Economy

“[A]t present I lean toward supporting a cut to the policy rate at our December meeting. But that decision will depend on whether data that we will receive before then surprises to the upside and alters my forecast for the path of inflation,” Waller said in prepared remarks at a conference on the Fed’s framework review in Washington sponsored by the American Institute for Economic Research.The Fed governor acknowledged signs of stalling inflation, but said there was “no indication that the pace of price increases for key service categories such as housing and non market services should remain at their current levels or increase.”Still, the decision to back a rate cut at the Dec. 17-18 meeting would “depend on whether data that we will receive before then surprises to the upside and alters my forecast for the path of inflation.”Looking ahead to data later this week included the nonfarm payrolls report due Friday, the Fed governor said he expected to see a rebound in job gains for November.Following the hurricane-related hit to job gains in October, Waller said he expects to see a “rebound” in the November employment report.If the incoming data between today and the next meeting, however, “surprisingly suggests our forecast of slowing inflation and a moderating the still solid economy are wrong, then I’ll be supportive of holding the policy [rate],” Waller addded.  More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldThe Canadian province of Ontario has launched a multimillion-dollar advertising campaign promoting economic and cultural links with the US in an effort to counter president-elect Donald Trump’s threat to impose 25 per cent tariffs on all goods from Canada.With grainy second world war pictures, footage of Niagara Falls and images of numerous bridges between the province and the US, the 60-second ad reminds Americans how Ontario is their third-largest trading partner and the top export destination for 17 states.“For generations, this ally to the north has been by your side: Ontario, Canada, a partner connected by shared history, shared values and a shared vision for what we can achieve together,” the ad states.Although the US has a free trade agreement with Canada, as well as Mexico, Trump accused the two countries of permitting illegal migration and drug trafficking across their borders, saying that he would impose 25 per cent tariffs “on ALL products coming into the United States”. With C$3.6bn (US$2.6bn) in goods and services crossing the border daily — $1bn of this to and from Ontario — a 25 per cent tariff would have devastating consequences for both countries, said Daniel Tisch, chief executive of the Ontario Chamber of Commerce.Show video info“It would disrupt supply chains, drive up manufacturing costs, reduce exports, erode investor confidence and fuel job losses, particularly in Ontario and the border states,” he said.Ontario has a population of about 16mn people and is a hub for manufacturing, agriculture, technology and innovation. The province is also home to Canada’s automotive industry which is deeply integrated with the US market. Its trade with the US was worth C$493bn in 2023.The province’s premier, Doug Ford, has been one of Canada’s most outspoken leaders on relations with the US since Trump won the presidential election.He urged the federal government in Ottawa to negotiate a bilateral trade agreement with the US that cuts out Mexico, which he described as a “backdoor” for China into North America.Ford last week said: “For months, Ontario has been pushing the federal government to show that Canada understands, cares and is responsive to US security and economic concerns, including by urging them to match US tariffs on China.”Prime Minister Justin Trudeau on Friday evening flew to Florida to meet Trump at his Mar a Lago resort in an effort to head off the tariffs.Following the meeting Trump said in a Truth Social post that the leaders discussed the flow of fentanyl and illegal immigrants across the southern US border, as well as energy, the Arctic, “Fair Trade Deals that do not jeopardise American Workers, and the massive Trade Deficit the US has with Canada”.Ford’s spokesperson said the province’s ad is set to air this month on various US online streaming services, including Fox News platforms, and will run into the new year ahead of Trump’s January 20 inauguration. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldDonald Trump says tariff is a “beautiful word”. But he also prides himself on being a dealmaker. So the EU approach to the president-elect’s tariff threats suggested by European Central Bank president Christine Lagarde in an FT interview — “not to retaliate, but to negotiate” — makes sense, at least initially. Any EU offer to buy more US goods to head off a rancorous trade war should, though, be backed up by the understanding that the bloc is ready to retaliate robustly if the returning president does opt for punitive tariffs. Trump would surely seize on anything less as a sign of weakness.The trade threat was amplified when Trump last week pledged day-one tariffs on Canada and Mexico and additional duties on China — highlighting a willingness to blow up supply chains even with America’s biggest trading partners. On Saturday, he threatened tariffs of 100 per cent on Brics countries if they undermined the dollar. But tariffs appear as much a negotiating tool as an ideological goal. Managing trade with the Trump’s US is set to be a central task of the new European Commission, whose term officially began on Sunday — particularly given the EU’s sizeable