Aurelia Butler

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldA top candidate to succeed Jay Powell as the next Federal Reserve chair has blamed the US central bank for committing “systematic errors” and failing to control the worst inflationary surge in a generation. Kevin Warsh, a former Fed governor and ally of President Donald Trump, accused the US central bank of acting “more as a general-purpose agency of government than a narrow central bank”, saying the “drift” had stopped it from keeping inflation at its 2 per cent goal. “Since the panic of 2008, central bank dominance has become a new feature of American governance,” Warsh said at a Group of 30 event in Washington on Friday. “Forays far afield — for all seasons and all reasons — have led to systematic errors in the conduct of macroeconomic policy.”He added the Fed’s $7tn balance sheet had also enabled rampant federal government spending that had left the US’s fiscal position on a “dangerous trajectory”.  “Fiscal policymakers — that is, elected members of Congress — found it considerably easier appropriating money knowing that government’s financing costs would be subsidised by the central bank,” Warsh said, referring to the central bank’s Treasury debt purchases under quantitative easing.The comments from Warsh, who Trump considered as a possible Treasury secretary, come at an acute moment of tension between the Fed and the president, who last week said he could not wait for Powell’s “termination” as central bank chair. Trump partly walked back his comments, saying he had no intention of firing Powell, triggering relief in global markets. Warsh, who was at the Fed when it began QE, was a critic on central bank policies last year, but his remarks were his first statements on its monetary policy in months. Warsh also attacked the Fed’s involvement in issues such as climate change and inclusion — though he acknowledged the central bank had now “changed its tune” by leaving the Network for Greening the Financial System in January. Powell’s current term as Fed chair ends in May 2026, with Treasury secretary Scott Bessent saying earlier this month that a search for his replacement would get under way in the autumn. Warsh and National Economic Council head Kevin Hassett are considered the favourites to succeed him. Trump’s recent criticism of Powell for refusing to cut interest rates, coupled with suggestions that the White House believed it had the authority to fire the Fed chair, have sparked fears for the central bank’s independence — leading to a sharp sell-off in equities and the dollar. Warsh said that while he strongly believed in “the operational independence” for the Fed to set interest rates free of political pressure, that did not mean central bankers should be treated as “pampered princes”. “When the monetary outcomes are poor, the Fed should be subjected to serious questioning,” he said.  More

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Sitting in a bland conference hall in Washington on Wednesday evening, Scott Bessent presented an unabashed defence of America’s trade policies in his first face-to-face meetings with G20 counterparts. According to those present at the dinner, on the sidelines of the IMF and World Bank spring meetings, the Treasury secretary portrayed President Donald Trump’s approach as part of a clear and masterful blueprint to rebalance the global economy — and by no means the chaotic muddle of U-turns that officials elsewhere in the world perceive. Trump had taken “strong action” to address the imbalances of an “unfair trading system”, Bessent said at an event the same day. More than 100 countries had responded “openly and positively”, he added. But the spring meetings of the IMF and the World Bank were marked by further reversals by Trump, which left US allies even more bewildered at what the administration is trying to achieve with its trade agenda — and more concerned at what the ongoing uncertainty is doing to their economies.Share prices rallied after weeks of turbulence after Trump said he was ready to substantially curb tariffs of 145 per cent on China, with gains helped further by a declaration that he did not — contrary to earlier hints — plan to fire Federal Reserve chair Jay Powell.  However, the IMF’s latest World Economic Outlook, released on Tuesday, warned that the instability hammering international trade would inevitably clobber global growth. “Simply put, the world economy is facing a new and major test,” said Kristalina Georgieva, the managing director at the IMF, at a press conference.Some content could not load. Check your internet connection or browser settings.Officials and policymakers attending the meeting warned that they had no visibility as to whether the Trump administration would stick with its efforts to de-escalate its conflicts with trading partners, or resume its assault on the global marketplace. In an acute irony, it was China’s delegates who, at the G20 dinner, presented a full-throated defence of the multilateral rules-based order that America itself originally designed, according to people briefed on the discussions. Ministers and central bankers warned that the pervasive cloud of uncertainty emanating from the capital of the world’s most important economy was near impossible to navigate. “What does this administration exactly want? Do they want a new trade deal? Do they want tariffs? We just don’t know,” says Eelco Heinen, the finance minister of the Netherlands. “Right now we are going through a fog.” After weeks of hostility, the Trump administration signalled this week it was actively seeking ways of cooling down trade conflicts with partners.  