Aurelia Butler

This article is an on-site version of our Chris Giles on Central Banks newsletter. Premium subscribers can sign up here to get the newsletter delivered every Tuesday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersHello, I’m Andrew Whiffin, stand-in for Chris Giles today. We work together on Monetary Policy Radar, where we try to figure out what central bankers are thinking and the path they will dictate for interest rates.With the Federal Reserve’s September decision capturing the market’s attention, I will offer a few thoughts on why if the central bank cuts as expected, it is unlikely to charge into another period of rapid easing. Then I look at recent data that might be a sign of the more structural upward pressure on US prices.But first up is Fed voting member Lisa Cook, who is reportedly being fired by US President Donald Trump following allegations of mortgage fraud. Cook has refused to step down and a legal battle over the “for cause” framework that Trump cited in her termination letter is shaping up. Cook said: “President Trump purported to fire me ‘for cause’ when no cause exists under the law, and he has no authority to do so”.This raises the possibility of another Trump pick joining Stephen Miran on the Fed’s board. It could also threaten a potential constitutional clash if the president’s dovish appointees ever find themselves outvoted by “inferior officers”, the hawkish heads of the regional Fed banks who have not been signed off by the Senate and Trump.If you want to know what will happen next, read this MPR explainer. Powell pivots into rising inflationSpeaking at Jackson Hole Symposium, Fed chair Jay Powell hinted again that the Fed would cut interest rates in September, stating that “the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance”.Powell already indicated at July’s rate meeting that higher unemployment was a prerequisite for a cut. July’s employment report later delivered as much, along with big downward revisions to jobs growth in the summer. In our capacity as rate forecasters, we now expect the Fed to cut in September. But we do still expect inflation worries to temper appetites for rapid easing. Tariff-related inflation is one thing, which Chris has covered in detail here; inflation from immigration policies deserves some attention, too. Powell’s speech was otherwise quite hawkish. It included the following near the top: “Changes in trade and immigration policies are affecting both demand and supply. In this environment, distinguishing cyclical developments from trend, or structural, developments is difficult.”Tariffs might prove to be transitory, as per the Fed’s base case. Other unknowns are changes in the jobs market and the impact of immigration policies on labour supply. One question is: how much of the downgrade to jobs growth this summer was a function of supply and not demand?The US foreign-born labour force has fallen by about 900,000 people since April. The participation rate is down too, presumably over fears of government enforcement. Some content could not load. Check your internet connection or browser settings.This could be exactly the kind of structural change to the economy the Fed is worried about, and one which lower rates could make worse. Back in February, Goldman Sachs identified agriculture and construction as two sectors most at risk from lower immigration. This might already be showing up in the latest data.Upon publishing July’s producer price data, a measure of wholesale prices, the Bureau of Labor Statistics said: “Forty per cent of the broad-based increase [in prices for final demand goods] in July can be attributed to the index for final demand food.” One-quarter of the increase was down to fresh and dry vegetables, which rose by 39 per cent from June. This measure is very volatile, but it was still the biggest increase since early 2022.Some content could not load. Check your internet connection or browser settings.The producer price index for final demand food tracks prices of goods at the factory gate. It rose by 4.2 per cent year on year in July. Consumer price inflation for food has also risen this year and was 2.9 per cent in July. The chart below shows CPI for food against factory-gate food inflation. They correlate most strongly with a five-month lead. Some content could not load. Check your internet connection or browser settings.Higher import costs for fruit and vegetables thanks to tariffs are another possible explanation, albeit an indirect one in the PPI measure. But given reliance on foreign workers in the food manufacturing sector, rising labour costs are likely.Food inflation, recently described as “salient” by the Bank of England, needs special attention from central bankers. Not only does food have an outsized impact