Evelyn Reynolds

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

High home prices and current mortgage rates have created a chilling effect on the housing market, stymying aspiring first-time buyers and those looking to move.
Affordability has tumbled compared with just a few years ago, requiring people to shift expectations about what the path to homeownership looks like.
This adds to economic woes felt by the average person and challenges a key component of the American dream.

A home available for sale is shown on May 22, 2024 in Austin, Texas. 
Brandon Bell | Getty Images

When Rachel Burress moved into her mother’s house around a decade ago, it seemed like a short-term stop on the path to homeownership.
The 35-year-old hairdresser spent those years improving her credit score and saving for a down payment. But with mortgage rates hovering near 7% and home prices skyrocketing, it doesn’t feel like the mother of three will be signing on the dotted line for a place of her own anytime soon.

“I don’t even know if I’ll ever get out and own my own home,” said Burress, who lives about 20 miles outside of Fort Worth, Texas, in a town called Aledo. “It feels like we are just stuck, and it is so hard to handle.”
Burress’ experience is reflective of the millions of Americans who’ve seen their financial and personal lives hindered by elevated price tags and high borrowing costs for homes. This can help to explain the sour sentiment about the state of the national economy.
It also sheds light on an existential anxiety for many: The American dream seems to be even more out of reach these days.

A double whammy

For aspiring homebuyers such as Burress, the combination of high mortgage rates and rising list prices has left them feeling boxed out.
The 30-year mortgage rate, a popular option for home financing in the U.S., has bounced around 7% for the past several months. It pulled back after hitting 8% for the first time since 2000 late last year. But that’s still a big jump from the sub-3% levels seen in the early years of the pandemic — which prompted a flurry of sales and refinancing in the housing market.

On the other side of the equation, rising sticker prices are also adding pressure. The Case-Shiller national home price index has hit all-time highs this year. Zillow’s home value index topped $360,000 in May, a nearly 50% increase from the same month five years ago.
In turn, affordability is down sharply compared with a few years ago. An April reading on the economic feasibility of homeownership from the Atlanta Federal Reserve was more than 36% off the pandemic high registered in the summer of 2020.
Nationally, the share of income needed to own the median-priced home last came in above 43%, per the Atlanta Fed. Any percentage over 30% is considered unaffordable.

The Atlanta Fed also found that the negative effects of high rates and prices more than outweighed the benefits from growing incomes for the typical American. That underscores the strength of these detractors, given that the average hourly wage on a private payroll has climbed more than 25% between June of 2019 and 2024.

‘A tough spot’

This tough environment has chilled activity for potential buyers and sellers alike.
Theoretically, current homeowners should be excited to see their property values rising quickly. But the prospective sellers are deterred by concerns about what rate they’d get on their next home, creating what a team at the Federal Housing Finance Agency called the “lock-in effect.”
There’s already evidence of this stalling in the market: Rates at these levels resulted in more than 875,000 fewer home sales in 2023, according to the team behind a FHFA working paper released earlier this year. That’s a sizable chunk, as the National Association of Realtors reported around 4 million existing houses were sold in the year.
On top of that, the FHFA found that a homeowner is 18.1% less likely to sell for every 1 percentage point their mortgage rate is under the current level. The typical borrower had a mortgage rate that was more than 3 percentage points below what they would have gotten in the final quarter of 2023.
If a homeowner had instead bought at the end of last year, the FHFA team found that their monthly principal and interest payments would cost around $500 more.
Given this, co-author Jonah Coste said current owners touting these low mortgage rates are undoubtedly better off than those looking to buy a first home today. But he said there’s a big catch for this cohort: Moving for a job opportunity or to accommodate a growing family becomes much more complicated.
“They’re not able to optimize their housing for their new life situation,” Coste said of this group. “Or, in some extreme circumstances, they’re not doing the big life changes that would necessitate having to move.”
That’s the predicament Luke Nunley finds himself in. In late 2020, the 33-year-old health administrator bought a three-bed, two-bath house with his wife in Kentucky at an interest rate under 3%. This home has more than doubled in value in almost four years.
After welcoming three kids, they’re holding off on a fourth until mortgage rates or home prices come down enough to upsize. Nunley knows the days of getting a rate below 3% are long gone, but can’t justify anything above 5.5%.
“It’s just a tough spot to be in,” Nunley said. “We’d be losing so much money at current rates that it’s basically impossible for us to move.”