Bessent offered an olive branch to US partners at a meeting of the Institute for International Finance lobby group on Wednesday, saying “America First does not mean America alone”, and that the slogan is “a call for deeper collaboration and mutual respect among trade partners”. This was coupled with reassuring words on the fate of the IMF and World Bank themselves. While Bessent called for them to step back from what he termed “sprawling and unfocused agendas”, he also insisted the institutions had “enduring value”. Some content could not load. Check your internet connection or browser settings.That came as a relief to countries fretting about the prospect of outright US withdrawal from the postwar Bretton Woods institutions that have underpinned eight decades of economic multilateralism. “The mood here is one of détente,” says one European official, noting that in meetings during the week US officials were stressing their eagerness to do deals with key US trading partners. Bessent sought to strike a conciliatory tone in meetings with his counterparts, say some officials, with the Swiss finance minister Karin Keller-Sutter praising her meeting with the Treasury secretary as “constructive”. His deeper involvement within the administration on trade policies, as the influence has waned of Commerce Secretary Howard Lutnick and trade adviser Peter Navarro, has also helped soothe officials’ and investors’ jitters. But actually achieving tangible progress on trade relations will not be easy, officials stress. Frictions between the US and its closest partners were never far from the surface, with the official noting a “hubristic air” from the administration. In a meeting of the G7, Bessent bridled at a question from the governor of the French central bank, François Villeroy de Galhau, about America’s yawning federal deficit, according to people briefed on the exchange. The spring meetings of the IMF and the World Bank took place in Washington this week following a tumultuous first three months of the new Trump administration More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldDonald Trump said Chinese President Xi Jinping had “called” him, despite denials from Beijing that talks to ease trade tensions between the world’s two largest economies had started. The US president also made the claim that he had sealed “200 deals” on trade, even though no such pacts have been announced. “You have to understand, I’m dealing with all the companies, very friendly countries. We’re meeting with China. We’re doing fine with everybody. But ultimately, I’ve made all the deals,” Trump said in an interview with Time Magazine published on Friday.Trump said of the Chinese president: “He’s called. And I don’t think that’s a sign of weakness on his behalf.” However, several people familiar with the situation in Washington and Beijing said Xi had not called Trump. The Chinese embassy in Washington did not comment.The White House did not respond to a request for comment about Trump’s claims. In his Time interview, the US president also insisted that “100 per cent” he had done 200 trade deals with countries across the globe, even though none have been announced. But he also suggested that they could be unveiled in the next month. “Over the next three to four weeks . . . we’re finished, by the way,” he said.On Friday morning, as he left Washington for Rome to attend the funeral of Pope Francis, Trump was asked to clarify whether he had spoken to Xi since the US imposed bruising tariffs of up to 145 per cent on Chinese imports, triggering a trade war that has rattled financial markets. “I don’t want to comment on that, but I’ve spoken to him many times,” Trump said.Since returning to the White House in January, Trump has made multiple claims about contacts between the US and China that have later been questioned.Trump said last month that Xi was planning to visit the US and would be “coming in the not too distant future”. But people familiar with the matter said there had been no conversations between Washington and Beijing about a summit.On multiple occasions Trump has also referred to trade talks between the countries, even though these are yet to take place, according to people in Washington and Beijing. “China and the US are NOT having any consultation or negotiation on #tariffs. The US should stop creating confusion,” the Chinese foreign ministry posted on X on Friday. Chinese officials have also stressed that any trade negotiations in the future would have to be held at the working level and that the two countries would have to reach some kind of tentative agreement before Beijing would agree to set up a phone call or meeting with Xi. When asked what Xi had told him in the conversation that Trump claims happened, the US president referred to the power he had as gatekeeper for the US consumer market. “It’s a giant, beautiful store, and everybody wants to go shopping there. And on behalf of the American people, I own the store, and I set prices, and I’ll say, if you want to shop here, this is what you have to pay,” Trump told Time. Video: Jamie Dimon urges US to engage with China More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldGauges of the market mood typically pick a point between fear and greed. What we have now is not quite either of those. It is a universe where muddling through and imminent disaster exist side by side at all times and investors have no clue which way to jump. It’s exhausting and infuriating, it litters markets with opportunities to lose money, and it’s here to stay.