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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The key points In an intervention at the SABEW conference on Friday, Fed chair Jay Powell gave an updated assessment of the state of the US economy and the central bank’s likely reaction function two days after the Trump administration’s announcement of sweeping tariffs.Powell struck a more hawkish tone compared to his most recent public statements in mid-March, indicating — albeit obliquely — that the Fed is more concerned with upside risks to prices.The verdict Fed chair Jay Powell’s remarks and subsequent interview on Friday clearly had the primary goal of reassuring markets and indicating that the US central bank has not been jolted by Donald Trump’s “liberation day” tariffs, and that it will instead continue to hold out for hard data confirming the effects of the new trade measures before altering its policy stance. Yet veiled behind his words, there was a definite hawkish tilt from the Fed chair, who had previously suggested that new tariffs may be “transitory”. For now, we continue to expect the Fed to cut the benchmark rate twice in 2025. However, we have low confidence in our forecast, which is highly contingent on how the new trade war will play out in the coming weeks and whether it will hurt real activity more than it will raise inflation. With little evidence likely to emerge before May, we think the Fed will hold at its next meeting.The details Powell’s speech at the SABEW conference on Friday contained two key messages for markets. The first is that the Fed’s framework for thinking about the US economy has not fundamentally changed, despite the introduction of substantial and highly disruptive universal tariffs by the Trump administration on Wednesday. “While uncertainty is high and downside risks have risen, the economy is still in a good place,” he said, adding that “many forecasters have anticipated somewhat slower growth this year”. The implication was that many of the developments that have recently shown up in soft, and more recently, hard data — falling consumer and business confidence and declining consumption — is not an unusual economic development and should not warrant panic.But while the Fed chair sought to project calm, he also gave clear hints that, at the margin, “liberation day” policies will increase inflationary risks and raise the likelihood of a hawkish response by the central bank. Powell described the tariffs as “significantly larger than expected . . . the same is likely to be true of the economic effects” and indicated that “it’s possible that the effects could be more persistent [ . . . the Fed’s role is to] make certain that a one-time increase in the price level does not become an ongoing problem”. This indicated a new hawkish bias relative to the last time Powell spoke after the March press conference. At the time, he had suggested he viewed tariffs as likely transitory. In addition, the Fed chair reiterated that “our stance is in a good place [ . . . it is] moderately restrictive”. This suggests that the Fed is still primarily targeting the inflation side of its dual mandate, dispelling the notion of any near-term rate cut. The strong payrolls report that came out today suggests no easing is required from the labour market. With this and the good labour market data out today, we think the Fed is now on a path to pausing for as long as it needs. More from Monetary Policy RadarStrong March payrolls indicates US economic strength ahead of trade warService sectors led above-expectations job gains of 228,000 in March, but data is unlikely to matter after Trump tariffsHow will ‘liberation day’ affect central banks’ rate cycle?Tariffs will bring back talk of transatlantic divergence, though forces beyond trade also matter More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldNormally, it wouldn’t be unusual to have a Federal Reserve chair — or any Fed official — say they plan to serve out their full term. As we keep saying, these are not normal times. So it’s notable that Fed Chair Jay Powell said Friday that he plans to remain in his role. If this week is any indication, the next year seems like it could be a rather . . . important period for US price stability. And employment. And financial stability, for that matter.“I fully intend to serve all of my term,” Powell said in a Q&A with the Society for Advancing Business Editing and Writing, or Sabew. It wasn’t 100-per-cent clear what exact period of time he meant: he’ll be chair of the rate-setting policy committee until May 2026, but his full term on the Board of Governors continues until January 31 2028. (He has previously declined to answer the question of whether he’ll stay until 2028.) One reason this is interesting: If he does plan to stick around until 2028, Fed Board members serve on the rate-setting policy committee, so this would give him continued (if somewhat diminished) influence over monetary policy after the end of his leadership role. Another reason that’s maybe more pressing: There seems to be a nascent conflict between him and the US President about rate policy. Minutes before Powell started speaking at the Sabew event, President Trump posted that it would be “a perfect time” for the Fed to cut rates. This certainly breaks decorum, and in the past, presidential comments about rates have been interpreted as an assault on the Fed’s independence (which has only really existed since 1951, and was not imposed by Congress). But the White House is making far more aggressive intrusions into other agencies’ independence. And it’s been threatening an aspect of independence that has the legal protection of being created by Congress: Personnel, and their terms of service. The Trump Administration dismissed two Federal Trade Commissioners last month, despite a 1935 ruling that says the president doesn’t have “illimitable power of removal” for agencies created by Congress. This was in a case specifically about the FTC. Still, Powell doesn’t seem too concerned about monetary policy input from the US President at the moment. “It feels like we don’t need to be in a hurry” to cut rates, he told Sabew. Stocks didn’t have a huge reaction to that news in real time, though, so it doesn’t seem like investors were waiting on Powell to save their bags. More

