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Yahoo
an hour ago
- Business
- Yahoo
Trump calls for the equivalent of 10 Fed rate cuts
President Donald Trump on Thursday continued his extraordinary and targeted verbal attacks on Federal Reserve Chair Jerome Powell, calling for a massive 2.5-point reduction in interest rates. Despite appointing Powell to the role in 2017, Trump has frequently chastised the Fed chair for keeping rates higher than the president would like. On Wednesday, after a monetary policymaking meeting, the Fed said it would be maintaining rates between 4.25% and 4.5%, noting that the economy remains strong but the path of inflation is uncertain in part because of the enormous tariffs that Trump has placed on foreign goods. ''Too Late' Jerome Powell is costing our Country Hundreds of Billions of Dollars,' Trump posted on Truth Social Thursday. 'He is truly one of the dumbest, and most destructive, people in Government, and the Fed Board is complicit.' 'TOO LATE's an American Disgrace!' Trump continued. An immediate cut of two and a half points would be unprecedented. The Fed generally adjusts its benchmark lending rate up or down by a quarter point, but the size of each rate adjustment is congruent with the economic reality at that moment. For example, when inflation was running at 40-year highs in 2022, the Fed was hiking by as much as three-quarters of a point at a time. Equally, when the economy was ailing during the onset of the pandemic, the Fed cut rates aggressively. Powell has refused to respond to Trump's barbs, instead saying he is focused on the Fed's mandate to keep inflation low and job growth high. When asked about Trump's stated desire to nominate a new Fed chair next year when his term expires, Powell said he's focused exclusively on the present. 'From my standpoint, it's not complicated,' Powell said. 'What everyone on the [Federal Open Market Committee] wants is a good, solid American economy with strong labor market and price stability. That's what we want. Our policy is well positioned right now to deliver that.' 'America's economy has been resilient,' Powell said. 'Part of that is our stance. We think we're in a good place on that, to respond to significant economic developments. That's what matters. That is what matters to us. Pretty much that's all that matters to us.' Fed members in their economic projections said they expect two quarter-point rate cuts this year, which would bring rates to around 3.75% to 4%. But Trump has remained unsatisfied. 'Europe has had 10 cuts, we have had none. We should be 2.5 Points lower, and save $BILLIONS on all of Biden's Short Term Debt,' Trump said. 'We have LOW inflation!' (The Fed's euro zone counterpart, the European Central Bank, has lowered rates eight times in the past year, not 10.) Although US inflation has remained low, Powell noted prices may increase in coming months as companies sell off goods that had been in their warehouses, brought in before tariffs, and begin selling items that have a tariff attached to them. 'We've had goods inflation just moving up a bit,' he said Wednesday. 'We do expect to see more of that over the course of the summer. 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.' Powell noted that many companies expect to pass tariff costs to consumers. But too much remains uncertain to lower rates at the moment. 'Today, the amount of the tariff effects — the size of the tariff effects, their duration and the time it will take are all highly uncertain,' Powell said Wednesday. 'So that is why we think the appropriate thing to do is to hold where we are as we learn more. And we think our policy stance is in a good place where we're well-positioned to react to incoming developments.' Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Time of India
an hour ago
- Business
- Time of India
'Too late': Donald Trump slams Jerome Powell, calling him one of the 'dumbest and most destructive'; accuses Fed chief of costing US billions
US President once again slammed Federal Reserve Chairman Jerome Powell, accusing him of costing the country hundreds of billions of dollars after the central bank kept the interest rates unchanged. Tired of too many ads? go ad free now "Too Late," Trump tweeted, calling Powell one of the "dumbest" and most "destructive" people in government. "Too Late" Jerome Powell is costing our Country hundreds of billions of dollars. He is truly one of the dumbest, and most destructive, people in Government, and the Fed Board is complicit," Trump posted on Truth social. Trump expressed frustration after the Fed chose to keep interest rates unchanged, despite European countries implementing multiple rate cuts. He argued that the US should have already reduced rates by 2.5 points to save billions on short-term debt, highlighting the country's low inflation as justification for the cuts. "Europe has had 10 cuts, we have had none. We should be 2.5 Points lower, and save $BILLIONS on all of Biden's Short Term Debt. We have LOW inflation! TOO LATE's an American Disgrace!" Trump noted. He had earlier called Powell a 'real dummy' and claimed he was "costing America billions." Trump also shared an article in which an investor argued Powell should resign immediately if he failed to cut short-term interest rates, saying the Fed's slow actions were hurting the housing market and that inflation had dropped enough to justify a rate cut. The US Federal Reserve decided to keep its benchmark interest rate unchanged for the fourth straight meeting, sticking with a range between 4.25% and 4.50%. Fed Chair Jerome Powell said the central bank was in no rush to act and would monitor inflation trends and the impact of Trump's new tariffs over the summer. Tired of too many ads? go ad free now 'We'll make smarter and better decisions if we just wait a couple of months,' Powell said, suggesting a cautious stance given the mixed economic signals. The Fed also revised its outlook—cutting its 2025 growth forecast from 1.7% to 1.4%, and raising inflation expectations to 3% and the unemployment rate to 4.5%.From 'stupid' to 'worst ever.' Trump's criticism of Powell is not new. In the past, Trump has publicly attacked the Fed chairman, including calling him 'stupid' just before the rates were announced. Trump has suggested that cutting rates will lower the interest America pays on its debt—an argument critics say overlooks the inflationary risks of such moves. The Fed noted that Trump's sweeping 10% tariffs on major trading partners were likely to increase inflation and slow growth. Powell added that the full effects were still unclear and may not be visible for several months. "Because the economy is still solid, we can take the time to actually see what's going to happen," he said.