“He’s behind you! Oh no he isn’t!” as the analysts at Rabobank rather deftly put it this week. No prizes for guessing the identity of the pantomime villain here, of course. It’s Donald Trump, whose rethinks on high-stakes economic policy are almost too speedy and too numerous to count.To take one of the biggies, just over a week ago the US president declared on his Truth Social platform that the “termination” of “too slow” Federal Reserve chair Jay Powell could not come fast enough — a grotesque and reckless assault on the most important position in global finance. Later, a reporter asked Trump if he was trying to remove Powell from office. “Yeah,” he replied. “If I want him out, he’ll be out of there real fast. Believe me.”Set aside for a moment that this is, right now, not true. Trump cannot defenestrate Powell before his time is up a year from now, unless and until the administration can find a legal loophole. In any case, now we are suddenly encouraged not to worry. By Tuesday, Trump was telling reporters he had “no intention” of firing the Fed chief, as if the idea had never occurred to him. (“We have always been at war with Eastasia” springs to mind.)So, no harm done, right? Not quite. For one thing, the cat is out of the bag. The Fed’s independence has been undermined. We now know with even more certainty than before that Trump wants a Fed chair who will cut interest rates in an effort to fix the economic mess he is making, even despite the risk that inflation bubbles up again.Some content could not load. Check your internet connection or browser settings.In addition, this whole sorry tale introduced a completely pointless and unnecessary bout of volatility to already jittery markets. This is how market accidents happen. The broadside against the Fed first gave investors the heebeejeebies, making a bad run for the dollar, stocks and US government bonds even worse. The climbdown had the opposite effect, with stocks and the dollar picking up. This is, of course, not the only sphere in which the signals from Trump and his administration are far from clear. Just in the past few days, markets jumped after Treasury secretary Scott Bessent said the trade war with China was “unsustainable” — a hint that progress towards de-escalation was at hand. But Chinese officials later said no negotiations were taking place at all. Again, this is all goosing markets higher and lower without any certainty that anything has changed. Hedge fund and trading big cheese Ken Griffin put it well this week when he remarked that tariff talks have entered a “nonsensical place”.The nonsense is not all bad for everyone. Trading firms, including big investment banks and Griffin’s Citadel Securities, stand to gain from hefty trading volumes, whatever the overall direction. Hedge funds are at least trying to enjoy the ride.But fund managers with longer time horizons tell me their nerves are shot. The only way to cope is to try to be nimble, and not to overreact to anything, positive or negative. The constant headline-driven market movements suggest this effort at serenity is not going well. Burn-out risk for the professionals here is real.To try to alleviate the mood, let’s focus on the positives. In particular, it seems markets do impose a little discipline on the US president after all. It is hard to believe it is a coincidence that Trump paused his “reciprocal” tariffs shortly after an auction of three-year US government debt proved to be a dud — a buyers’ strike, as some market watchers put it, by foreign investors. Similarly, it appears the president learnt quickly that if you turn up the heat on the Fed, investors head for the exit. He denies it, but investors know: he blinked, and blinked again.Still, investors who seize on every positive-ish headline are playing a very strange game. It is not “good” news that the president is holding back from trying to oust Powell right now. It is the absolute minimum that any investor holding US assets should be able to expect. Similarly, global tariffs are still high by any sensible measure, and much higher than investors had expected, despite the step back. A US recession is a serious risk, and the ability of the Fed to respond is rather limited.It is important to remember that a president prone to changing his mind in a positive direction can do the opposite again at the drop of a hat. “The president has retreated in battle but he could go on the front foot again!” as Mark Dowding at BlueBay Asset Management put it. The point of greatest danger to investors may well be when markets are relatively calm, calm enough to encourage the president to believe he can push the boundaries yet again. Fund managers will have no rest for as long as he is in office. Just around 1,360 days of this left, [email protected] More