Giorgia Meloni is under pressure from Italy’s EU partners to “choose a side” in the transatlantic trade war as she wields an effective veto over a push by some big member states for Brussels to hit back hard against US tariffs.The Italian premier — who has friendly ties with US President Donald Trump — is opposing a Franco-German push to escalate the EU’s response to the 20 per cent so-called “reciprocal tariff” to be imposed on its exports.Paris and Berlin are among member states urging the European Commission to hit US services exports such as technology in response to Trump’s measures affecting more than €360bn of its trade.At a meeting of ambassadors on Thursday, France, Germany, Spain and Belgium said the EU should be prepared to use its “trade bazooka”, the anti-coercion instrument, for the first time ever to achieve this, said two EU diplomats. But a move using the instrument could be blocked by a weighted minority of member states. Given Italy’s size, it would be the decisive member of the No camp, which also includes Romania, Greece and Hungary, the diplomats said.Giorgia Meloni has criticised Donald Trump’s tariffs on the EU this week as ‘a wrong decision’. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.In an early interview as US Treasury secretary back in February, Scott Bessent made it clear that bond yields, rather than stock prices, were the financial market metrics that he and President Donald Trump cared most about.While he didn’t elaborate why, it’s not hard to guess. US bond yields set the price for new mortgages. They determine the price and availability of finance for most US company borrowing. And, perhaps most importantly to Trump, bond markets hold the purse strings to government.Since the interview, US stocks have bombed — down 13 per cent by mid-morning on Friday in New York. Equity markets hate uncertainty and there has been no shortage of that since Donald Trump’s return to the White House. Tariff flip-flopping, public sector job cuts amid upheaval over government policy and a broader assault on multilateralism have cast a dark shadow over the economic outlook. But bond prices have risen, meaning that yields have dropped.In the context of weaker global bond markets, this is impressive. British, French and German ten-year government bond yields have risen over the same period. American exceptionalism lives on in their bond market, if no longer across their newly-sagging equity indices.Furthermore, this exceptionalism has occurred despite higher inflation expectations and an increasingly worrying debt trajectory — the traditional bogeymen of bond markets. Since Bessent’s interview, both private sector economists and markets alike have revised higher their forecasts for US inflation. And the nonpartisan Congressional Budget Office not only expects ever rising levels of federal debt, but has also increased its projected path of federal deficits.Moreover, there has been much market chatter over a so-called Mar-a-Lago Accord involving what would effectively be a coercive exchange of Treasury bonds upon America’s allies. The idea was discussed in a report written by Stephen Miran before he became chair of Trump’s Council of Economic Advisors. When asked about the idea last week, Miran would only say that Trump’s focus was on tariffs. We don’t know how much of the $3.8tn of US Treasury holdings marked as foreign official holdings are owned by its allies, but talk of a debt exchange is unlikely to encourage them to add more.And yet, despite rising inflation expectations, the government debt burden and the talk of a debt exchange, the US market has had no Liz Truss moment.Some content could not load. Check your internet connection or browser settings.What explains the strength of US government bonds? Well, yield declines have been accompanied by the sort of news that administrations tend to fear and bond markets tend to relish: leading economic indicators have fallen off a cliff. This is because bad economic news tends to be a prelude to cuts in short-term interest rates, making existing bonds with higher yields more valuable. And they’re betting that a weak economy will overwhelm rising consumer prices in the Federal Reserve’s rate-setting calculus.The collapse in leading indicators looks largely self-inflicted. So-called “soft data” series — such as surveys of consumer confidence and manufacturing purchasing managers — reflect heightened uncertainty about the economic outlook. Both central bankers and bond markets are watching closely for signs that harder economic data will begin to follow the softer data south.In a note entitled “There will be blood” on Friday, JPMorgan raised its estimate of the risk of recession in the global economy this year to 60 per cent from 40 per cent if the tariff increases are maintained. Since Bessent’s February interview, the bond market has priced in almost three additional rate cuts by the Fed.Given the dominant role of the dollar in global commerce, Treasury bonds also have a special place not only in global financial plumbing, but also on the balance sheets of the world’s governments and firms. This guarantees that, should the US economy slow sharply, the Fed can cut rates and the government can cover revenue shortfalls with additional bond issuance. And substantial demand for Treasuries will be forthcoming for as long as the US retains monetary hegemony.Bond traders cannot imagine that the administration would be so reckless as to threaten the dollar’s reserve currency status by enacting the coercive exchange idea. Or at least they are unwilling to price it. Loss of this so-called exorbitant privilege would be devastating. Moreover, these losses would probably stretch far beyond American shores given the interconnectedness of the global financial system. So — perhaps ironically — investors seeking shelter from the damage being done by US tariffs continue to find it in its government’s bonds. At least for now.