Forbes
an hour ago
- Business
- Forbes
Why Service Prices Are Rising While Goods Stay Flat Amidst Tariff News
Why Service Prices Are Rising While Goods Stay Flat Amidst Tariff News President Trump's tariffs were expected to drive widespread price increases across the U.S. economy. Just months into 2025, that prediction has proven only partially correct. Consumer prices rose 2.4% in May, up slightly from April's 2.3% increase. However, the data reveal an unexpected split in how different sectors are responding to tariff pressures. Goods that economists anticipated would see significant price hikes are instead declining. The service industry experienced a markedly different reality. Federal Reserve data shows that nearly half of service-oriented companies have already passed tariff-related cost increases to customers, compared to just one-third of goods-producing businesses. Manufacturers stockpiled goods before tariffs took effect, allowing them to maintain current pricing using pre-tariff inventory. Service businesses, however, cannot stockpile labor or defer rising operational costs, forcing them to adjust prices. For business leaders, this split presents both opportunities and challenges as they navigate pricing strategies in an environment where consumer demand remains cautious and economic uncertainty persists. May's Consumer Price Index data reveals a striking disconnect between predicted and actual price movements in goods-heavy sectors. Categories economists identified as most vulnerable to tariff pressures posted unexpected declines instead of the widely anticipated increases. New vehicle prices dropped 0.3% in May, while used cars and trucks fell 0.5%. Apparel costs decreased 0.4%, and furniture prices recorded their steepest decline since December at 0.8%. These sectors depend heavily on international supply chains and were positioned to absorb the first wave of tariff-related cost increases. The price stability stems from proactive business strategies implemented months before tariffs took effect. Companies across manufacturing sectors accelerated purchasing schedules and expanded warehouse capacity to secure inventory at pre-tariff costs. This forward-thinking approach created a pricing cushion that continues to shield consumers from immediate cost increases. Current inventory levels reflect these advanced purchases, enabling retailers to maintain competitive pricing while competitors exhaust similar stockpiles. The strategy has proven particularly effective in the automotive and consumer goods sectors, where longer product cycles allow for extended inventory turnover periods. Energy costs reinforced the downward pressure on overall goods pricing, declining 1% monthly as gasoline prices retreated. Even sectors showing price increases, including major appliances and automotive parts, registered only modest gains, insufficient to counteract broader deflationary trends across goods categories. This protection mechanism has clear limitations, though. Industry analysis suggests most companies built three-to-six-month inventory buffers, meaning tariff impacts will likely surface in late summer or early fall as stockpiled goods are depleted and replacement inventory reflects current tariff rates. While goods-producing companies benefit from inventory buffers, service providers have to adjust prices immediately when costs rise. Nearly half of service-oriented companies' rising prices reflect the sector's inability to defer cost increases through stockpiling strategies. Service businesses face real-time cost pressures that cannot be warehoused or delayed. Prices for services rose 3.7% in September 2024 from a year prior, according to the personal consumption expenditures price index, while goods prices fell 1.2% during the same period. Labor represents the primary expense driver, and wage increases translate directly into operational costs without the cushioning effect available to manufacturers. This constraint has created persistent inflationary pressure across multiple service categories, even as goods prices decline. Restaurant operators exemplify these challenges. Food services inflation reached 3.6% in September, driven largely by mandatory wage increases and competitive labor markets. Chains including McDonald's and Chipotle have implemented menu price adjustments to offset rising labor costs, with executives indicating continued pressure from wage inflation throughout the year. The insurance sector demonstrates similar patterns, with household insurance premiums climbing 10.1% annually and auto insurance rising 6%. Factors such as increased storm damage and higher repair costs could be driving factors, as well as the immediate nature of claim settlements, which prevents the delayed pricing adjustments possible in goods industries. Housing costs, particularly rental markets, show one of the most pronounced service inflation rates at 5.1% annually. Unlike manufactured products, housing services reflect immediate market