Rachel Reeves has declared Britain’s trading relationship with Europe to be “arguably even more important” than its one with the US, as she sought to shift Britain’s focus away from its trade spat with the Trump administration to a crucial upcoming summit with the EU.The chancellor is pushing for an ambitious “reset” of relations with the EU, including opening up a youth travel scheme and aligning the UK with Brussels’ rules in an attempt to reduce barriers to trade.“I understand why there’s so much focus on our trading relationship with the US, but actually our trading relationship with Europe is arguably even more important,” she told the BBC.“It is so important that we rebuild those trading relationships with our nearest neighbours in Europe, and we’re going to do that in a way that is good for British jobs and British consumers.”Sir Keir Starmer has insisted he will not “choose” between Europe and America as he tries to balance the UK’s two key global relationships.Reeves is set to discuss trade issues with Scott Bessent, her US counterpart, in Washington on Friday, as the two countries move towards striking a possible trade deal.Downing Street on Friday attempted to clarify Reeves’ remarks, conscious of Donald Trump’s antipathy to the EU, which he has claimed was set up to “screw” the US. “The EU is our largest trading partner,” Number 10 said. “It is factually a matter of public record. Both have incredible importance to us. And we treat both with enormous respect.”The US accounted for 21.2 per cent of British exports in 2023, compared with 41.2 per cent for the EU, according to UK government figures.Reeves has made it clear in Washington this week that she is open to cutting British tariffs on US goods — including cars and agricultural products — to help secure a deal.But she is also pushing for an ambitious deal with the EU, including creating a youth visa scheme to promote travel and aligning with EU rules in areas such as agriculture to reduce trade barriers.Reeves and Starmer also want to negotiate more mutual recognition of professional qualifications, improved access to the EU for British touring musicians and a new energy partnership.Downing Street is softening up public opinion for the inclusion of a youth mobility visa scheme — which critics have said amounts to a form of free movement — to be included in the communique to be issued after the May 19 EU-UK summit in London.Starmer’s spokesman declined to rule out such a scheme, although he has ruled out a return to free movement. “We will not be defined by the debates and arguments of the past,” he said, adding that details would be hammered out over many months of negotiation.“The prime minister is clear that he will seize any opportunity to improve the lives of working people in the UK, drive growth and keep people safe,” Downing Street added.EU diplomats speak in glowing terms about Starmer’s 45-minute meeting with Ursula von der Leyen, European Commission president, on Thursday at which the summit was discussed. “Outstanding warmth, great body language, genuine pleasure of being together, full alignment of intents,” said one diplomat briefed on the encounter. “I think everything is gaining momentum.”In a sign of the shifting mood, Kristalina Georgieva, the IMF managing director, praised the improved dialogue between the UK and EU on Thursday.The former EU commissioner said: “When the divorcees — the EU and UK — are dating again, we are in a great place.”This prompted Reeves, who was speaking on the same IMF panel, to high-five her German counterpart Jörg Kukies, who was sitting next to her.The May 19 summit will see the agreement of a new EU-UK defence and security pact and will be accompanied by a communique setting out areas for further negotiation later in the year.People briefed on the plan say there will be a “package” of measures to be negotiated, including on youth mobility, food trade, energy, professional qualifications and arrangements for touring musicians.Both sides expect the existing fishing deal between Britain and the EU, due to be renewed next year, to be rolled over — perhaps for another two years — in order to head off a row with France and other coastal states.May 19 is seen by both sides as a “starting point” for haggling over the details of the package, including the structure of a youth mobility scheme and future fish quotas, with many trade-offs to be made along the way.Meanwhile, the National Farmers’ Union president Tom Bradshaw said the UK could not compromise its access to the EU market for the sake of a US trade deal. “If you look at the financial value of an EU deal, food exports to the EU are worth six or seven times what our food exports to the US are worth,” he told the Financial Times. Bradshaw said he had received assurances from the government that it would not sacrifice animal health and welfare standards for the sake of a deal with the US — echoing something Reeves said publicly earlier this week. “The ongoing EU negotiation helps us with that,” he said. “Because I think they are very concerned about the jeopardy that any US trade deal could bring to EU accessibility and an SPS [veterinary] agreement.