trade surplus with the US. Brussels has already floated buying more US energy, military and agricultural goods as a concession. Importing more US liquefied natural gas would help the EU finally to ban remaining Russian LNG imports. Europe will need US-made weaponry, too, if it is to shoulder more of the burden of defending Ukraine. This approach neatly targets two Trump priorities at once: the EU can say it is bolstering its energy and military security while helping US producers.But the European Commission is right to keep a stick to hand as well as carrots, with plans to hit back if Trump plumps for tariffs. It is understood to have drawn up retaliatory duties that would particularly hit Republican-led US states. Indeed, EU duties on bourbon whiskey, power boats and motorcycles, imposed in 2018 after Trump introduced tariffs on steel and aluminium imports from the EU and elsewhere, are currently suspended until March. These could provide a bargaining chip — though Trump seems to care relatively little about hits to the US real economy from his arm-twisting on trade. Maintaining EU unity over its response will be vital given the temptation for member states to seek US favours to protect their own interests. To improve the chances of the global trading system weathering the Trump storm, Brussels should also try to ensure any deal with the US — and response to potential “collateral” damage from Chinese imports diverted from the US — does not ride roughshod over trade laws. The 2018 package offered by then commission president Jean-Claude Juncker that fended off US tariffs on EU car exports, which Brussels’ approach today partly echoes, bent some internal EU rules, but was not a terrible abrogation of WTO law.There are already inevitable calls — including from new European Commission vice-president Stéphane Séjourné — for a “Europe first” strategy for key business sectors. Certainly, if Trump does increase US tariffs on Chinese goods, the EU is likely to face tricky talks with Beijing on limiting a flood of Chinese exports, similar to western talks with Japan in the 1980s, or have to restrict them — with likely knock-on effects on its own exports to China.Though the EU punches below its weight geopolitically, on trade it has a credible record of trying to uphold the rules-based order. Onerous trade-offs lie ahead. But even as it seeks to defend Europe’s economic interests, Brussels should do all it can to remain a positive force on trade, rather than being sucked into the vortex of an all-out trade war. More

WASHINGTON (Reuters) – The Democratic-led U.S. Senate and Republican House of Representatives return this week for a showdown over government spending, disaster relief and defense policy before President-elect Donald Trump ushers in a new era of single-party rule next month.The main challenge for lawmakers over the next three weeks is to avert a pre-Christmas partial government shutdown by striking a bipartisan deal to fund federal agencies beyond Dec. 20, when a current stopgap spending measure is due to expire.The debate will include a nearly $100 billion emergency disaster relief request from President Joe Biden for areas of the U.S. Southeast hit by hurricanes Helene and Milton, and other communities struck by natural disasters. Congress also faces a Jan. 1 deadline for raising the federal government’s debt ceiling, though lawmakers and aides say that extraordinary measures employed by the Treasury Department are likely to postpone the expected “X” date for default well into 2025.Senate Democrats, who are entering their final days in the majority, and some Republicans hope to enact an omnibus package of annual spending bills that would fund the government through fiscal year 2025, which ends on Sept. 30, rather than a shorter-term continuing resolution, or “CR.””I still hold out this hope that we could avoid a CR,” Senator Susan Collins, top Republican on the Senate Appropriations Committee, said before lawmakers left town ahead of the U.S. Thanksgiving holiday. But Trump’s allies are pushing for a three-month stopgap that supporters say would allow their party’s incoming political trifecta to dismantle current Democratic spending initiatives and policy priorities early in the new administration.”We’ve made omnibus spending bills painful to vote for (keep eyes on the Senate) … now we must kill the practice,” Representative Chip Roy, a leading hardline conservative, said on social media last week. The House isn’t expected to begin serious work on government funding until the last of the session’s three weeks, with Speaker Mike Johnson expressing support for a continuing resolution that would run into early next year.That strategy also poses risks for Johnson’s slim 220-213 Republican majority, which failed to pass its own partisan stop-gap measure in September and had to rely on mainly Democratic votes to narrowly avert a shutdown weeks before the Nov. 5 election.FIRST 100 DAYSThis time, Republicans aim to display greater unity ahead of gaining full control over fiscal 2025 funding early next year. But the stopgap approach will also drain time and energy away from Trump’s ambitious first-100-days agenda of tax cuts, energy deregulation and border security.House Republicans will have a similarly narrow majority next year and could see their margin of error shrink to a single seat for several months, with the departure of Matt Gaetz and two other Republicans who are set to join the Trump administration.The 100-day agenda of Trump’s first presidency ran aground in 2017 over a similar funding question, forcing him to withdraw his controversial plan to finance a wall along the U.S.