on inflation expectations, the Fed has said food inflation has the best predictive value for headline CPI. US food prices have already been facing the same broad-based cost pressures pushing up consumer prices across the world. A labour crunch would compound them, and is another reason why we think the Fed will proceed cautiously when it starts easing again.A September fallGoings-on in the depths of US money markets risk stealing the limelight from September’s rate decision.September 15, two days before the Fed meeting, could be a crunch point. That day is special because quarterly tax payments and bill coupon settlements could drain $200bn of central bank reserves in a single day, and push reserves below $3tn for the first time since 2020. “In a sense we will be heading into uncharted territory in September since reserves will fall to levels not seen this cycle on a sustained basis,” says Samuel Earl, vice-president at Barclays. A quick reminder that reserves are the most liquid for central bank money. And in the past when they have become “scarce”, things in the US financial system have started to break.US government funding is at the core of the issue as the administration rebuilds the Treasury General Account, the government’s current account. The TGA receives funds either when the government sells a bond or bill, or when taxes are paid. Money leaves when the government has to pay bills, such as wages or debt repayments. Having run down the account this year because of limits imposed by the debt ceiling, the Treasury is now topping it back up to about $900bn (which the “big, beautiful bill” and the debt ceiling extension made possible). But this also acts as a drain on the fixed levels of broader central bank reserves.The question is whether this takes us into the realm of “scarce” or whether reserves remain “ample”, the level the Fed is aiming for. This contrasts with “abundant”, the artificially high level of reserves in place during quantitative easing eras. The problem is that no one really knows when reserves move from ample to scarce, and in the past we have only found out when something has gone wrong. We appear to still be some way off. But we know the Fed is concerned because of the slowdown in quantitative tightening earlier this year. Today reserves are around the $3.3tn mark, down from about $3.6tn at the beginning of 2024. Barclays’ Earl, who prefers to think of reserves as a proportion of bank assets, predicts they will move to around $2.9tn by the end of September, or “above the 11 per cent level we think is the sweet spot of reserves under the Fed’s ample reserves framework”.Some content could not load. Check your internet connection or browser settings.What I’ve been reading and watchingA chart that mattersCould the Fed surprise us by holding rates in September? It’s possible, but highly unlikely. The central bank rarely goes against the consensus. And when it has in recent years, the surprise has been one of magnitude rather than direction.The chart below is from academics working at the San Francisco Fed who measure the so-called “information surprise”, which is a function of what interest rate futures do in the half-hour after the Fed puts out its rate decision statement. Some content could not load. Check your internet connection or browser settings.It tells us that in the past hawkish information surprises have generally meant good news for the economy, signalling stronger growth and inflation. With the Fed likely to start cutting again in the face of rising inflation, a return of hawkish surprises seems likeliest to me. This time, though, that might not mean the economy will do better.Central Banks is edited by Harvey NriapiaRecommended newsletters for you Free Lunch — Your guide to the global economic policy debate. 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This article is an on-site version of our FirstFT newsletter. Subscribers can sign up to our Asia, Europe/Africa or Americas edition to get the newsletter delivered every weekday morning. Explore all of our newsletters hereGood morning and welcome back to FirstFT. On today’s agenda: Trump fires Fed governorMusk sues Apple and OpenAIChina’s ace in the trade warBethlehem reporting project launchesIn an extraordinary assault on the independence of the US central bank, Donald Trump last night said he was firing Federal Reserve governor Lisa Cook “effective immediately”. The move led to stock market falls around the world, dollar declines and a sell-off of US government bonds. The stand-off: In a letter addressed to Cook and posted on social media last night, Trump said there was “sufficient reason” to believe she had made false statements on mortgage agreements, giving him cause to fire her. Cook responded by saying she would not