Evelyn Reynolds

Powell referenced the idea that central bank policy works with “long and variable lags” to explain why the Fed wouldn’t wait for its target to be hit.
The central bank is looking for “greater confidence” that inflation will return to the 2% level, Powell said.
The Fed’s next policy meeting is at the end of July.

Federal Reserve Chair Jerome Powell said Monday that the central bank will not wait until inflation hits 2% to cut interest rates.
Speaking at the Economic Club of Washington D.C., Powell referenced the idea that central bank policy works with “long and variable lags” to explain why the Fed wouldn’t wait for its target to be hit.

“The implication of that is that if you wait until inflation gets all the way down to 2%, you’ve probably waited too long, because the tightening that you’re doing, or the level of tightness that you have, is still having effects which will probably drive inflation below 2%,” Powell said.
Instead, the Fed is looking for “greater confidence” that inflation will return to the 2% level, Powell said.
“What increases that confidence in that is more good inflation data, and lately here we have been getting some of that,” he said.
Powell also said he thinks a “hard landing” for the U.S. economy was not “a likely scenario.”
Monday was Powell’s first public speaking appearance since the consumer price index report for June showed cooling inflation, with prices actually falling month over month.

Powell said at the beginning of his appearance that he was not intending to make any signals about when the Fed might start to cut interest rates. The central bank’s next policy meeting is at the end of July.
Powell made the remarks as part of a discussion with David Rubenstein, chairman of the Economic Club of Washington, D.C., and co-founder of The Carlyle Group, where the Fed chair previously worked.
The target range for the federal funds rate is currently 5.25% to 5.50%. That is up from a range of 0% to 0.25% during the Covid-19 pandemic, and a range of 1.50%-1.75% before that health crisis.
The federal funds rate influences, directly or indirectly, the cost of money throughout the economy, such as mortgage rates.
“People I don’t know will always say, ‘hey, cut rates.’ Somebody said that in the elevator this morning,” Powell said jokingly.

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Federal Reserve Chair Jerome Powell is set to address the Economic Club of Washington, D.C., on Monday as traders look for hints about when the central bank will cut interest rates. Powell will partake in a discussion with David Rubenstein, chairman of the Economic Club and co-founder of The Carlyle Group.

These will be Powell’s first remarks since Thursday’s consumer price index report, which showed that prices went down in June on a monthly basis.
Powell did deliver two days of testimony on Capitol Hill last week, where he said that the Fed viewed the risks between rising inflation and a slowing economy to be more balanced now. He also said the central bank did not need to wait for inflation to actually reach its 2% target before cutting rates.
The Federal Reserve has a policy meeting at the end of July, but a rate cut is seen unlikely at that time. Traders have instead focused on the September meeting as a potential cut. More

If Donald Trump were to become U.S. president again, there could be “profound implications” for the euro area’s economy, according to Goldman Sachs economists.
The euro zone’s gross domestic product could take a hit, while inflation could increase, they said in a research note.
Trade policy uncertainty, added defense and security pressures and spillover effects from U.S. domestic policies could affect Europe, the economists said.

Former US President Donald Trump during a campaign event at Trump National Doral Golf Club in Miami, Florida, US, on Tuesday, July 9, 2024.
Eva Marie Uzcategui | Bloomberg | Getty Images

With markets in recent weeks cranking up their bets that Donald Trump will win the presidential election, Goldman Sachs economists say that another term for the former U.S. leader could have “profound implications” for the euro area’s economy.
“Our baseline estimates point to a sizeable GDP [gross domestic product] hit of around 1% with a modest 0.1pp [percentage point] lift to inflation,” Goldman Sachs’ Jari Stehn and James Moberly said in a note published Friday before the Saturday assassination attempt.

“Trump’s re-election would thus pose a significant downside risk to our otherwise constructive growth forecast for the Euro area.”
Trade policy uncertainty, added defense and security pressures and spillover effects from U.S. domestic policies on, for example, taxes could impact Europe, they explained.
Trump says he was grazed by a bullet Saturday during an attempted assassination at a rally in Pennsylvania. The shooting left one attendee and the gunman dead, and two more attendees still in critical but stable condition.

Some analysts have suggested the events could boost Trump’s chances of taking back the White House in the U.S. election later this year, and certain assets have already rallied Monday with markets pricing in that possibility.
Even before Saturday, the likelihood of a second Trump presidency had risen following a poor performance from President Joe Biden in a presidential debate a few weeks ago. Goldman Sachs said in its note Friday that betting markets were assigning a probability of around 60% for a Trump win in November, with some reports over the weekend that this figure had risen again.

Trade tensions

Trump’s trade policy, and the uncertainty around it, could be one factor that impacts Europe’s economy, just as it did during his last presidency, analysts Stehn and Moberly said.
Trade tensions between the U.S. administration and the European Union surged during Trump’s last term. Tariffs on European steel and aluminum were introduced by the U.S., which led the EU to counter with duties on U.S. goods. There were months-long concerns about whether other sectors like autos would see higher duties which rattled market sentiment.
“Trump has pledged to impose an across-the-board 10% tariff on all U.S. imports (including from Europe), which would likely lead to a sharp increase in trade policy uncertainty, as it did in 2018-19,” the research note from the Wall Street bank said.