-Mexico border to avoid a government shutdown that April.But Republicans believe they can enact Trump’s agenda this time.”There’s no daylight between their agenda and what they envision and what we envision for the House,” said Johnson, who has been in close contact with Trump.Trump’s transition team did not respond to a request for comment. The CR strategy could help Johnson avoid the drawn-out January fight over the speakership Republicans experienced two years ago, as far-right members of the House Freedom Caucus like Roy vehemently oppose an omnibus spending package. Hardline Republicans have been angered by Johnson’s willingness to work with Democratic Senate Majority Leader Chuck Schumer on spending in the past.Top lawmakers have yet to say how they intend to handle a Biden request for emergency disaster relief.The head of the Small Business Administration recently testified to Congress that the agency’s disaster loan program for homeowners, renters, and businesses ran out of money in October, leaving more than 60,000 loan applicants waiting for assistance. “People are desperate for answers, and help, and hope, and they are looking to Congress for action,” said Senator Patty Murray, Democratic chair of the Senate Appropriations Committee, “Everyday we don’t act, the costs grow.”Aides said a disaster relief package would likely be attached to a CR.But the first objective for Congress this month is likely to be passage of the National Defense Authorization Act, or NDAA, annual legislation that sets policy for the Defense Department, according to congressional aides. Floor votes could come as early as next week, according to aides. More

PARIS (Reuters) – French Prime Minister Michel Barnier on Monday made another major concession to Marine Le Pen’s far-right National Rally party, dropping planned cuts to medication reimbursements in a last-minute bid to get his 2025 budget bill over the line.It was not immediately clear if that would be enough to save his fragile coalition from being toppled this week, with an RN spokesman telling Reuters there were other key demands ahead of a crunch parliamentary vote at 3:00 p.m. (1400 GMT).”It’s a good thing, undoubtedly,” Philippe Ballard said of Barnier’s latest move to yield to his party’s demands. “But there are other” demands, he said, referring to the fact that Marine Le Pen’s party wants Barnier to raise pensions in line with inflation.RN leaders were meeting ahead of the parliament’s vote on the social security part of the budget to decide its stance, he said.It is at least the third time Barnier has given in to RN demands after he scrapped an electricity price hike worth some 3 billion euros last week and agreed to reduce free medical help to illegal migrants.French stocks rose on the news of his latest concession on medication.Barnier’s struggles to get the 2025 budget through a deeply divided parliament threaten to plunge the euro zone’s second-biggest economy into its second political crisis in six months, underlining the instability that has taken hold in capitals across the EU. Ever since its constitution in September, Barnier’s minority government has relied on RN support for its survival. The budget bill, which seeks to rein in France’s spiraling public deficit through 60 billion euros ($63 billion) in tax hikes and spending cuts, may snap that tenuous link.NO CONFIDENCE?On Monday afternoon, parliamentarians are due to vote on a key component of the budget, the social security financing bill.Without the necessary votes to pass the social security bill, Barnier may invoke article 49.3 of the constitution, which would enable him to get the measure adopted without a vote. It also triggers a no-confidence motion, however, that the RN and the left could use to topple his government as soon as Wednesday. No French government has been forced out by such a vote since 1962.Alternatively, Barnier could choose to roll the dice and let the vote go ahead. If the bill is rejected, it would go back to the Senate for more alterations. However, parties can also table a no-confidence vote even if Barnier avoids the 49.3 this time.The budget bill has proven to be kryptonite for Barnier, who must please a fragmented parliament, while also keeping onside nervous investors with plans to cut the deficit to 5% of economic output in 2025 from over 6% this year. A move to bring down the government would not be without risks for the RN, which has moved from the fringes to the mainstream in recent years and is eager to show it is a government in waiting. Gabriel Attal, Barnier’s predecessor as prime minister and now head of Macron’s lawmakers in the National Assembly, urged the RN and the left to back-away from the no-confidence motion.”Instability is a slow poison, which will gradually attack our economic attractiveness, our financial credibility, and the confidence, already undermined, that the French have in their institutions,” he wrote on X. More