resign and appointed star lawyer Abbe Lowell, who has represented Jared Kushner and Hunter Biden, to defend her. Why it matters: The move against Cook, the first Black woman to serve on the Fed’s board of governors, follows months of attacks on the central bank’s chair Jay Powell. It also comes weeks after Trump fired the head of the Bureau of Labor Statistics in the wake of a weak jobs report. US presidents have sparred with the central bank since the institution gained independence from government in 1951, but the scale and vigour of Trump’s blitz is without precedent. Read more on the escalating row.Here’s what else we’re keeping tabs on today:Central banks: Catherine Mann, Bank of England Monetary Policy Committee member, and Tiff Macklem, governor of the Bank of Canada, speak at a Bank of Mexico conference.Economic data: The US Census Bureau is to publish July durable goods orders, while Brazil’s statistics agency publishes inflation figures for the first half of August.Companies: Dollar General is expected to post a rise in second-quarter earnings.France: French borrowing costs jumped to their highest since March after Prime Minister François Bayrou called a confidence vote for September 8.Five more top stories1. Elon Musk’s xAI has sued Apple and OpenAI alleging they broke antitrust rules by thwarting competition in artificial intelligence, opening a new front in the billionaire’s feud with the two companies. The blockbuster lawsuit deepens one of Silicon Valley’s bitterest feuds between Musk and his former ally Sam Altman, OpenAI’s chief executive.2. Banks are pushing to change new US stablecoin rules over fears they will spark trillions of dollars’ worth of outflows, underlining growing competition between Wall Street and the cryptocurrency industry. Banks fear new rules will create an uneven playing field but crypto companies are fighting back.More crypto news: Bitpanda, a crypto exchange backed by billionaire investors Peter Thiel and Alan Howard, has ruled out listing in London due to a lack of liquidity in share trading.3. Trump said he would like to meet North Korean leader Kim Jong Un this year as South Korea’s leftwing President Lee Jae Myung visited the White House against a backdrop of tensions between Washington and Seoul. Read more on yesterday’s meeting.4. The Australian government has accused Iran of being behind a spate of violent antisemitic attacks in the country and ordered the expulsion of its ambassador from Canberra. Australia blamed Iran’s elite Islamic Revolutionary Guard Corps for being involved in at least two antisemitic attacks last year, including the firebombing of a synagogue in Melbourne and an arson attack on a delicatessen in Bondi, Sydney.5. Low-cost ecommerce platform Temu has resumed shipping goods from Chinese factories directly to US consumers and increased its ad spending in the country, following a trade truce between Washington and Beijing. Multiple Temu suppliers and investors said the company had restored so-called fully managed shipments in July. Read the full report.More trade news: Trump, in a social media broadside, has threatened tariffs and export controls on countries whose taxes, rules or laws on tech companies “discriminate” against the US.News in-depthThe blast furnaces at Bethlehem Steel More

India is holding firm on its long-standing ties to Moscow as US President Donald Trump’s administration readies punitive tariffs over New Delhi’s purchases of Russian oil.Hopes are dimming that Trump, who threatened to double levies on Indian exports to 50 per cent over New Delhi’s purchases of Russian oil, will lower or postpone the tariffs before a Wednesday deadline. A planned visit to New Delhi by US trade negotiators this week was called off, Indian officials said. A draft notice published on Monday said the extra tariff would hit Indian goods after at 12.01am on Wednesday, eastern US time.Amid the stalemate with Washington, top Indian officials have made a series of recent trips to Russia. Foreign minister Subrahmanyam Jaishankar met President Vladimir Putin last week in Moscow, where Indian national security adviser Ajit Doval was also warmly received. Putin is expected to visit India later this year.New Delhi and Washington are playing at “who will blink first”, said Chietigj Bajpaee, senior research fellow for South Asia at Chatham House.Meanwhile, India has continued buying Russian crude, albeit in lesser quantities. Russian crude loadings to India are currently at about 1mn barrels per day, according to ship tracking data compiled by Kpler, down from as high as 2mn b/d earlier this year.