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Tag: U.S. Federal Reserve

  • Global central banks converge towards rate cut caution

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    By Naomi Rovnick and Alun John

    LONDON (Reuters) -The U.S. Federal Reserve has moved back into line with other major rate setters after it cut rates by a quarter point on Wednesday but pushed back against market bets that it would keep going as the Washington shutdown fogs up its forecasting lens.

    The Bank of Japan and European Central Bank left rates unchanged on Thursday.

    Here’s where 10 major central banks stand after the latest round of meetings:

    1/ SWITZERLAND

    The Swiss National Bank cut its key rate to 0% in June and is widely expected to hold steady with markets pricing a long pause.

    In its first set of minutes detailing its rate setting discussions, published last week, the SNB quashed market speculation that it would return to negative rates to stop the strong franc pushing the sluggish economy into deflation.

    2/ CANADA

    The Bank of Canada, battling an economic slowdown exacerbated by U.S. tariffs and the inflationary impact of the trade war, cut rates to a more than three-year low of 2.25% on Wednesday.

    It also sent strong signals that easing ends here and traders see more than 60% odds on the BoC standing pat until December 2026.

    3/ SWEDEN

    Sweden’s Riksbank meets next week after cutting rates to 1.75% in September and saying it expects that elevated inflation will prove transitory.

    Money markets price in less than a one in five chance of further easing before 2026 as domestic inflation stays sticky, which has sent traders piling in to Sweden’s crown. The currency has risen 15% against the dollar year-to-date.

    4/ NEW ZEALAND

    The Reserve Bank of New Zealand cut rates by a punchy 50 basis points (bps) to 2.5% this month in an attempt to prop up a frail economy.

    Markets see a good chance of a further cut in late November, though inflation sitting at the top of the RBNZ’s 1-3% target band could be a complication.

    5/ EURO ZONE

    The ECB on Thursday matched traders’ expectations and held the bloc’s main deposit rate at 2% for a third straight meeting.

    Traders viewed this ECB easing cycle as almost over, pricing in less than a 50% chance of further easing by July 2026.

    6/ UNITED STATES

    The Fed on Wednesday executed a widely flagged 25 bps cut but pushed back against market bets for more by warning that data gaps caused by the U.S. government shutdown were clouding its forecasting lens.

    “If you’re driving in the fog you slow down,” Chair Jerome Powell said in his post-announcement press conference.

    The rate cut drew dissent from two policymakers, with Stephen Miran again calling for a deeper reduction and Kansas City Fed President Jeffrey Schmid favoring no cut given above-target inflation.

    Traders price a 70% probability of a 25 bps December cut, down from 84% ahead of Wednesday’s decision.

    7/ BRITAIN

    The Bank of England is another major rate setter that is signalling cautious moves from here as it kept rates unchanged at its last meeting and said inflation risks remained high.

    Traders expect another hold on November 6 but markets price a 60% chance of a December cut after above-target UK inflation at least held steady in September.

    8/ AUSTRALIA

    The Reserve Bank of Australia has cut rates by 75 bps since February but hotter-than-expected inflation encouraged it to hold rates steady and turn more hawkish in September.

    That trend has continued, pushing expectations for the next cut forward to at least February 2026..

    9/ NORWAY

    Norway’s central bank eased borrowing costs by 25 bps to 4.0% in September but signalled further cuts were less likely because underlying inflation was rising. That has helped the crown keep powering higher against the dollar, with a 12% gain for the year so far.

    10/ JAPAN

    The Bank of Japan, the sole central bank in hiking mode, kept rates steady on Thursday but repeated its pledge to keep increasing borrowing costs if the economy moves as it projects, shifting investor focus to December’s meeting.

    The yen weakened after the announcement.

    U.S. Treasury Secretary Scott Bessent this week called for speedier BOJ rate hikes to avoid weakening the currency too much.

    (Reporting by Alun John and Naomi Rovnick, Editing by Dhara Ranasinghe and Ed Osmond)

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  • The Labor Market Looks Broken—Is There a Fix Beyond Interest Rate Cuts?

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    The weak August jobs report increases pressure on the Fed to cut interest rates this fall. Getty Images

    “The job market is done, busted.” That’s how Chris Rupkey, chief economist at FWDBonds, described the August jobs report released today (Sept. 5). The unemployment rate has climbed to its highest level since 2021, fueling fears that the U.S. may be tipping into recession for real.

    The U.S. economy added just 22,000 jobs in August, far short of the 75,000 expected. The Bureau of Labor Statistics also revised June’s data to show a staggering loss of 13,000 jobs. Over the past three months, the economy has added only 29,000 jobs in total.

    August’s payroll losses were particularly acute in professional and business services, the federal government and wholesale trade. But weakness was evident across sectors. “There have also been sustained losses over recent months in manufacturing, construction and mining, an indication that Trump’s blue-collar renaissance is clearly not happening,” Elise Gould, senior economist at the Economic Policy Institute, posted on Bluesky.

    Analysts now widely expect the Federal Reserve to cut rates by 25 basis points at its Sept. 17 meeting, with further reductions likely in October and November. The pace of those cuts will depend on August’s inflation reading, due Sept. 11.