This article is an on-site version of our Trade Secrets newsletter. Premium subscribers can sign up here to get the newsletter delivered every Monday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersWe’re asked to use the term “scrambling” sparingly at the FT, as it suggests a degree of physical panic not always appropriate to the modest bureaucratic and corporate manoeuvres we mainly write about. But Canadian Prime Minister Justin Trudeau definitely scrambled to dine with Donald Trump at Mar-a-Lago on Friday night to plead for tariff mercy. He got a statement of positive vibes, into which we should read nothing until the president-elect acts, or until he definitely doesn’t. Today’s newsletter is on Trump’s broadside on the fictional challenge from a Brics currency, and also on the effect of his tariff threats on the furniture giant Ikea. Charted Waters is on the EU’s use of trade defence instruments. So here’s a falsifiable prediction I’d like you to make: will Trump have imposed any new tariffs on Canada by the end of January, 11 days after he takes office? A simple yes-no to alan.beattie@ft.com.Get in touch. Email me at alan.beattie@ft.comCurrency claptrapThe cry “Thar she blows!” went up on Saturday as Donald Trump surfaced with another explosive threat, this time against the Brics countries for their plans to create a currency to replace the dollar. Just two tiny issues with this gibberish. One, the Brics nations do not in fact have an alternative to the dollar. Two, they’re more likely to look for one in earnest if Trump ramps up using the dollar to coerce them.The Brics, and particularly Russia, have a general growling resentment about the US’s control over the global payments and bank funding systems, which enables it to impose financial sanctions beyond America’s borders. They have done a bit of bilateral trading in local currencies to try to avoid said sanctions. But there are no serious plans beyond some hilariously quixotic briefing, including an idea apparently out of Moscow about a currency backed by gold which goes beyond straightforward goldbug fan fiction and is essentially just howling at the moon.If they did want to challenge the dollar, the logical way would be to put forward one of their own currencies as a rival, but the only one of remotely plausible size is the Chinese renminbi, and no one’s about to adopt a global currency which is protected by capital controls.OK, so enough shooting fish in a barrel. What conclusions do we draw from this? One, it underlines the failure of emerging markets to organise themselves into a coherent geoeconomic force, certainly in the financial system. (Chinese power in trade and technology, by the way, is a very different issue, which I’ll get to later this week.) Second, as I’ve said before, Trump hasn’t decided whether he wants a dollar that dominates the global financial system or (as vice-president-elect JD Vance does) a weak dollar that benefits US exports. It is of course possible to have both, as Trade Secrets favourite Karthik Sankaran has consistently and I think correctly argued, but this level of sophistication is not where Trump or Vance are at.So Trump is again proving my argument that he has prejudices, not a plan. Having said that, nothing is going to provide an incentive to countries finding other options to the dollar quite as much as Trump weaponising it yet further. Imposing sanctions on Iran and Russia is one thing. If Trump starts trying to cut China out of the dollar system the search for an alternative will gain urgency.Flat-pack frettingOf all the examples of the Trump tariff challenges so far, this one last week caught my eye. Ingka Group, the Ikea franchisee that runs 90 per cent of the furniture giant’s stores, announced a fall in earnings and said its performance would be threatened further by Trump’s tariff war.When I spoke in September to Jon Abrahamsson Ring, the chief executive of Inter Ikea, which owns the brand and designs the products, he was clear that the American market was particularly vulnerable to trade conflict and transport interruptions. Unlike a lot of consumer goods companies, Ikea doesn’t do a lot of labour cost arbitrage, that is producing in cheaper Asian countries and selling globally. Europe makes up 70 per cent of sales, and 70 per cent of that is produced in Europe. Heavy use of automation offsets high European labour costs. (Hence production was less affected by Covid-19 than you might have imagined: the main problems were in transport and particularly in opening the stores.)Meanwhile, its Asian stores are similarly mainly supplied from Asia. But as Ring told me: “The Americas is the one place we need to increase regional/local production. At the moment only 10 per cent is produced in the region.”I asked him about the threat of Trump tariffs. His answer: “We do monitor the possible impact of transatlantic trade conflict, but in reality we would be doing this anyway.” The thing is, though, which risk exactly are you mitigating? If you’re sourcing locally because of the threat of interruptions to transatlantic or transpacific trade, then you can treat all of the Americas as a single production area and market. Buy your wood in Canada, they’ve got lots of it. But even before Trump, the US earlier this year escalated a long-running trade dispute by nearly doubling tariffs on imports of so-called softwood lumber, challenging its long dominance in the US market. And with Trump threatening Canada with tariffs it would be bold to assume you can treat North America as a single market as you might the EU.Charted watersCall the EU protectionist if you like, but when it comes to trade defence (or trade remedies as the US would call it) including antidumping and antisubsidy duties, it’s actually quite a light user.Trade linksIn more depressing death-of-multilateralism news, talks have failed on a treaty to reduce plastic use. There’s still a great future in them evidently.The FT looks at how exposed the US car industry is to the Trump tariffs.Speaking of cars, the Chinese car company BYD is thinking again about the wisdom of building an EV plant in Mexico given Trump’s threats.EU solidarity and the hell with it, Part I: Poland joins France in opposing the EU-Mercosur deal, reducing the chances of an emblematic victory for the forces of rule-based trade.EU solidarity and the hell with it, Part II: like Justin Trudeau, the Dutch government is trying to get Trump’s ear on trade before he takes office. There’s some palace politics stuff kicking around about why Trump didn’t appoint Robert Lighthizer to his administration, which I’d greet with the usual shrug.Trade Secrets is edited by Jonathan MoulesRecommended newsletters for youChris Giles on Central Banks — Vital news and views on what central banks are thinking, inflation, interest rates and money. 