was set for its biggest weekly rise in a year.
Irish Examiner
7 hours ago
- Business
- Irish Examiner
Euro zone finance ministers recommend Bulgaria adopt euro in 2026
Euro zone finance ministers recommended on Thursday that Bulgaria become the 21st member of the euro zone starting January 1, 2026, backing earlier positive assessments of the country's readiness from the European Commission and the European Central Bank. "The Eurogroup agreed today that Bulgaria fulfils all the necessary conditions to adopt the euro," Paschal Donohoe, who chairs meetings of euro zone finance ministers, told a press conference. The recommendation will now be formally adopted by all 27 EU finance ministers on Friday and then by EU leaders on June 26. The exchange rate at which the Bulgarian lev will be converted into euro will be set by EU finance ministers at their meeting in early July, giving Bulgaria six months to prepare the technical transition for the start of the year. Bulgaria has been striving to switch its lev to the euro since it joined the European Union in 2007. But after such a long wait, many Bulgarians have lost their initial enthusiasm, with 50% now sceptical about the euro, according to a Eurobarometer poll in May. Some Bulgarians fear the currency switch will drive up prices. Criteria To get the positive recommendation, Bulgaria had to meet the inflation criterion, which says that the euro candidate cannot have consumer inflation higher than 1.5 percentage points above the three best EU performers. In April, the best performers were France with 0.9%, Cyprus with 1.4% and Denmark with 1.5%, which put Bulgaria with its 2.8% just within the limit. The euro candidate country also cannot be under the EU's disciplinary budget procedure for running a deficit in excess of 3% of GDP. Bulgaria meets this criterion with a budget deficit of 3% in 2024 and 2.8% expected in 2025. The country's public debt of 24.1% of GDP in 2024 and 25.1% expected in 2025 is well below the maximum level of 60%, and its long-term interest rate on bonds is well within the two-percentage-point margin above the rate at which the three best inflation performers borrow. Finally, Bulgaria had to prove it had a stable exchange rate by staying within a 15% margin on either side of a central parity rate in the Exchange Rate Mechanism II. This was easily done because Bulgaria has been running a currency board that fixed the lev to the euro at 1.95583 since the start of the euro currency in 1999. Bulgaria's euro adoption will come three years after the last euro zone expansion, when Croatia joined the single currency grouping at the start of 2023. The accession of Bulgaria into the euro zone will leave only six of the 27 EU countries outside the single currency area: Sweden, Poland, Czech Republic, Hungary, Romania and Denmark. None of them has any immediate plans to adopt the euro either for political reasons or because they do not meet the required economic criteria. Reuters.
Reuters
19 hours ago
- Business
- Reuters
Euro zone finance ministers recommend Bulgaria adopt euro in 2026
BRUSSELS, June 19 (Reuters) - Euro zone finance ministers recommended on Thursday that Bulgaria become the 21st member of the euro zone starting January 1, 2026, backing earlier positive assessments of the country's readiness from the European Commission and the European Central Bank. "The Eurogroup agreed today that Bulgaria fulfils all the necessary conditions to adopt the euro," Paschal Donohoe, who chairs meetings of euro zone finance ministers, told a press conference. The recommendation will now be formally adopted by all 27 EU finance ministers on Friday and then by EU leaders on June 26. The exchange rate at which the Bulgarian lev will be converted into euro will be set by EU finance ministers at their meeting in early July, giving Bulgaria six months to prepare the technical transition for the start of the year. Bulgaria has been striving to switch its lev to the euro since it joined the European Union in 2007. But after such a long wait, many Bulgarians have lost their initial enthusiasm, with 50% now sceptical about the euro, according to a Eurobarometer poll in May. Some Bulgarians fear the currency switch will drive up prices. To get the positive recommendation, Bulgaria had to meet the inflation criterion, which says that the euro candidate cannot have consumer inflation higher than 1.5 percentage points above the three best EU performers. In April, the best performers were France with 0.9%, Cyprus with 1.4% and Denmark with 1.5%, which put Bulgaria with its 2.8% just within the limit. The euro candidate country also cannot be under the EU's disciplinary budget procedure for running a deficit in excess of 3% of GDP. Bulgaria meets this criterion with a budget deficit of 3% in 2024 and 2.8% expected in 2025. The country's public debt of 24.1% of GDP in 2024 and 25.1% expected in 2025 is well below the maximum level of 60%, and its long-term interest rate on bonds is well within the two-percentage-point margin above the rate at which the three best inflation performers borrow. Finally, Bulgaria had to prove it had a stable exchange rate by staying within a 15% margin on either side of a central parity rate in the Exchange Rate Mechanism II. This was easily done because Bulgaria has been running a currency board that fixed the lev to the euro at 1.95583 since the start of the euro currency in 1999. Bulgaria's euro adoption will come three years after the last euro zone expansion, when Croatia joined the single currency grouping at the start of 2023. The accession of Bulgaria into the euro zone will leave only six of the 27 EU countries outside the single currency area: Sweden, Poland, Czech Republic, Hungary, Romania and Denmark. None of them have any immediate plans to adopt the euro either for political reasons or because they do not meet the required economic criteria.