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.If this week’s World Bank and IMF spring meetings were distilled into three core messages, they would probably be: low growth, high debt and unprecedented global upheaval. That is a difficult trio to overcome. Stimulating growth often requires a jolt of public investment or tax cuts. But the coffers of many advanced and developing economies are already stretched. With trade wars brewing, aid budgets shrinking and debt-restructuring talks stalling, global catalysts for growth and financing are also dwindling. Among the levers that remain for policymakers to boost economic activity and cut costs are some useful domestic reforms that also happen to be deeply unpopular. This includes rowing back government subsidies, raising state pension ages and enacting land and tax reforms. In the past, the IMF has been accused of being too “neoliberal” in recommending these remedies for member states struggling with weak growth and rising debt. They are, after all, easier said than done. Emerging and low-income countries spend 1.5 per cent of GDP on average on energy subsidies. Reducing these payments can free funds for investment and growth. But as protests in Kenya and Nigeria over recent years have demonstrated, removing them is not easy. Pension spending will also become unsustainable as life expectancies increase. That is unless legal retirement ages also go up. Tell that to middle-aged workers. Cutting red tape in planning systems can support a building boom, but new developments irk environmentalists and existing homeowners. What to do? An analysis of successful reforms in the IMF’s Fiscal Monitor, released on Wednesday, offers some clues. First, governments should avoid shock therapy: this can stoke mistrust and is harder for households and businesses to adjust to. Colombia, for instance, successfully managed to phase out petrol subsidies over a two-year schedule. Carefully targeted compensation mechanisms are also effective. In Australia, reforms in 2009 involving a phased increase in the pension age were balanced with a rise in old-age benefits, particularly for low-income retirees. The UK government is implementing a scheme for households near new or upgraded electricity grids to receive discounts on their energy bills.Beyond creatively designed policies, timing and communication matters. High-growth periods are good opportunities to pass difficult reforms, as they help to cushion their effects. Clarity over the trade-offs, and efforts to garner support across opposition groups and civil society organisations, also help. For instance, Uruguay has been able to steadily raise its retirement age, in part, by framing the adjustment as a way to sustain other benefits and finances. Last year Uruguayans even voted to reject a proposal to reduce the retirement age and raise pension payments. Alluding to wannabe reformist politicians in 2007, then prime minister of Luxembourg Jean-Claude Juncker is quoted saying: “We all know what to do, but we don’t know how to get re-elected once we have done it.” It is easy to empathise with the so-called “Juncker curse”. Enacting tough reforms is particularly difficult when governments lack political majorities. But it is, after all, their job to find a way. It is easier to find recent examples of politicians snubbing hard, long-term policies for low-hanging fruits, or denying trade-offs and engaging in political “cakeism”. But when governments have been bold, innovative and honest, growth-enhancing and debt-reducing reforms have been possible. Right now, for many economies, that is also looking like the surest path to prosperity. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.French jet engine maker Safran said China had granted tariff exemptions for imports of some aerospace parts, even as it warned that the constantly shifting tariff landscape made it difficult to measure the impact on its business.Chief executive Olivier Andriès said China had exempted “any deliveries of engines, nacelles [engine casings], landing gears or parts” from import taxes, adding that it was a sign of the fluidity of the situation. Safran was taking measures to mitigate tariffs, he said, but would “not be shy” about passing on some of the extra costs to customers. “This tariff situation is creating inflation, so we’re going to impose a surcharge to our customers,” he told reporters and analysts on Friday. Shares in the company rose almost 5 per cent on Friday morning after it posted better than expected results despite the tariff threat and as signs emerged that China and the US were weighing exemptions on some imports.The decision by China to exempt some parts is a sign of a possible easing of tension between the two countries. The aerospace industry relies on integrated global supply chains and is particularly exposed to the trade war launched by US President Donald Trump. Boeing this week said China had stopped taking deliveries of its jets as buyers balked at the higher costs from the country’s retaliatory tariffs of 125 per cent on US imports. Olivier Andriès said the tariff exemptions were ‘changing every week, sometimes every day’ More