Economy

(Reuters) – Federal Reserve Governor Adriana Kugler said on Friday the U.S. central bank is uncertain about what the economy will deliver in 2025 and will let upcoming economic data drive the course of monetary policy.In light of Fed forecasts last month for fewer interest rate cuts in 2025, “there is a view that we can take our time, to slow down” and be more “gradual” while watching the data to see if sticky inflation pressures start to ease again, Kugler said in a CNBC interview. If the resilient job market starts to lose steam, however, “we would be ready to act in a different direction” with monetary policy, she said. “We’re always responding” to what happens in the economy “and seeing what is happening in front of us,” the official added.In the interview, the central banker said the economy is in a good place and while the job market has cooled, it remains resilient with a still historically low unemployment rate.Asked how she expects the policies of the incoming Trump administration to affect the economy, Kugler noted there are many moving pieces, making it hard to say how things will play out.Kugler’s comments on TV were her first public remarks since the central bank’s most recent policy meeting, and were among the first made by a central banker as 2025 begins. At the Fed’s mid-December Federal Open Market Committee meeting, officials lowered by a quarter percentage point their interest rate target range to between 4.25% and 4.5%. At the meeting, policymakers pulled back on rate cut estimates in 2025 while raising projections of where inflation would stand.For some, the change in outlook called into question why the Fed had cut rates at all given how long officials expect it will be before they hit their 2% inflation target. The new year brings considerable uncertainty for the Fed with the return of Donald Trump to the presidency. The president-elect campaigned on a platform of heavy trade tariffs and deportations, which most economists believe is a recipe to reignite inflation. But officials have been cautious in reacting to the election outcome given a lack of details on what will be implemented and how.”There is a wide set of scenarios and I think everybody’s considering that wide set of scenarios,” Kugler said. Earlier on Friday, Richmond Fed President Thomas Barkin said that since tariffs could be implemented in many ways, “uncertainty should come down as policies are finalized, although it’s easy to imagine an extended period of back and forth” as elected leaders hash out the policy agenda. “I see more risk on the inflation side,” Barkin added, while noting the Fed is “well-positioned” on the policy front for whatever the economy sends its way.She signaled a reluctance to further ease policy. “I put myself in the camp of wanting to stay restrictive for longer as opposed to the other school, which would be ‘we’re done, so why not take rates down to neutral,'” she said. More

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WASHINGTON (Reuters) – A U.S. bank regulator told banks to pause dabbling directly in crypto in 2022 and 2023, but did not order them to stop providing banking services to crypto companies contrary to industry complaints of widespread “debanking,” according to documents released on Friday. A judge ordered the Federal Deposit Insurance Corporation to provide versions of supervisory “pause letters” it sent to unidentified banks after History Associates Incorporated, a research firm hired by crypto exchange Coinbase (NASDAQ:COIN), sued the agency to release them.The FDIC first released the letters in December but was ordered by the judge to resubmit them with more “nuanced redactions.” The new batch of 25 letters includes two additional letters sent to unidentified banks that were not included in the original FDIC submission.The litigation is part of a campaign by Coinbase to expose what it and other crypto companies say has been a concerted effort on the part of U.S. bank supervisors to choke off crypto companies from the traditional financial system.Coinbase’s chief legal officer, Paul Grewel, said in a post on X Friday that the less redacted letters show a “coordinated effort to stop a wide variety of crypto activity” and called for further investigation by Congress.In a bid to combat those claims, the FDIC also on Friday published a 2022 internal memo detailing how supervisors should assess queries from lenders looking to directly deal in crypto assets, versus offering banking services to crypto companies. Together, the documents provide a rare glimpse into the confidential bank supervisory process. They suggest that while FDIC examiners have been cautious towards the crypto sector, which has been beset by scams, bankruptcies and volatility, they did not order banks to entirely cut off the crypto sector. The documents are being released weeks before President-elect Donald Trump’s incoming administration is expected to outline a broad crypto policy overhaul. Trump is expected to issue an executive order directing bank regulators to go easier on the sector, potentially as early as his Jan. 20 inauguration.Several of the FDIC letters show staff directed banks to either pause entering crypto initiatives or refrain from further expanding client crypto services. In others, the FDIC required banks to answer detailed questions before proceeding further with crypto ventures. The internal memo, meanwhile, distinguishes between a bank engaging directly in crypto activities, like holding crypto assets in custody, and offering traditional banking services for crypto clients, like lending and providing deposit accounts. The first category requires stricter scrutiny, it says.The memo echoes comments made in December by FDIC Chairman Martin Gruenberg, who told reporters the agency does not “debank” crypto firms in terms of access to bank accounts, but direct crypto engagement by banks is a “subject of supervisory attention.””Crypto-related activities may pose significant safety and soundness and consumer protection risks, as well as financial stability concerns,” the memo notes, adding such risks are still “evolving.” More

