Economy

“Market participants have grown increasingly focused on a potential EU fiscal policy response via higher defence spending,” analyst said.Defence budgets have already risen since the Ukraine invasion but remain below NATO’s 2% of GDP target in several member states. Potential funding options include national fiscal deficits, repurposing Next (LON:NXT) Generation EU funds, or creating a multilateral defence funding facility.The most likely approach involves a mix of national deficits and the European fund, but early implementation faces hurdles, including political uncertainty in Germany, France, and EU institutional approval. Any significant changes are unlikely before 2025, Goldman noted.Raising defence spending to 2.25% of GDP or 2.5% by 2026 would increase the structural deficit by 0.3%-0.5% annually over the next three years, note added.The economic impact is expected to be modest, with defence spending multipliers estimated at 0.6 due to high import and short-lived effects compared to investment.Goldman estimates the fiscal impulse from higher defence spending would add not much significant annual growth until 2027, up to 0.2 percentage points.A larger boost could occur if spending leads to reduced foreign input dependence and an expansion of Europe’s defence industry. More

The Personal Consumption Expenditures index climbed 2.4 percent from a year earlier, though the report’s details were more subdued than expected.Federal Reserve officials are closely watching how inflation shapes up as they contemplate when and how much to cut interest rates in 2025, and the latest inflation data offers reasons for both wariness and hope.The central bank’s preferred inflation measure, released on Friday, climbed 2.4 percent in November from a year earlier, faster than its 2.3 percent rate in October and notably quicker than the central bank’s 2 percent target.And after stripping out food and fuel costs, both of which bounce around from month to month, “core” inflation was 2.8 percent, in line with its previous reading.The stickiness in yearly inflation served as a reminder that bringing price increases back to a normal pace remained a bumpy and incomplete project.But the details of the report were more encouraging. On a monthly basis, both overall and core inflation climbed 0.1 percent — slightly less than what economists had expected, and slower than in October. That suggested that progress on inflation had not stalled quite as much as expected.In all, the fresh inflation figures probably reinforce both the Fed’s cautious stance and a widespread belief among its policymakers that inflation will eventually slow further.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

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Donald Trump gave LVMH’s billionaire chief executive Bernard Arnault a pumping handshake as they exited the lifts in the gold and marble lobby of Trump Tower in Manhattan.  “One of the great men, Mr Arnault,” said Trump — then president-elect for the first time around — as they wrapped up the January 2017 meeting. “They’re [LVMH] going to do some wonderful things in this country. Jobs. A lot of jobs.” The world’s biggest luxury group obliged. In 2019, Trump attended the opening of Louis Vuitton’s Texan factory, its third on US soil, where he declared that Arnault had “really delivered”, especially as some products would bear “Made in the USA” labels. Eight years on, that relationship may prove an advantage for LVMH as the threat of tariffs looms large. The second Trump administration has threatened to levy across-the-board tariffs of up to 20 per cent on exports from Europe while China risks being much harder hit. Trump attended the opening of Louis Vuitton’s Texan factory, its second on US soil More

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The PCE price index, the Fed’s preferred inflation gauge, showed an increase of just 0.1% from October and a 2.4% annual rate, both below expectations.
Excluding food and energy, core PCE also increased 0.1% monthly and was 2.8% higher from a year ago, with both readings being 0.1 percentage point below the forecast.
Personal income rose 0.3%, short of the 0.4% estimate. Personal expenditures increased 0.4%, one-tenth of a percentage point below the forecast.

Prices barely moved in November but still held higher than the Federal Reserve’s target when looked at from a year ago, according to a Commerce Department measure released Friday.
The personal consumption expenditures price index, the Fed’s preferred inflation gauge, showed an increase of just 0.1% from October. The measure indicated a 2.4% inflation rate on an annual basis, still ahead of the Fed’s 2% goal, but lower than the 2.5% estimate from Dow Jones. The monthly reading also was 0.1 percentage point below the forecast.

Excluding food and energy, core PCE also increased 0.1% monthly and was 2.8% higher from a year ago, with both readings also being 0.1 percentage point below the forecast. Fed officials generally consider the core reading to be a better gauge of long-run inflation trends as it excludes the volatile gas and groceries category.
The annual core inflation reading was the same as in October while the headline rate rose 0.1 percentage point.
The readings reflected little increase in goods prices and a 0.2% rise in services prices. Food and energy prices both posted 0.2% gains as well. On a 12-month basis, goods prices have fallen 0.4%, but services have risen 3.8%. Food prices were up 1.4% while energy fell 4%.
Housing inflation, one of the stickier components of inflation during his economic cycle, showed signs of cooling in November, rising just 0.2%.
Income and spending numbers in the release also were a bit light compared with expectations.

