Aurelia Butler

Central bank policymakers on Wednesday kept their benchmark interest rate unchanged at 5.25%-to-5.50%, where it has been since last July. They also issued projections showing greater hesitance than before about starting reductions in high borrowing costs that have made it more costly for Americans to buy anything on credit from a washing machine to a car to a house – a dynamic that has contributed to consumers’ persistently poor view of the economy and Democratic President Joe Biden’s management of it.As recently as March, Fed officials were forecasting interest rates would fall by three-quarters of a percentage point this year, an outlook that would have meant cuts beginning this summer and continuing through the run-up to the Nov. 5 presidential election. That could have opened the Fed to criticism that it was tilting the scales late in the rematch between Biden and Republican former President Donald Trump.Now, though, amid stickier-than-expected inflation and a still-strong job market, officials have scrapped that forecast for one that foresees just a single quarter-point cut this year, an outlook that suggests no action is likely before their final meeting of the year in December.JAWBONINGInvestors for their part have not fully abandoned hope for an earlier start, which would keep the Fed in the election limelight. Interest rate futures markets still assign a roughly six-in-10 chance of a rate cut in September.A rate reduction then might improve consumer moods to the benefit of Biden, a prospect Trump had already begun taking aim at earlier this year.“I think (Fed Chair Jerome Powell is) going to do something to probably help the Democrats, I think, if he lowers interest rates,” Trump said earlier this year in a Fox Business interview. “It looks to me like he’s trying to lower interest rates for the sake of maybe getting people elected, I don’t know.”A delay until after the election could now be a headwind for Biden, who polls show receives low marks for his handling of the economy despite near-record low unemployment, record-high household wealth and above-trend growth.”This is obviously bad news for Joe Biden’s campaign, who’ve been desperately trying to convince voters that the economy is in good shape thanks to so-called Bidenomics,” Republican consultant Jeanette Hoffman said.Asked about the shift, White House press secretary Karine Jean-Pierre said the administration had no comment “We’ve always been really clear about the Fed. They’re independent. We do not comment on…the Fed.” “After four years of crippling inflation that’s hurting families everywhere from the grocery store to the gas pump, Americans trust President Trump to fix our economy and put more money back in their pockets, as he did in his first term,” Trump Campaign National Press Secretary Karoline Leavitt said.ELECTIONS AND THE FEDElection year rate cuts are not unheard of but are relatively unusual. The most recent occurred in 2020, when, with Trump as president the Powell Fed cut rates to near zero in response to the sudden onset of the COVID-19 pandemic. Trump still lost the election to Biden that November.The next most recent occurrence was when the Fed under Ben Bernanke cut rates repeatedly in the fall of 2008 as the financial crisis was erupting and Democrat Barack Obama and Republican John McCain were battling for the White House. Obama won.In 1992, Alan Greenspan’s Fed cut rates several times in the months before Election Day in the face of rising joblessness. Republican George H. W. Bush bemoaned what he saw as a too-little-too-late response from the Fed and blamed it in part for his loss to Democrat Bill Clinton.”I think that if the interest rates had been lowered more dramatically that I would have been re-elected president because the [economic] recovery that we were in would have been more visible,” Bush said in a 1998 interview with David Frost. “I reappointed him, and he disappointed me.”HOW A CUT COULD STILL HAPPENTo be sure, circumstances in the next couple of months could change sufficiently to warrant a cut by the Fed at its meeting in mid-September, seven weeks before the election, though not necessarily in a way that might benefit Biden.Powell at his press conference on Wednesday laid out two “tests” for starting rate cuts: The Fed either gets more confidence that inflation is moving sustainably toward the central bank’s 2% goal, or there is an “unexpected deterioration” in labor market conditions. If the first test is the trigger, that could bode well for Biden. If it is the second, it could be to Trump’s benefit.”If we saw troubling weakening more than expected” in the labor market, Powell said, that could move rate cuts earlier than now forecast. “We completely understand the risks, and that’s not our plan..to wait for things to break and then try to fix them.