BALTIMORE (Reuters) -The U.S. central bank’s benchmark policy rate should stay restrictive until it is more certain that inflation is returning to its 2% target, Richmond Federal Reserve President Thomas Barkin said on Friday.”I think there is more upside risk than downside risk” to inflation, given the economy’s continued strength and the possibility of renewed wage and other price pressures, Barkin told the Maryland Bankers Association in Baltimore. “I put myself in the camp of wanting to stay restrictive for longer as opposed to the other school, which would be ‘we’re done, so why not take rates down to neutral.'”Though Barkin is not a voting member of the Fed’s rate-setting committee this year, his comments reflect a developing debate inside the central bank about when to cut interest rates again and how to account for an increasingly uncertain economic environment as President-elect Donald Trump prepares to take power again later this month.Barkin anticipates a generally positive economic outlook for the coming year, with consumer spending likely to remain strong and businesses generally optimistic about what they see as pro-business tax and regulatory policies from the new administration. Heightened price sensitivity among consumers, meanwhile, should keep inflation in check and declining towards the Fed’s target, Barkin said.The impact of Trump’s trade and immigration policies, however, could also add to price and wage pressures, while the economy’s overall strength holds risks as well that inflation may remain elevated. “How economic policy uncertainty resolves will matter. But, with what we know today, I expect more upside than downside in terms of growth,” Barkin said, with potentially “more risk on the inflation side” if, for example, hiring strengthens.With businesses optimistic and consumers still spending, Barkin said he felt the job market “is more likely to break toward hiring than toward firing.”INFLATION UNCERTAINTYThe Fed cut its benchmark policy rate by a quarter of a percentage point at its meeting last month, and lowered it a full percentage point over its final three meetings of 2024.But one key measure of inflation, the Personal Consumption Expenditures Price Index excluding food and energy, was at 2.8% in November and has been stuck in the 2.6%-2.8% range since May. Trump’s victory in the Nov. 5 U.S. presidential election has thrown further doubt around the upcoming path of prices, with his threat to impose higher tariffs on imports and tighten immigration controls possibly adding to costs that businesses may try to pass through to consumers. Fed policymakers in December projected the benchmark rate would fall only another half of a percentage point this year, and investors largely expect the central bank to hold its policy rate in the current 4.25%-4.50% range at its Jan. 28-29 meeting.The case for further reductions, Barkin said, would hinge on “real confidence that inflation has stably gotten down to the 2% target … The second would be a significant weakening on the demand side of the economy.” More