conditions with limited ability to smooth cost increases over time. Travel services face comparable pressures, with air transportation costs up 4.1% as operational expenses rise in real-time. The disconnect between tariff expectations and actual price increases reflects a broader dynamic of consumer wariness and business reluctance to test pricing power. Recent McKinsey research reveals that consumer sentiment dropped 32% in May following tariff announcements, creating a cautious spending environment that constrains retailers' ability to implement price increases. Survey data shows 91% of consumers have heard about tariffs in news coverage or discussions, with tariff policies ranking as the second-highest consumer concern after inflation. This heightened awareness has translated into behavioral changes, with more than 60% of consumers reporting they have either altered spending habits or expect to do so in response to tariff announcements. One thing to note is that consumer responses vary significantly by demographic group. Lower-income households show greater sensitivity to potential price increases, with these consumers 13 percentage points more likely to switch to lower-priced brands compared to those earning over $100,000 annually. Generational differences also emerge, as Gen Z and millennial consumers express a higher likelihood of changing spending patterns compared to baby boomers. These shifting consumer behaviors create a challenging environment for retailers considering price adjustments. Half of consumers indicate they plan to delay purchases in discretionary categories, including electronics, accessories, and dining out. This demand sensitivity explains why businesses remain hesitant to implement tariff-related price increases, even when facing higher input costs. While unemployment remains steady at 4.2%, industries exposed to tariffs face mounting pressure that could reshape employment patterns across sectors. Companies relying on imported materials, from steel to semiconductors, face margin compression that typically leads to hiring freezes or workforce reductions. A furniture manufacturer dependent on imported lumber may reduce shifts to offset rising costs, while auto parts suppliers grappling with pricier steel imports could scale back expansion plans. However, tariff policies create winners alongside losers. Domestic industries less reliant on foreign inputs, particularly in the energy and technology sectors, may benefit from reduced international competition. High-skill workers in finance and technology may exhibit greater resilience to trade disruptions, while low-skill manufacturing and logistics workers bear disproportionate impacts, including reduced hours and potential job losses. Consumer inflation expectations reveal conflicting signals that complicate economic forecasting. A survey conducted by the University of Michigan shows Americans expect prices to increase 6.6% over the next year, the highest reading since 1981, suggesting deep-rooted concerns about future price stability. However, Federal Reserve Bank of New York data presents a contrasting narrative, with consumers expecting lower inflation following the Trump administration's tariff pullback in April, which highlights the sensitivity of expectations to policy announcements rather than actual price movements. The timing of when tariffs raise prices will determine whether consumers expect more inflation ahead, although economists anticipate that tariff-related price increases will become more pronounced during summer months as inventory buffers are exhausted. The Federal Reserve may increasingly factor in consumer sentiment and behavior when setting policy. With evidence that cautious consumer spending is helping to curb inflation, the Fed could scale back aggressive rate hikes and rely more on forward guidance and market signals, especially if wage gains remain modest and employment remains strong. Meanwhile, President Trump has renewed calls for rate cuts, urging the Fed to slash rates by a full percentage point if price pressures ease further, a move he believes would jumpstart growth. However, Fed officials have warned that tariff-driven inflation risks could yet prompt them to maintain the current rates. As long as tariffs remain in place, the Fed appears likely to maintain its cautious stance, watching both consumer psychology and trade policy for signals on future rate moves. The tariff story of 2025 has unfolded differently than expected. Manufacturers stockpiled inventory to keep prices stable, while service companies raised prices immediately. This created unusual inflation where goods became cheaper as services grew more expensive. Consumer caution and business reluctance to raise prices delayed anticipated increases. However, as companies exhaust their inventory buffers, tariff-related costs will likely reach consumers. Business leaders must recognize these timing differences across sectors to navigate an unpredictable economic environment.