Most Americans skirt 7%

Nunley is part of the overwhelming majority of Americans not paying these lofty mortgages.
The FHFA found that nearly 98% of mortgages were fixed at a level below the average rate of around 7.2% in the final quarter of last year. Like Nunley’s, close to 69% had rates more than 3 percentage points lower.
The buying boom early in the pandemic is one answer for why so many people aren’t paying the going rate. This eye-popping figure can also be explained by the rush to refinance during that period of low borrowing costs in 2020 and 2021.
While these low mortgage rates can help to fatten the pocketbooks of those holding them, Jeffrey Roach, LPL Financial’s chief economist, warned that it can be bad news for monetary policymakers. That’s because it doesn’t offer signs of interest rate hikes from the Federal Reserve successfully cooling the economy.
To be clear, mortgage rates tend to follow the path of Fed-set interest levels, but they aren’t the same thing. Still, Roach said that so many people being locked into low borrowing rates on their homes helps explain why tighter monetary policy hasn’t felt as restrictive as it has historically.
“Our economy is a lot less interest-rate sensitive,” Roach said. “That means the high rates aren’t really doing what it should be doing. It’s not putting the brakes on, like you would normally expect.”
Low housing supply has kept prices up, even as elevated borrowing fees bite into purchasing power. That flies in the face of conventional wisdom, which suggests that prices should slide as rates rise.
Looking longer term, experts said an increase in the volume of new housing can help expand access and cool high prices. In particular, Daryl Fairweather, chief economist at housing market database Redfin, said the national market could benefit from more townhomes and condos that are usually less expensive than typical homes.

Townhouse for sale sign, Corcoran Realty, in driveway of row houses, Forest Hills, Queens, New York. 
Lindsey Nicholson | UCG | Universal Images Group | Getty Images

‘The ultimate goal’

For now, this new reality has created generational differences in homeownership and what the road to it looks like.
Zillow found that 34% of all mortgage holders received a financial gift or loan from family or friends for a down payment in 2019. In 2023, that number jumped to 43% as affordability plummeted.
It’s also much harder for young people to get on track for purchasing a home than it was for their parents, Zillow data shows. Today, it takes almost nine years to save 20% for a down payment using 10% of the median household income every month. In 2000, it required less than six years.
“It’s not the avocado toast,” said Skylar Olsen, Zillow’s chief economist, referencing a joke that millennials spend too much on luxuries like brunch or coffee.
Olsen said younger generations should adjust their expectations around ownership given the tougher environment. She said these Americans should expect to rent for longer into adulthood, or plan to attain their first home in part through extra income from renting out a room.
For everyday people like Burress, the housing market remains top of mind, as the Texan considers her financial standing and evaluates candidates in the November election. The hairdresser has continued helping her mom with payments on home insurance, utility bills and taxes in lieu of a formal rent.
Burress is still hoping to one day put that money toward an equity-building property of her own. But time and time again, unexpected expenses like a totaled car or macroeconomic variables such as rising mortgage rates have left her feeling like the dream is out of reach. 
“It is the ultimate goal for me and my family to get out of my mom’s house,” she said. But, “it feels like I’m on a hamster wheel.” More

After a yearlong inquiry, the Federal Trade Commission warned brands not to gag their small business operators or charge them extra fees.In the long-simmering conflict between franchisers and franchisees, the federal government has weighed in on behalf of the smaller guys.In a business relationship that has become fundamental to American commerce, franchisers — brands like McDonald’s and Jiffy Lube — license the right to operate their concept to individual entrepreneurs, who provide start-up capital and may own one location or many.On Friday, the Federal Trade Commission issued a policy statement and staff guidance that cautioned franchisers not to restrict their franchisees’ ability to speak to government officials or to tack on fees that weren’t disclosed in documents provided to prospective franchise buyers.In a news release, the commission said it was acting amid “growing concern about unfair and deceptive practices by franchisers — to ensure that the franchise business model remains a ladder of opportunity to owning a business for honest small business owners.”The agency has been scrutinizing the industry, which includes 800,000 business establishments, since issuing a request for information early last year that asked several questions about the franchisee-franchiser relationship. Around the same time, the Government Accountability Office issued a report finding that franchisees lacked control over crucial business decisions and that they often did not understand all the risks they faced before purchasing a license.Across the more than 2,200 comments posted in response to the F.T.C. request, a central theme emerged: A majority of franchisees wanted changes to the rules that governed the industry, while a majority of franchisers did not.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

Markets now firmly expect a September interest rate cut in the U.S., pricing in a 90% likelihood.
However, some risks cast a cloud over this rate-cut outlook, Carl Weinberg, chief economist at High Frequency Economics, told CNBC.
“Why would we want to tinker with what we have right now? Why would you want to cut rates under those circumstances?” Weinberg sad.

Jerome Powell, chairman of the US Federal Reserve, during a Senate Banking, Housing, and Urban Affairs Committee hearing in Washington, DC, US, on Tuesday, July 9, 2024.
Bloomberg | Bloomberg | Getty Images

Markets now firmly expect a September interest rate cut in the U.S., but the Federal Reserve has a strong reason to hold off, according to economist Carl Weinberg.
Money market pricing for a rate cut at the Fed’s fall meeting rose from around 70% to more than 90% on Thursday, according to LSEG data, after a softer-than-expected consumer price index print.

Fed Chair Jerome Powell had already bolstered expectations of such a move when he said earlier this week that there were risks in keeping interest rates too high for too long — comments interpreted as “modestly dovish” by analysts.
However, there are also risks to easing monetary policy that cast a cloud over the rate-cut outlook, Weinberg, chief economist at High Frequency Economics, told CNBC’s “Squawk Box Europe” on Friday.
“The Fed chair was very clear in his testimony this week … that inflation metrics and the economy in general are moving in the way that we kind of like,” Weinberg said.