“Wall Street, where you and I came from, has had it great”, Bessent told his interviewer. “Under this administration, it’s Main Street’s turn”. The bond markets are betting that the Trump administration is engaging in an act of economic self-harm. If it’s right, Main Street will have to wait. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Europe is tallying the potential cost of President Donald Trump’s tariffs. The trade war will fray ties between the world’s two most closely bound continents, unstitching some of the trillions of dollars of sales by European companies’ foreign affiliates in the US. The UK, of course, has been somewhat cushioned by a lower tariff rate. That’s important because — fittingly given its special relationship with the US — it tops the charts of countries with the biggest sales across the Atlantic. The FTSE 100 derives a quarter of its sales from the US; the FTSE 250 a tenth.  Decades of integration have borne fruit. European companies’ income in the US rose by almost a fifth year-on-year to $205bn last year, reckons AmCham EU. ​​The business body estimates that European affiliates in the US reaped sales there of $3.3tn in 2023, more than treble the value of comparable exports.Multinationals have long banked on broad geographic reach to smooth earnings. Heavy industry is not far behind, including defence. BAE Systems, Europe’s biggest defence company, derives 44 per cent of its sales from the US, more than it garners from its home UK market and the rest of Europe combined.Or look at tech, another sector caught in the geopolitical riptides. ASML, which produces machines to make chips and is Europe’s biggest tech stock, almost doubled the portion of sales from the US over two years to 16 per cent last year. Its boss has warned that geopolitics threatens to stifle collaboration and thus innovation.True, European affiliates’ sales in the US are usually backed by at least some production in the country, reducing the tariff threat. Some 20 FTSE 100 companies already have more than a fifth of their facilities in the US, says AJ Bell, led by industrial equipment rental company Ashtead.European companies will no doubt seek to shift production to the US where possible. In some sectors, there is existing spare capacity. Bernstein estimates that carmaker Volkswagen’s North American production will be only 67 per cent of its capacity this year. But re-localisation opportunities are limited and building new plants and factories will take time.There are other ways of mitigating tariff impacts — including passing on costs to consumers, sharing them with the supply chain, or diverting shipments to other countries. But the likeliest affect of taxing goods is to reduce demand for them. Expect ports and shipping lanes to be a lot [email protected] More

Jerome H. Powell, the chair of the Federal Reserve, warned that President Trump’s tariffs risk stoking even higher inflation and slower growth than initially expected, as he struck a more downbeat tone about the outlook, despite the economy so far remaining in a “good place.”“While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected,” he said. “The same is likely to be true of the economic effects, which will include higher inflation and slower growth.”Mr. Powell characterized the risks of that outcome, which he warned could include higher unemployment, as “elevated.”“While tariffs are highly likely to generate at least a temporary rise in inflation, it is also possible that the effects could be more persistent,” he said in a speech at a conference in Arlington, Va., on Friday.“Avoiding that outcome would depend on keeping longer-term inflation expectations well anchored, on the size of the effects, and on how long it takes for them to pass through fully to prices,” he said. Higher inflation stemming from tariffs could show up “in the coming quarters,” he said.Mr. Powell added that the Fed’s “obligation” was to ensure that a “one-time increase in the price level does not become an ongoing inflation problem.”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 Japanese video game company Nintendo said on Friday that it would delay preorders for its new console, the Switch 2, in the United States because of the tariffs imposed by President Trump.The Switch 2’s price was unveiled as $450 this week. Its release date of June 5 remains unchanged, the company said.U.S. preorders were supposed to begin on Wednesday for the anticipated follow-up to the Switch, which has sold more than 150 million units, making it one of the most popular gaming consoles of all time.Nintendo said that it was delaying preorders “to assess the potential impact of tariffs and evolving market conditions” and that a new date would be announced later.One week before the preorders were meant to start, Mr. Trump announced sweeping tariffs on nearly all goods imported into the United States, with particularly steep rates applied to goods from electronics manufacturing hubs like China (34 percent) and Vietnam (46 percent). After the levies take hold in the coming days, importers in the United States must pay the higher duties on products brought into the country.Companies like Nintendo, Sony and Microsoft often sell gaming hardware at losses to expand their user base and make money on software. The Switch 2 game Mario Kart World, which will allow up to 24 drivers to explore off track, will cost $80.Other games coming this year from established Nintendo franchises are Donkey Kong Bananza and Kirby Air Riders.The Switch 2 will include a microphone to chat with other players, screen-sharing and the option to add a separate camera for streaming. It will have a 7.9-inch-long screen, the ability to run games at 120 frames per second and 256 gigabytes of internal storage. More