SINGAPORE/LONDON (Reuters) -The dollar dipped but stayed close to a two-year high against a group of peers on Friday on investor bets the gap between growth in the U.S. and elsewhere will widen, while Chinese blue chips suffered their biggest weekly fall since 2022. The dollar index, which tracks the currency against a basket of six other currencies, hit its highest since November 2022 on Thursday, as the euro fell to $1.02248 also its lowest since 2022. The pound and Japanese yen were at multi-month lows too.While other currencies did manage to rebound a touch on Friday – the euro was last up 0.3% at $1.0297 – the dollar’s continued strength dominated the market mood. [FRX/] “If a currency’s valuation is an expression of the degree of confidence in the growth outlook relative to other economies, it is a damning assessment of how the market reads the euro zone outlook versus that of the U.S. in 2025,” said Kenneth Broux, head of corporate research FX and rates at Societe Generale (OTC:SCGLY). The U.S. currency rallied late last year as investors bet President-elect Donald Trump’s policies would drive growth and inflation, meaning fewer further rate cuts from the Federal Reserve and higher yields on U.S. Treasuries, when European central banks are set to keep cutting rates. While U.S. Treasuries yields have come off their late December highs – the benchmark 10-year Treasury yield was last at 4.543%, down 3 basis points on the day – the dollar has kept climbing on growth concerns elsewhere. [US/] “Aside from the implications of expected U.S. protectionism under Trump, we think pressure is being added by the rise in (gas prices) caused by Ukraine’s pipeline shutdown,” said Francesco Pesole, currency analyst at ING. Wholesale gas prices in Europe are around their highest in 14 months, with temperatures falling, lower levels of gas in storage and the expiry of a decades-long deal for Russia to supply gas to Europe via Ukraine. [EU/NG] That is an added headwind for European stocks, which were down 0.26% on Friday, reversing gains from the previous day, though oil and gas shares gained 0.9%. Friday’s fall in European stocks was in part a catch-up with a late decline on Thursday in the U.S., where benchmarks ended broadly lower. Shares of Tesla (NASDAQ:TSLA) sank 6.1% after the company reported its first annual drop in deliveries. [.N] S&P and Nasdaq futures were both up around 0.3% on Friday however. CHINA WORRIES Growth concerns in China are also near the top of investors’ minds. The country’s blue chip index shed 5.2% this week, its biggest weekly loss since October 2022.[.SS] In addition, China’s yuan slid past the 7.3 per dollar technical threshold to a 14-month low, on a confluence of crumbling Chinese yields, rate cut expectations in the face of a strong U.S. dollar and the threat of tariffs from the incoming Trump administration. [CNY/]The fall in yields, as investors seek the safety of government bonds, has been steep. Ten-year and 30-year Chinese government bond yields each weakened around 3 basis points to touch record lows. An announcement from China that it will sharply increase funding from ultra-long treasury bonds in 2025 to spur business investment and consumer-boosting initiatives, did little to boost the mood. Despite political turmoil in South Korea, shares there rose after five sessions of declines, as the country’s finance minister, who was last month appointed acting president, said he remained committed to stabilising the country’s financial markets. (KS) In commodities, Brent crude oil futures eased marginally to $75.86 a barrel and U.S. crude was steady at $73.09. [O/R] Gold also held firm at $2,655 per ounce, after a 27% rise in 2024, its strongest annual performance since 2010. [GOL/] More

SINGAPORE (Reuters) -The dollar was on track for its strongest weekly performance since early December on Friday, propped up by expectations that the U.S. economy will continue to outperform its peers globally this year and U.S. interest rates will stay elevated for longer.The greenback began the new year on a strong note, reaching a more than two-year high of 109.54 against a basket of currencies on Thursday as it extended a stellar rally from last year.A more hawkish Fed and a resilient U.S. economy have led U.S. Treasury yields to rise, prompting the dollar to charge higher.Coupled with expectations that policies by U.S. President-elect Donald Trump will boost growth this year and potentially add to price pressures, the dollar now looks relentless.”Looks like dollar strength is here to stay for now in early 2025 given the U.S. exceptionalism story is here to stay, and it still comes with high U.S. yields,” said Charu Chanana, chief investment strategist at Saxo.”Add to that the uncertainty from policies of the incoming (Donald) Trump administration, and you also get the safety aspect of the dollar looking attractive.”Uncertainties over how Trump’s plans for hefty import tariffs, tax cuts and immigration restrictions will affect global markets has in turn given the greenback additional safe haven support.Jobless claims data on Thursday confirmed a resilient U.S. labour market, with the number of Americans filing new applications for unemployment benefits dropping to an eight-month low last week. The dollar index last stood at 109, down 0.2% on the day, but on track for a weekly gain of just under 1%, its strongest since early December.Other currencies attempted to rebound against the firm dollar on Friday, still tracking steep losses on the week.The euro was last up 0.28% at $1.02950 but was headed for a 1.3% weekly decline, its worst since November.The common currency was among the biggest losers against a towering dollar, having tumbled 0.86% in the previous session to a more than two-year low of $1.022475.Traders are pricing in more than 100 basis points worth of rate cuts from the European Central Bank next year, while they expect just about 45 bps of easing from the Fed.Uncertainties around trade policies of the incoming Trump administration are also weighing on the outlook for the euro looking ahead, along with China’s yuan and some other emerging market currencies.”We expect Trump’s policy mix to trigger further dollar strengthening, with European currencies – and the euro in particular – coming under pressure from protectionism and monetary easing,” said ING analysts in a note.Similarly, sterling ticked up 0.22% to $1.24065, after sliding 1.16% on Thursday. It was on track to lose roughly 1.4% for the week.Elsewhere, the yen rose around 0.24% to 157.085 per dollar, but was not far from an over five-month low of 158.09 per dollar hit in December.The Japanese currency has been a victim of the stark interest rate differential between the U.S. and Japan for over two years now, with the Bank of Japan’s caution over further rate increases spelling more pain for the yen.The yen tumbled more than 10% in 2024, extending its losses into a fourth straight year.China’s onshore yuan hit its weakest level in over a year at 7.3190 per dollar, as falling yields and expectations of more domestic rate cuts continued to weigh on the currency. More