Such uncertainty historically has a significant, persistent impact on economic activity in the euro area, the economists explained. In 2018 and 2019, uncertainty about trade policy reduced industrial production in the euro area by around 2%, they estimated.
Some countries like Germany are expected to be more heavily impacted as they rely more on industrial production, according to Stehn and Moberly.
Trade tensions could also lead to the euro area’s gross domestic product (GDP) taking a hit, and while uncertainty about trade policy could see prices fall, higher tariffs could push them back up, according to the economists.

Defense and security pressures

Trump is also expected to lower, or entirely cut, U.S. aid for Ukraine and has suggested that he would not help the countries in the NATO military alliance that do not meet the 2% defense spending requirement.
Meeting both the 2% requirement and potentially making up for at least some of the U.S.’ financial support for Ukraine could impact Europe’s economy, according to Goldman Sachs.
“European countries could therefore be required to fund an additional 0.5% of GDP of defence spending per year during a second Trump term,” the research note said, adding that growth from additional military spending is set to be modest.
Geopolitical uncertainty and risks could also emerge as a result of Trump’s defense policy toward Europe, and his stance on NATO, particularly if it raises questions about how committed the U.S. is to the military alliance, Stehn and Moberly explained.

Spillover from domestic policies

The third way in which Trump’s policies could impact the euro area economy is through U.S. domestic plans, such as tax cuts and less regulation.

“U.S. macro policy shifts during the first Trump term entailed significant spillovers into Europe via stronger U.S. demand and tighter U.S. financial conditions,” Goldman Sachs economists said.
Anticipated tax cuts in the U.S. could boost economic activity in Europe — but paired with other expected market shifts, the overall impact is likely to be limited, according to Stehn and Moberly.
“The net financial spillover, however, would likely be muted as we would expect the effect of higher long-term rates to be offset by a notably weaker euro, consistent with the post-election moves in November 2016,” they said. More

The housing market looks far different than it did when the pandemic was just starting.
These charts help explain why.

Prospective home buyers leave a property for sale during an Open House in a neighborhood in Clarksburg, Maryland on September 3, 2023.
Roberto Schmidt | AFP | Getty Images

It’s no secret that the housing market looks far different than it did a few years ago.
While surging mortgage rates and housing prices have taken away consumers’ purchasing power, low supply has kept the market competitive. As a result, affordability has tumbled dramatically from the early days of the pandemic.

These six charts help explain what this unique moment looks like — and what it means for you:
The 30-year mortgage rate, a popular option for home buyers utilizing financing, is key to understanding the market. This rate is essentially the borrowing costs tied to purchasing a home with financing. A higher rate, in reality, results in more interest due on a home loan.
For the past several months, this rate has hovered around the 7% level. While it has cooled after touching 8% late last year, it’s still far higher the sub-3% rates consumers could lock in during the first years of the pandemic.

Housing prices are also central to the equation for everyday Americans decision how much, or if, they can afford to spend. The Case-Shiller national home price index, which is calculated by S&P Dow Jones Indices, has notched record highs this year.
High prices can elicit different feelings by group. For hopeful homeowners, it can raise red flags that they are planning to buy at the wrong time. But current owners can see reason to celebrate, as it likely means their own property’s value has risen.

With both mortgages and prices up, it’s not surprising that affordability is down compared with the early innings of the pandemic.
There’s a few different readings of affordability painting a similar picture. One from the National Association of Realtors found affordability tumbled more than 33% between 2021 and 2023 alone.

The Atlanta Federal Reserve’s gauge showed the economic feasibility of home ownership plummeted more than 36% when comparing April to the pandemic high seen in summer 2020.
Another way the Atlanta Fed tracks this is through the share of income needed by the typical American to afford the median home. Nationally, it last required 43% of their pay, well above the 30% marker considered the threshold for affordability. It has been considered unaffordable, or above 30%, since mid 2021.

The Atlanta Fed also breaks out what’s driving the current lack of affordability. While significant pay increases in recent years have helped line wallets, the bank found that the negative impact of higher rates and list prices have more than outweighed the benefits of a bigger paycheck.

While the current mortgage rates are high, a team at the Federal Housing Finance Agency found a very small proportion of borrowers are actually locked in at these lofty levels.
Just shy of 98% of mortgages were below the average rate seen in the fourth quarter of last year, the FHFA found. Nearly 69% had a rate that was a whopping 3 percentage points below that average.
There’s two major reasons for why such a small share are paying current rates. The most obvious is that the housing market got hot when rates were low, but cooled significantly in the current period of higher borrowing costs.
The other answer is the race to refinance when rates were below or near 3% early in the pandemic. That allowed people who were already homeowners to take advantage of these relatively low levels. More