That includes unemployment at around 4%, inflation moving toward 2% and the economy growing “roughly” at potential, he said.
“But [Powell] also implied, well, why would we want to change anything if the economy is at full employment, with inflation where we want it to be, and it’s growing nicely? Why would we want to tinker with what we have right now? Why would you want to cut rates under those circumstances?” Weinberg continued.

“There certainly is noise, buzz and data to support a rate cut at [the September] meeting. But there also is a cloud hanging over that decision.”
While a fall cut might look likely now, a lot can change between now and the Fed meeting on Sept. 18, Weinberg added.

Two more CPI prints are due before that date. The Fed next meets at the end of July, when markets have priced in only a 5% chance of a rate reduction.
Although U.S. inflation peaked lower than many other major economies over the last three years, it has also been slower to fall, leaving the Fed behind on the path of monetary easing.
The central banks of the euro zone, Switzerland, Sweden and Canada have all cut rates already this year, while the Bank of England’s August decision is seen on a knife edge. More

The producer price index is now up 2.6% year over year.
In June, an increase in the price for services offset a decline for goods.
The reading is an increase from the May number, which was also revised higher.

Cargo containers sit stacked on ships at the Port of Los Angeles, the nation’s busiest container port, in San Pedro, California, on Oct. 15, 2021.
Mario Tama | Getty Images News | Getty Images

A measure of wholesale prices rose more than expected in June as Wall Street assesses when the Federal Reserve will feel comfortable cutting interest rates.
The producer price index rose 0.2% last month, the Labor Department’s Bureau of Labor Statistics reported on Friday. Economists surveyed by Dow Jones were expecting a 0.1% increase for the index. PPI is now up 2.6% over the past year.

The PPI is a gauge of prices that producers can get for their goods and services in the open market. In June, an increase in the price for services offset a decline for goods.
The reading is an increase from the May number, which was also revised higher. Friday’s report said that the index was unchanged in May as compared to a decline of 0.2% in the original release.
The hotter-than-expected PPI reading runs counter to recent data that shows inflation declining, though economists and investors tend to put more weight on the consumer-focused inflation readings.
Friday’s report comes shortly after the June consumer price index came in cooler than expected on Thursday. The CPI actually showed that headline inflation declined on a monthly basis and now sits at 3% year over year.
The central bank’s next policy meeting is at the end of July, where it is widely expected to hold rates steady. Traders have increasingly dialed in on the September meeting as the likely time for the first rate cut.
The Fed’s preferred inflation reading is the personal consumption expenditure price index. The June PCE data is slated for release on July 26. More

Fiscal hawks are lamenting the transformation of the party that claimed to prize fiscal restraint and are warning of dire economic consequences.When Donald J. Trump ran for president in 2016, the official Republican platform called for imposing “firm caps on future debt” to “accelerate the repayment of the trillions we now owe.”When Mr. Trump sought a second term in 2020, the party’s platform pummeled Democrats for refusing to help Republicans rein in spending and proposed a constitutional requirement that the federal budget be balanced.Those ambitions were cast aside in the platform that the Republican Party unveiled this week ahead of its convention. Nowhere in the 16-page document do the words “debt” or “deficit” as they relate to the nation’s grim fiscal situation appear. The platform included only a glancing reference to slashing “wasteful” spending, a perennial Republican talking point.To budget hawks who have spent years warning that the United States is spending more than it can afford, the omissions signaled the completion of a Republican transformation from a party that once espoused fiscal restraint to one that is beholden to the ideology of Mr. Trump, who once billed himself the “king of debt.”“I am really shocked that the party that I grew up with is now a party that doesn’t think that debt and deficits matter,” said G. William Hoagland, the former top budget expert for Senate Republicans. “We’ve got a deficit deficiency syndrome going on in our party.”The U.S. national debt is approaching $35 trillion and is on pace to top $56 trillion over the next decade, according to the Congressional Budget Office. At that point, the United States would be spending about as much on interest payments to its lenders — $1.7 trillion — as it does on Medicare.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

The monthly inflation rate dipped in June, providing further cover for the Federal Reserve to start lowering interest rates later this year.
The consumer price index, a broad measure of costs for goods and services across the U.S. economy, declined 0.1% from May, putting the 12-month rate at 3%, around its lowest level in more than three years, the Labor Department reported Thursday. The all-items index rate fell from 3.3% in May, when it was flat on a monthly basis.

Excluding volatile food and energy costs, so-called core CPI increased 0.1 % monthly and 3.3% from a year ago, compared to respective forecasts for 0.2% and 3.4%, according to the report from the Bureau of Labor Statistics.
The annual increase for the core rate was the smallest since April 2021.
A 3.8% slide in gasoline prices held back inflation for the month, offsetting 0.2% increases in both food prices and shelter. Housing-related costs have been one of the most stubborn components of inflation and make up about one-third of the weighting in the CPI, so a pullback in the rate of increase is another positive sign.

Stock market futures rose following the release while Treasury yields tumbled.
In addition to the pullback in energy prices and the modest increase for shelter, used vehicle prices decreased 1.5% on the month and were down 10.1% from a year ago. The item was one of the main drivers in the initial surge in inflation back in 2021.
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