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The hostile imposition of tariffs would usually mean a slump in the targeted company’s shares. Not for BYD. The prospect of steep European tariffs on electric car imports from China had the opposite effect on the country’s biggest maker of electric vehicles. Its HK-listed shares jumped as much as 9 per cent on Thursday. The EU will impose additional tariffs on EVs shipped from China as of next month, taking levies to as much as 48 per cent. For BYD, its company-specific rise means the new EU tariff will be 27.4 per cent — compared with the existing 10 per cent tariff. For local rival Geely, it will be 30 per cent. Shares in Geely and Zhejiang Leapmotor Technology also rose.This positive market reaction was partly down to the oddity that BYD, the biggest threat in the European market, was hit with the lowest additional tariff among the companies named. The extra levy came in around half the upper end of analysts’ estimates. Even if most of that tariff is passed on to buyers, the price-point for BYD cars would still be lower than the competing models made by European counterparts. And even at that lower price, BYD’s car designs, safety and battery technologies have continued to improve rapidly in recent years.Moreover, BYD’s gross margins exceed 20 per cent — making it a rare example globally of a profitable EV maker and giving it more leeway amid price wars and tariff rises. Assuming the tariff increase is split evenly between BYD and the customer, Citi estimates BYD’s exports to Europe operations can still manage a net profit margin of 8.6 per cent, based on current production. This looks like a coup from BYD, whose engagement in the tariff-setting process clearly managed to secure a good outcome. Moreover, some smaller rivals could suffer and export growth will probably slow for EV makers without BYD’s scale, margins and wide range of price offerings. For Europe, this move always came with costs. Tariffs will add to EV sticker prices for European customers. It now makes more financial sense for Chinese EV makers to speed up plans to place production in the EU, cutting long-term production costs and making them more competitive. The risk of retaliation, between these two large trading partners, cannot be ruled out. This exercise in protectionism has simply emphasised that stopping BYD’s march into Europe’s car market is no easy [email protected] More

BUENOS AIRES (Reuters) – Argentina’s monthly inflation rate in May was likely the lowest since 2022 amid a tough austerity drive by libertarian President Javier Milei, but with annual inflation still near 300% many Argentines say they can’t yet feel the benefit as food prices outstrip salaries.Annual inflation is still the highest in the world, even as the monthly rate has slowed, with rising food, utilities, and transportation costs making the minimum monthly wage in Argentina of 234,315 pesos ($260) feel insufficient.”I still don’t understand how inflation can be going down,” said Silvia Castro, a 65-year-old retiree shopping for her groceries at a market on the outskirts of Buenos Aires.”Taxes are very expensive, services and gasoline are expensive, insurance is expensive, the social work (health service) that was meant to go down is the same or has risen.”Argentina’s government touts its success taming inflation with tough measures to reduce central bank money printing, focus on rebuilding reserves and cut spending. But it faces a challenge to keep voters on-side with the economy stalling and poverty levels rising.The monthly inflation rate is set to have fallen for a fifth straight month in May to likely under 5%, down from a peak over 25% in December when Milei took office and sharply devalued the local peso currency. But Laura Basualdo, a 53-year-old merchant, said many people were struggling to buy things as their earning power had been eroded by constantly high inflation.”I’m a merchant and I often see the customer on the other side who, clearly, if my prices don’t work for them, they go out to look for other offers,” she said.”We all have to shop around today. It’s terrible, constantly the money in our pockets gets lighter, less and less each time. Nowadays it feels like eating is a luxury.” More

In the projections listed in the dot plot, it is noted that 4 officials do not expect a rate cut this year, 7 of them anticipate only a 25 basis points (bps) cut in 2024, and 8 expect a 50 bps rate cut this year. This results in the median of the officials considering it appropriate for interest rates to be at 5.1% by the end of the year.Now, the FOMC’s projection for 2024 for PCE inflation in its general and core index has risen by 0.2% compared to what was expected in March, placing it at 2.6% and 2.8%, respectively. For 2025, the projections were adjusted upwards by 0.1%, now forecasting general and core PCE inflation at 2.3%.”Among the revisions made to the projections of the Fed’s main macro variables, it stands out that both general and core inflation projections were increased for 2024 and 2025. Therefore, only one rate cut is now expected in 2024,” explained Janneth Quiroz Zamora, Director of Economic, Exchange, and Stock Market Analysis at Grupo Financiero Monex.FOMC officials also anticipate that rates will remain higher than expected, as the median forecast for 2025 was adjusted to 4.1% at the end