Yahoo
2 hours ago
- Business
- Yahoo
Federal Reserve Warns Trump's Economy Is About to Get Whole Lot Worse
The Federal Reserve is forecasting aggressive stagflation for the remainder of 2025. Inflation is expected to go up to 3 percent, GDP growth is expected to fall by 1.4 percent, and unemployment will rise to 4.5 percent, the Fed announced Wednesday. This report comes as the Trump administration weighs further aiding Israel in its war on Iran, a move that could seriously destabilize the region and multiple economies, including our own. There's also Trump's 'One Big Beautiful Bill Act,' which is expected to add $2.8 trillion to the deficit and reward tax cuts to wealthy individuals and corporations while slashing Medicaid and other social welfare programs. Fed Chair Jerome Powell took to the podium on Wednesday to reaffirm what he's been saying for months: This economic downturn is a direct result of President Trump's tariffs. 'Increases in tariffs this year are likely to push up prices and weigh on economic activity. The effects on inflation could be short-lived, reflecting a onetime shift in the price level. It's also possible that the inflationary effects could instead be more persistent,' Powell said. 'Avoiding that outcome will depend on the size of the tariff effects, on how long it takes for them to pass through fully into prices, and ultimately, on keeping long-term inflation expectations well-anchored.' The Fed has refused to cut interest rates as a result of the projected stagflation. Trump has yet to comment on the Fed's report. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
2 hours ago
- Business
- Yahoo
America's economy could face a war shock
As if a global trade war wasn't enough for businesses and consumers to contend with, it's looking increasingly like the Israel-Iran conflict could reach the brink of a full-blown war. While the conflict is playing out thousands of miles away from US soil, Americans may not be able to escape the economic impact of it. Federal Reserve Chair Jerome Powell told reporters Wednesday after the central bank's latest monetary policy meeting that officials are monitoring the situation. 'What's tended to happen is when there's turmoil in the Middle East, you may see a spike in energy prices, but it tends to come down,' he said in response to a question from CNN's Matt Egan. 'Those things don't generally tend to have lasting effects on inflation, although, of course, in the 1970s they famously did because you had a series of very, very large shocks,' Powell added. Among those: The Iranian Revolution, which caused global oil production to fall substantially and then contributed to already-high gas prices as a result of the Arab oil embargo following the Yom Kippur war. Powell seemed assured there isn't a risk of such a scenario this time around, adding that 'the US economy is far less dependent on foreign oil than it was back in the 1970s.' Economists, however, aren't as convinced that the conflict doesn't present a major risk to the US economy. In fact, JPMorgan economists said in a recent note to clients, 'The US and global economies are set to absorb multiple shocks this year.' Chief among those is the potential for a Middle East war, they said. 'One of the most direct impacts on US consumers would be if the Strait of Hormuz was closed, leading to a spike in energy costs as the flow of seaborne oil and gas becomes disrupted,' said James Knightley, chief international economist at ING. The US Energy Information Administration recently referred to the Strait of Hormuz, which connects the Persian Gulf to the Gulf of Oman, as 'one of the world's most important oil chokepoints.' Last year, the amount of oil that passed through the waterway averaged 20 million barrels per day, it said, which amounts to about 20% of global petroleum liquids consumption. 'Very few alternative options exist to move oil out of the strait if it is closed,' the EIA said in an online article on Monday. Meanwhile, Iran has repeatedly threatened to shut down the strait as a form of retaliation. That could end up proving to be more limited than what the Iranian government has threatened, though, analysts at S&P Global Market Intelligence said in a recent note. 'Iran's leadership is unlikely to fully close the Strait of Hormuz for an extended period; as a first recourse, it is more likely that Iran's naval forces deploy along the Strait and block passage to selected vessels depending on flag and destination.' Even though the US is considered energy independent, gas prices would still 'rocket higher,' Knightley. While tariff-related price hikes that economists widely expect to occur haven't shown up in the all-encompassing inflation reports the US government publishes, most believe it's only a matter of time. As the economy recovered from the pandemic, inflation accelerated across the globe. Then, while that unfolded, the war between Russia and Ukraine took hold, sending gas prices soaring and pushing inflation even higher. That could very well play out again if gas prices shoot higher due to the conflict. 'With tariff-induced price hikes already set to squeeze household spending power, higher gasoline prices would intensify the strain on consumer pockets, risking a more pronounced slowdown in the economy,' Knightley told CNN. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