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India’s economic growth slowed more than expected in the second quarter of the financial year, hampered by weaker expansion in manufacturing and consumption, adding pressure on the central bank to cut rates.The government expects growth to accelerate in the second half of the year, Ajay Seth said.It has put in place an “investor friendly policy” to attract investors while simplifying tax rules, Pankaj Chaudhary, India’s junior finance minister, told lawmakers separately on Monday.Prime Minister Narendra Modi, after electoral wins last month in the state assembly elections of Maharashtra and Haryana, is expected to boost spending on infrastructure projects as part of the $576 billion budget plan announced in July.India also plans measures including an increase in incentives to electric vehicle automakers to boost domestic manufacturing and amend insurance laws to raise the foreign direct investment (FDI) limit to 100% from 74%. Analysts said that an increase in government spending in the second half of the fiscal year ending in March 2025, should boost growth. “The quarter ending December is likely to benefit from a rise in government expenditure over the last few weeks,” said Pranjul Bhandari, chief economist at HSBC Research. Bhandari added that a sharp rise in services and goods exports in October was likely to gain momentum, as inventories are stocked up globally in anticipation of higher trade tariffs in 2025. More

LONDON (Reuters) -French borrowing costs rose above those of Greece on Monday for the first time, as Michel Barnier’s government teetered on the brink of collapse, underlining a dramatic shift in how lenders view the creditworthiness of euro zone members.The far-right National Rally (RN) party on Monday said it was ready to trigger a no-confidence vote in the government, in the latest salvo in a dispute over Barnier’s proposed budget that includes 60 billion euros ($63 billion) in tax hikes and spending cuts.Bond investors worry that the collapse of the government would mean any effort to cut borrowing is jettisoned.”It’s hard to see what the end-game would be if the government would fall now,” said Michiel Tukker, senior European rates strategist at lender ING.”Quite a milestone is the symbolic passing of Greek yields versus French yields,” he said. “Historically there used to be a fixed hierarchy – Greek is the riskiest, then Italian, then French, then German – and there’s been a breakdown in people’s minds of how those countries are ranked.”In the middle of the euro zone sovereign crisis in 2012, Greece’s borrowing costs, as measured by its 10-year bond yield, shot to more than 37 percentage points above those of France, as Greece looked destined to default on its debts.Fast forward 12-1/2 years and Greek bond yields on Monday morning briefly traded 0.01 percentage points below France’s at around 2.9%, according to LSEG data. The French political crisis was also weighing on the euro, which was 0.6% lower versus the U.S. dollar.France’s rising debt levels had been slowly eroding its advantages in the bond market for years. Then, the risk premium investors demand to buy French debt compared to its neighbours shot higher in June when President Emmanuel Macron called a snap election that resulted in a fragile hung parliament.Meanwhile, the countries once at the centre of the 2012 crisis and labeled the PIGS – Portugal, Italy, Greece and Spain – have cut their debt levels and become more attractive to bond investors.Greek public debt was already running at 100% of GDP before the euro zone crisis and surged to more than 200% as COVID-19 hit in 2020. But it has since dropped to around 160% of GDP and economists expect it to continue to fall. French debt is historically elevated at around 110% of GDP and rising. The state has spent heavily in response to the shocks of COVID-19 and the Ukraine war, while tax receipts have lagged expectations. “Even if the government did achieve its planned consolidation, France would still have a pretty elevated budget deficit,” said Max Kitson, rates strategist at Barclays (LON:BARC).”If you look at Greece’s debt-to-GDP profile, you have a downwards trajectory which contrasts with France’s upwards trajectory.”Similar efforts to rein in debt – as well as years of bond purchases by the European Central Bank – in Ireland, Portugal and Spain have seen those countries’ borrowing costs fall below those of France.On the plus side for France, its bond yields have not risen sharply in absolute terms. The 10-year yield in fact fell around 24 basis points in November as weak euro zone economic data boosted investor bets on European Central Bank rate cuts.S&P Global Ratings on Friday held its rating on France’s long-term sovereign debt, in what has proved to be a fleeting moment of respite for Barnier’s government. More