of next year, up from the previously anticipated 3.9%, which would imply a 125 bps decrease from the current rate.Investors are very attentive to the start of interest rate cuts, as this will lead to adjustments in investment portfolios. To achieve maximum profitability, hundreds of investors in Mexico, and thousands worldwide, rely on InvestingPro to get all the information, data, and analyses that have allowed them to design their investment strategies to ride the wave of profits that will come when rates start to drop. Are you one of them yet? Subscribe here!There’s still time to discover market gems and achieve the best returns with InvestingPro. Premium tools will be your best allies in crafting your investment strategy. Get InvestingPro with an ADDITIONAL DISCOUNT on all our Pro and Pro+ plans for 1 and 2 years with the coupon MEJORPRO. Join here!With these adjustments, it became clear that the positive surprise in U.S. inflation in May, which moderated to 3.3% in its annualized reading and fell below economists’ expectations, was not enough to give the Fed the confidence to start cutting rates.”Despite the drop in May, the expectation remains that the Fed will make only one interest rate cut in 2024, with the possibility of not cutting rates if overall inflation stagnates around 3.5% annually in the coming months,” stated Gabriela Siller Pagaza, Director of Economic and Financial Analysis at Grupo Financiero Base.In the press conference following the announcement of the monetary policy decision, Fed Chairman Jerome Powell considered economic prospects uncertain and reaffirmed the statement that the FOMC does not deem it appropriate to reduce the target range for the federal funds rate until there is greater confidence that inflation is moving sustainably toward 2%.”So far this year, the data has not given us that greater confidence. However, the most recent inflation readings have been more favorable than at the beginning of the year, and there has been modest additional progress toward our inflation goal. We will need to see more positive data to reinforce our confidence that inflation is moving sustainably toward 2%,” he noted.In his address, Powell again warned that reducing policy restraint too soon or too much could result in reversing the progress seen in inflation. Conversely, reducing policy restraint too late or too little could unduly weaken economic activity and employment.In this uncertain environment, investors have the opportunity to protect their portfolios with solid stocks capable of withstanding downturns and even finding investments that will generate long-term opportunities. More

TAIPEI (Reuters) – Taiwan’s central bank said on Thursday it saw inflation gradually coming down for the rest of the year but the overall tone of monetary policy remained hawkish.Taiwan’s inflation has never been as high as in major Western economies – the consumer price index (CPI) in May rose by 2.24% – but the central bank has made bringing it down a priority.It has also had to worry less about impacting economic growth, given that Taiwan’s export-reliant economy has been getting a lift from global demand for computer chips, especially from the artificial intelligence boom.Governor Yang Chin-long told reporters after the quarterly rate-setting meeting – where the central bank left the benchmark discount rate at 2% as expected – that he saw inflation trending down. The discount rate has been at this level since March.But “the tone of monetary policy is further tightening”, Yang said, adding unlike major western economies, Taiwan’s rate policy change would be “gradual and small” thanks to relatively lower inflation in Taiwan.”Tightening of monetary policy will help curb inflation expectations.”In a Reuters poll, 29 out of 31 economists predicted the central bank would keep the rate unchanged.The central bank trimmed its CPI forecast for this year to 2.12%, from a previous prediction of 2.16%, still above the 2% mark the market views as the central bank’s red line of concern.On Wednesday, the U.S. Federal Reserve kept rates on hold and pushed out the start of rate cuts, as it expects only a gradual decline in inflation though it indicated it would stick with plans to cut borrowing costs this year.Taiwan’s central bank raised its 2024 estimate for economic growth to 3.77%, from a March forecast of 3.22%, pointing to factors such as the rising demand for “newly emerging technology applications” including AI.The economy grew at its slowest pace in 14 years in 2023.In a measure aimed at curbing property price rises, the central bank also raised the ratios it sets for banks’ reserve requirements by 25 basis points.Yang said that move would make banks more cautious about their investments and new lending, reducing inflows into the property market and locking in more than T$120 billion ($3.71 billion).First Capital Management analyst Chengyu Liu said there might be another reserve requirement rise at the next meeting in September, though not a rate hike.”It is not all-round tightening that is needed,” Liu added.($1 = 32.3290 Taiwan dollars) More