“There’s no official directive from the Indian government to cut Russian volumes — so for now, it’s business as usual,” Sumit Ritolia, lead analyst at trade consultancy Kpler in New Delhi. But he added that refiners were “being cautious” and were “actively exploring alternatives” to Russian oil, pointing to possible supplies from the US, west Africa, Latin America and the Middle East.Ritolia added that it was still too early to confirm a rerouting trend, noting that August crude exports from Russia to India would only be reflected in shipment data from next month onwards.Some content could not load. Check your internet connection or browser settings.New Delhi has struck a defiant tone in the face of Trump’s tariff threats, saying that “the targeting of India is unjustified and unreasonable”.But trade minister Piyush Goyal told a forum in the Indian capital on Friday that Prime Minister Narendra Modi’s government would keep an “open mind, a positive outlook and the confidence that India-US relationship is very consequential . . . to both the countries”.India has become Moscow’s largest buyer of seaborne crude since Putin’s full-scale invasion of Ukraine in 2022, importing nearly $140bn worth of Russian oil, government data shows. Much of that supply is processed by Indian refiners into petrol and diesel that is sold into domestic and international markets.Western countries — including the US — encouraged the trade, which helped maintain global market prices, as long as it remained below the G7 price cap set to limit Russian revenues.But Trump administration officials such as trade adviser Peter Navarro have since accused Indian companies of being “profiteers” of Moscow’s war.“The US is questioning our sovereignty to decide who to buy oil from,” said Amitabh Singh, associate professor at Jawaharlal Nehru University’s Centre for Russian and Central Asian Studies. “We would be happy if Saudi Arabia or Iraq give us at the same price, or at a lesser price, than Russia, because this is purely a commercial decision.”Russian President Vladimir Putin greets visiting Indian foreign minister Subrahmanyam Jaishankar in Moscow last week More

This article is an on-site version of our Europe Express newsletter. Premium subscribers can sign up here to get the newsletter delivered every weekday and fortnightly on Saturday morning. Standard subscribers can upgrade to Premium here, or explore all FT newslettersGood morning. US President Donald Trump has threatened tariffs and export controls on countries whose taxes or regulations “discriminate” against US tech companies, in an outburst that will give EU officials pause for thought this morning.“As the President of the United States, I will stand up to Countries that attack our incredible American Tech Companies,” he said a few hours ago. Brussels, which Washington has accused of targeting US tech, only last week unveiled a deal with Trump to reach a truce in a transatlantic trade war.Today, Korea’s nuclear industry tells our Brussels and Paris correspondents that France is breaking the EU’s state aid rules, and our Berlin correspondent reports on a tense German ministerial visit to Israel.Home advantageIs the state-owned French energy giant EDF misusing EU rules to boot out foreign competition? South Korea’s nuclear industry thinks so, write Alice Hancock and Ian Johnston.Context: The Korean state nuclear company KHNP won an $18bn contract to build a nuclear plant in the Czech Republic, but construction was temporarily halted in May after an eleventh-hour intervention by EDF that led to a challenge in the courts. While construction at the Dukovany plant is now going ahead, EDF’s intervention led the European Commission to open a foreign subsidies investigation into the Korean company. EDF stated that KHNP would not have been able to guarantee such a low price for the project without “illegal state aid given the prices in the nuclear industry”.The Korean nuclear trade association KAIF has now hit back at the accusations.“We are concerned that foreign-subsidy regulation rules are being misused by EDF, especially in light of its own history of receiving generous subsidies and state aid in multiple jurisdictions,” KAIF told the Financial Times.“Not only does this have serious negative implications for the EU’s ambition to advance its energy security, but it also risks the credibility of the FSR instrument as a whole,” KAIF added.The statements come as the commission reviews how it uses rules on foreign subsidies, which allow the EU executive to investigate subsidies that could give an unfair market advantage to foreign companies.KHNP has indicated that, should the commission launch a full probe into the company with a provisional ban on construction at Dukovany, it would challenge Brussels in the EU courts.EDF declined to comment.As a French state-owned company, even as a French state-owned company, EDF can be subject to the EU’s foreign subsidies regulation. It has