To address overcapacity in Italy, the group has relied heavily on state-funded temporary layoff schemes. Stellantis in December presented a plan to boost production, but an increase is only expected from 2026 thanks to the launch of new models.The FIM-CISL union said Stellantis, which was created in 2021 from the merger of Fiat (BIT:STLAM) Chrysler and France’s PSA-Peugeot, last year manufactured 475,090 vehicles in Italy, down from 751,384 in 2023.Production of cars in particular shrank by 46% to the lowest since 1956, while output of new commercial vehicles fell 17%.Stellantis was not immediately available for comment.Like its European peers, the world’s fourth-largest car maker is wrestling with weak demand, especially for fully electric vehicles, regulatory uncertainty and tough Chinese competition.FIM-CISL said it would join a protest planned in Brussels by labour organisation IndustriALL Europe on Feb. 5, two weeks before the European Commission presents its “clean industrial deal”.The union’s leader Ferdinando Uliano said it was important to review EU targets for vehicles’ carbon emissions reduction due to kick in from 2025.”This is a battle for Europe,” Uliano said, speaking about the crisis facing the European car industry. “Single countries can only lose.”Stellantis operates five car plants in Italy plus a facility for commercial vehicles.Production at the group’s Mirafiori plant in Turin fell by 70% last year. Only the Maserati plant in Modena, the heart of Italy’s ‘motor valley’, performed worse with a 79% drop.”We are very worried about Maserati,” Uliano said. “We expect quickly a clear and detailed project for Maserati.”Stellantis in December pledged to invest 2 billion euros ($2.1 billion) in Italy in 2025 to produce new models at some of its plants in the country.($1 = 0.9709 euros) More

VIENNA (Reuters) – A small liberal party on Friday unexpectedly quit coalition talks on forming a new Austrian government, throwing into disarray negotiations that had sidelined the far-right Freedom Party (FPO) even though it won September’s national election.The shock move by the Neos party raises serious doubts about the process of forming the next government, and buoyed the eurosceptic, Russia-friendly FPO, which has been waiting in the wings since being shut out of the coalition talks.Opinion polls show FPO support has grown since it secured roughly 29% of the vote in the Sept. 29 election. It has slammed the talks between the second, third and fourth-placed parties as an undemocratic attempt to create a “coalition of losers”.”We, Neos, will not continue negotiations on a possible three-party coalition,” its leader, Beate Meinl-Reisinger, told a hastily convened news conference in which she accused her interlocutors of lacking the courage to take tough decisions.She said the talks with Chancellor Karl Nehammer’s conservative People’s Party (OVP) and the Social Democrats (SPO) had not made enough progress to be worth pursuing. Neos has pressed for lower taxes and structural reforms, including unpopular ideas like raising the retirement age.The rise of the far right has made it harder to form stable governments in several countries, including Germany and France. Austria has not had a three-party government since 1949.FRAGILE TWO-PARTY GOVERNMENT?Meinl-Reisinger said her party was still prepared to throw its support in parliament behind measures already agreed on in the coalition talks, hinting at the possibility that the SPO and OVP could form what would be a fragile two-way coalition.Together the two parties have a one-seat majority in the lower house. Without some extra backing, the tiny margin is widely seen as impractical because a single lawmaker’s absence could tip the balance.”We’re not saying no to responsibility for Austria. We’re not saying no to reforms. We’re not saying no to the compromises that have already been reached,” said Meinl-Reisinger.Spokespeople for the OVP and SPO were not immediately available for comment on how the talks might now proceed.While some in the OVP support working with the FPO, Nehammer has ruled out governing with FPO leader Herbert Kickl, who in turn insists he should lead any government involving his party.The only other party in parliament which could join the coalition talks is the Greens, Nehammer’s current coalition partner, but the two parties have had a fraught relationship.A snap election is possible but is not in the interests of the OVP or SPO as polls suggest they would fare worse than before, with the FPO now leading both by more than 10 percentage points.The FPO wasted no time in attacking Nehammer and comparing his talks with the so-called “traffic-light coalition” in neighbouring Germany that recently collapsed.”The FPO has been warning for months about this political monstrosity of the loser-traffic-light coalition based on the German model,” the FPO said on X. “People have had enough! It’s time for you to resign, Mr Nehammer.” More