Personal income rose 0.3% after having jumped 0.7% in October, falling short of the 0.4% estimate. On spending, personal expenditures increased 0.4%, one-tenth of a percentage point below the forecast.
The personal saving rate edged lower to 4.4%.
Stock market futures held in negative territory after the report while Treasury yields also slumped.
“Sticky inflation appeared to be a little less stuck this morning,” said Chris Larkin, managing director of trading and investing at E-Trade Morgan Stanley. “The Fed’s preferred inflation gauge came in lower than expected, which may take some of the sting out of the market’s disappointment with the Fed’s interest rate announcement on Wednesday.”
The report comes just two days after the Fed cut its benchmark interest rate another quarter percentage point to a target range of 4.25%-4.5%, the lowest in two years. However, Chair Jerome Powell and his colleagues reduced their expected path in 2025, now penciling in just two reductions compared with four indicated in September.
Though Powell said Wednesday that inflation has “moved much closer” to the Fed’s goal, he said the changes in the projected path for rate cuts reflects “the expectation inflation will be higher” in the year ahead.
“It’s kind of common sense thinking that when the path is uncertain you go a little bit slower,” Powell said. “It’s not unlike driving on a foggy night or walking into a dark room full of furniture. You just slow down.”

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WASHINGTON (Reuters) -Mike Johnson’s hold on the speakership of the U.S. House of Representatives has been tenuous almost since the day he was elected.The Louisiana Republican only ended up with the job in October 2023 after the unruly members of his House caucus deposed then-Speaker Kevin McCarthy and cast about for someone who could amass enough votes to replace him. He won after three other candidates fell short during a tumultuous three-week period that brought the House to a halt.The soft-spoken Johnson, 52, had never served in the higher levels of House leadership before. His decision to move forward with a massive bipartisan spending bill in December to keep the government funded drew intense fire from hard-right members of his party – and most importantly, President-elect Donald Trump.Trump told House Republicans to scrap the first bill on Wednesday and a second version Johnson negotiated on Thursday failed in a vote on the House floor when 38 Republicans rejected Trump’s demand to lift the federal government’s debt ceiling and the measure Johnson had spent a day negotiating. That left Johnson and his allies scrambling to find another way to avoid a Christmas shutdown, something Republican leaders had hoped to prevent given that they take control of both the House and the Senate next month.”With such a narrow majority, he has done good a job and survived longer than expected until this huge miscalculation on the (bill),” said Ron Bonjean, a longtime Republican consultant in Washington. “However, it’s difficult to imagine anyone else being successful in this position with an ungovernable conference and little room to navigate with such a divided House.”Johnson told reporters on Friday that he was plotting next steps, saying “We have a plan.”When the next Congress is sworn in on Jan. 3, Johnson must stand for re-election – and it won’t be easy. His initial majority will be just 219-215, narrower than its current 219-211. Assuming no Democrat votes for Johnson, he will have almost no breathing room with which to work. Already two Republicans, Representatives Paul Gosar and Thomas Massie, have said they won’t back him. Another caucus hardliner, Marjorie Taylor Greene, on Thursday floated the idea of picking a new leader.Johnson’s office did not immediately respond to a request for comment on Thursday, while he huddled with allies to try to plot a course forward.Whether others stick with Johnson will depend on whether he can somehow pull off a new spending bill that contains Republican priorities but omits Democratic ones. That is a formidable high-wire act, given that Democratic votes may be needed to pass the bill in the House and definitely will in the Senate, where Democrats currently hold a 51-49 majority.Thursday’s failed vote sharply increases the odds that parts of the federal government will begin to shut down on Saturday.TIED TO TRUMPJohnson had tried to dodge this scenario by supporting Trump at every turn during his presidential bid and becoming a fixture at his events. Most recently, he met with Trump at Saturday’s Army-Navy college football game even as the funding measure was being hashed out. But for Trump, loyalty has mostly been a one-way street. He will stand by his political allies when it serves his interest, but as McCarthy found out, he is willing to sacrifice them if necessary.McCarthy engendered the wrath of the caucus’ conservatives by striking a budget deal with President Joe Biden in much the same manner that Johnson attempted to do with his funding plan. Both leaders discovered that satisfying both mainstream and hardline Republicans is a nearly impossible task. Following McCarthy’s history-making ouster, several Republicans, including hardline conservative Jim Jordan and more establishment-oriented choices Tom Emmer and Steve Scalise failed to attract enough support to win the speakership. Johnson, a low-profile Christian conservative lawyer from northwest Louisiana who was far down the leadership roster, emerged as a compromise choice. Almost immediately, Johnson’s tenure was embattled. In April, he was forced to rely on Democratic votes to pass a sweeping aid package for Ukraine, a measure opposed by the hardliners in his caucus. Even then there was talk among them of replacing him.Should Johnson somehow survive and serve another term as speaker, it likely will be only due to Trump’s support. And then from that point on, Johnson will owe the new president his political life. More