received multibillion loans and grants from the British and French governments, although officials argue that these have been allowed under EU state-aid rules. It also receives significant subsidies in countries such as Brazil, the US, Vietnam and Chile. In March this year, the French government committed to cover half the construction costs of six new EDF reactors via a subsidised loan expected to exceed €30bn, and which still needs to be approved by the European Commission.Chart du jour: Deep water Disruption to gas pipelines and telecoms cables have focused policymakers’ minds on protecting submarine assets — and led defence companies to expect a multibillion-dollar surge in spending to shield the seabed.Field tripGermany’s development minister Reem Alabali Radovan left yesterday evening for a three-day visit to Israel and Palestine at a time of unprecedented strain in their diplomatic relationship, writes Laura Pitel. Context: Growing public pressure over the humanitarian situation in Gaza led conservative Chancellor Friedrich Merz to announce a partial arms embargo on Israel earlier this month. That decision, a big shift from a leader who has been Israel’s staunch supporter, has caused deep tension between the two countries.Alabali Radovan, a Social Democrat, has emerged as one of the most vocal critics of Israel in the new German government that took office in May.Last month, she expressed disappointment that Berlin had not signed a joint declaration by more than two dozen nations — including the UK, France and Australia — that condemned the “drip feeding of aid and the inhumane killing of civilians” amid Israel’s attack on Gaza.Speaking before her departure yesterday, which came hours after 20 people including five journalists were killed in an Israeli strike on a hospital in Gaza, she said that the Israeli government had allowed more aid to enter the enclave but that it was “far from enough”. During her visit, she will hold meetings with officials from the Palestinian Authority in the West Bank and also travel to Jordan and Saudi Arabia, with a focus on improving the supply of aid to Gaza and making plans for the strip’s reconstruction. She is also due to see the families of Israelis who were taken hostage during the October 7 2023 attacks.However, at lunchtime yesterday she had still not received confirmation of any of her requested meetings with Israeli officials, in a further sign of the limited influence of Germany and other western nations as Israeli premier Benjamin Netanyahu prepares for a new offensive against Gaza City.What to watch today Prime Ministers Mark Carney of Canada and Bart De Wever of Belgium separately visit Germany’s Chancellor Friedrich Merz in Berlin.Now read theseRefilling the swamp: Germany’s “peatland pope” believes bogs can help defend Europe against both Russian expansionism and man-made climate change. Danish-US relations: From Greenland to Ørsted, US pressure is unsettling Denmark, as the White House oscillates between friend and foe.Too hot to think: Governments are rolling out million-dollar programmes to tackle extreme heat in schools, as hot weather forces closures. Recommended newsletters for you Free Lunch — Your guide to the global economic policy debate. Sign up hereThe State of Britain — Peter Foster’s guide to the UK’s economy, trade and investment in a changing world. Sign up hereAre you enjoying Europe Express? Sign up here to have it delivered straight to your inbox every workday at 7am CET and on Saturdays at noon CET. Do tell us what you think, we love to hear from you: [email protected]. Keep up with the latest European stories @FT EuropeThis article has been corrected to reflect that EDF can be subject to the foreign subsidies regulation. More

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Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldBargain ecommerce platform Temu has resumed shipping goods from Chinese factories directly to US consumers and increased its advertising spending in the country, following a trade truce between Washington and Beijing.Multiple Temu suppliers, partners and investors said the company had restored so-called fully managed shipments — where it handles most of the logistics and customs formalities on behalf of suppliers — in July. It had suspended the service in May.The group, owned by Shanghai-based PDD Holdings, has also boosted spending on US advertising after earlier slashing marketing budgets amid President Donald Trump’s trade salvos, according to two people familiar with the move and data analytics provider Smarter Ecommerce.One of the people said Temu expected ad spending to return to first-quarter levels, before Trump unveiled his sweeping tariffs.The resumption of direct shipments underlines how a US-China trade truce