    Oliver Allen, senior economist at Pantheon Macroeconomics, warned that the risk of layoffs is rising as employers lose confidence in the economy’s outlook. “So far, employers have not hired or fired much, but there are risks that layoffs could increase and would be an indication of a significant slowdown,” Allen told Observer. He estimates GDP growth at 1.7 percent this year, down from 2.8 percent in 2023. To prevent a deeper slowdown, he said the Fed must cut rates, and President Trump should ease tariff and immigration policies that have constrained the labor supply.

    If the job market deteriorates sharply, Allen added, “there isn’t much the government could do right away and any policy changes would take time to pass, as we saw with the Big Beautiful Bill.”

    A German-style fix?

    Allen suggested one option would be adopting something akin to Germany’s Kurzarbeit program, which subsidizes wages to help employers retain workers. But he noted such a “social market economic agenda” is unlikely to appeal to the Trump administration, which would probably lean toward unemployment insurance rather than payroll subsidies.

    Michael Englund, chief economist at Action Economics, said the U.S. labor market would have to weaken far more before Washington considered European-style subsidies or another round of pandemic-era programs like the Paycheck Protection Program.

    “So far, we don’t see enough evidence to say the job market is signalling recession,” Englund told Observer. “Weekly jobless claims have been moving sideways, and retail sales and household income remain strong, supporting our soft-landing scenario.”

    Englund also downplayed concerns about tariffs. “The tariffs’ bravado continues to look more like a negotiating strategy, and [the administration] has been reaching agreements with different countries,” he said. “The tariffs will bring billions of dollars in revenues, which will finance the Big Beautiful Bill’s tax cuts, so the net effect on inflation will be zero.”

    The Labor Market Looks Broken—Is There a Fix Beyond Interest Rate Cuts?

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    Ivan Castano

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  • Jerome Powell Signals Fed Policy Shift to Balance Inflation and Jobs Strains

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    Fed chair Jerome Powell delivered what will likely be his last speech at the Jackson Hole Economic Symposium today (Aug. 22). Chip Somodevilla/Getty Images

    Jerome Powell, chair of the U.S. Federal Reserve, subtly signaled that a September rate cut may be on the horizon during his address today (Aug. 22) at the Jackson Hole Economic Symposium in Wyoming. His remarks come as he faces the challenge of managing persistent inflation, cooling labor and mounting political pressure.

    Traditionally, rising inflation would prompt rate hikes. But Powell suggested the labor market now poses the greater risk. While stopping short of explicitly endorsing a cut at next month’s Fed meeting, he hinted that a shift is likely. “The shifting balance of risks may warrant adjusting our policy stance,” he told the audience of economists.

    The speech marked Powell’s final appearance at the high-profile symposium, where he has delivered the opening address for the past eight years. His term as Fed chair is set to end next May.

    Powell’s comments landed at a sensitive moment for the U.S. economy. Inflation has stayed above the Fed’s 2 percent target for four years, ticking higher in recent months. July’s inflation read came in at 2.7 percent, while the core consumer price index (CPI), which excludes volatile food and energy costs, rose to 3.1 percent.

    The Trump administration’s unpredictable tariff policy has exacerbated consumer price increases. “We expect those effects to accumulate over coming months,” said Powell, who noted that while levies will likely cause a “one-time” shift in price levels, the impact will filter through supply chains gradually rather than “all at once.”

    Powell also highlighted weakness in the job market. July data from the Bureau of Labor Statistics revised employment figures for May and June down by a combined 258,000 jobs, while July itself added only 73,000. Powell described the labor market as being in a “curious kind of balance,” with slowdowns in both supply and demand for workers. He pointed to tighter immigration policies under President Donald Trump as a factor contributing to the slowdown.

    Markets rallied on Powell’s signals that the Fed may cut rates soon. The Dow shot up 2 percent today, while the S&5 500 climbed nearly 1.6 percent. Bond yields fell, with the 10-year Treasuries declining by 7 basis points to 4.26 percent while the 2-year dropping 10 basis points to 3.69 percent, reflecting market anticipation of lower interest rates in the near future.

    Powell underscores the Fed’s independence

    Powell’s challenges aren’t only economic. He has faced repeated demands from Trump for rate cuts, sharp personal criticism, and even calls for his removal. This week, Trump extended his attacks to Fed governor Lisa Cook, urging her resignation on social media after she was accused of mortgage fraud by Federal Housing Finance Agency director Bill Pulte. Trump said today he would fire Cook if she does not step down.

    Ousting Cook would further Trump’s push to reshape the Fed with allies who share his policy views. Last month, two Trump appointees, Christopher Wallen and Michelle Bowman, dissented from the Fed’s decision to hold interest rates steady, voting instead for a cut.

    Though Powell avoided a direct defense of the Fed’s independence, he carefully underscored it. Monetary policy decisions, he said, will be made “based solely on their assessment of the data and its implications for the economic outlook and the balance of risks,” said Powell. “We will never deviate from that approach.”

    Jerome Powell Signals Fed Policy Shift to Balance Inflation and Jobs Strains

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    Alexandra Tremayne-Pengelly

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