has given a reprieve to low-value goods exporters.In April, Trump announced plans to cancel so-called de minimis exemptions for shipments worth less than $800 from China, subjecting them to duties of more than 100 per cent.The move especially hit Temu, which owes part of its explosive growth to being able to ship billions of dollars of low-value packages tax-free. After Trump’s executive order, the company said it would source all American orders from US suppliers.Talks between the US and China in May led to Washington agreeing to slash extra tariffs on Chinese goods to 30 per cent for 90 days. The US also reduced the rate for small packages from China to 54 per cent, although the actual rate can vary depending on how shippers choose to send goods.The two sides extended the truce for another 90 days this month.The US has also said it will cancel de minimis exemptions for every country from August 29, meaning all low-cost parcels will be subject to tariffs. Last year, US Customs and Border Protection processed 1.3bn de minimis packages, worth $64.6bn.“Because of across-the-board tariff increases . . . even regular brands and retailers have to increase their price substantially,” said Sheng Lu, a fashion industry professor at the University of Delaware. “This will reduce the price pressure facing Temu and Shein.”Even with current levies on Chinese goods, direct shipments were still more cost-effective than maintaining warehouses and inventory in the US, said Lu. “It’s still regarded as workable for companies like Temu.”A person familiar with Temu’s operations said the company had also observed how rival Shein, which has a subsidiary to handle cross-border logistics including customs clearing, was able to increase revenue and remain profitable in the US after Trump cancelled the de minimis exemption.Temu had since built up its own logistical capabilities, rather than relying on third parties, which would have exposed the company to the risk of more stringent customs checks, the person said.A Temu supplier based in the eastern province of Zhejiang said the resumption of direct shipping to the US had “added to our exposure and increased our sales”.However, a seller based in the southern province of Guizhou said sales were not as strong as before the Trump tariffs.“Previously, the US accounted for about one-third of sales,” said the seller. “It’s just recovering slowly.”Temu declined to comment.Video: The rise of Pinduoduo and Temu: profits and secrets | FT Film More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldPresident Donald Trump has threatened tariffs and export controls on countries whose taxes, rules or laws on tech companies “discriminate” against the US.In a post on his Truth Social platform late on Monday, Trump railed against “Digital Taxes, Legislation, Rules, or Regulations” and warned that he could impose more levies and institute tighter controls on exports of US technologies.“As the President of the United States, I will stand up to Countries that attack our incredible American Tech Companies. Digital Taxes, Digital Services Legislation and Digital Markets Regulations are all designed to harm, or discriminate against, American Technology,” Trump wrote.“They also, outrageously, give a complete pass to China’s largest Tech Companies. This must end, and end NOW!”The broadside risks reigniting trade tensions with the UK and the EU, which both struck recent trade agreements with Washington.US officials have repeatedly criticised the UK’s digital services tax, although it was kept in place following its deal with the Trump administration.During recent trade talks, the US has also attacked the EU’s landmark Digital Services Act, which forces big tech companies to police their platforms more aggressively.Several EU member states, including France, Italy and Spain, also have digital services taxes in place.During Trump’s first term, both Democratic and Republican lawmakers criticised foreign governments’ efforts to levy additional taxes on tech companies as discriminatory.In February, Trump ordered the US trade representative to reopen investigations that could lead to tariffs on countries that have imposed a digital services tax.In June, Canada scrapped its digital services tax, which Trump had described as a “direct and blatant” attack, in an effort to smooth trade negotiations with its neighbour.UK officials also weighed changes to its tech tax during talks with the US, but were ultimately able to reach a trade deal without amending the levy.The 2 per cent tax, which hits tech groups including Alphabet, Meta and Amazon, is applied to companies with global revenues of more than £500mn, and is applied on revenues greater than £25mn derived from the UK. More

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