Finance

Minneapolis Federal Reserve President Neel Kashkari said that tariffs would hurt long-term inflation if global trade partners were to strike back.
One of Donald Trump’s central economic proposals for his second term is to impose universal tariffs on all imports from all countries — with a specifically targeted 60% rate on China.
Economists, Wall Street analysts and industry leaders have repeatedly expressed concerns over the inflationary impact of that hardline trade approach, just as inflation has begun to come down and the Fed is lowering interest rates.

Neel Kashkari, President and CEO, Federal Reserve Bank of Minneapolis, speaks at the Milken Conference 2024 Global Conference Sessions at The Beverly Hilton in Beverly Hills, California, U.S., May 7, 2024. 
David Swanson | Reuters

Minneapolis Federal Reserve President Neel Kashkari said Sunday that President-elect Donald Trump’s tariff proposals could worsen long-term inflation if global trade partners were to strike back.
One-time tariffs, Kashkari said on CBS’ “Face the Nation,” “shouldn’t have an effect long run on inflation.”

“The challenge becomes, if there’s a tit for tat and it’s one country imposing tariffs and then responses and it’s escalating. That’s where it becomes more concerning, and, frankly, a lot more uncertain,” Kashkari said.
During his first term, Trump essentially sparked a trade war with China when he imposed a series of import taxes on Chinese goods, which triggered the country to retaliate with its own set of tariffs on the U.S.
One of Trump’s primary economic proposals for his second term is to impose universal tariffs on all imports from all countries — with a specifically targeted 60% rate on China.
Economists, Wall Street analysts and industry leaders have repeatedly expressed concerns over the inflationary impact of that hardline trade approach, especially since inflation has just begun to cool from its pandemic-era peaks.
“We’ve made a lot of progress in bringing inflation down,” Kashkari said. “I mean, I don’t want to declare victory yet. We need to finish the job, but we’re on a good path right now.”

The Fed on Thursday passed its second consecutive interest rate cut, continuing its effort to loosen monetary policy as inflation approaches the central bank’s 2% target. Kashkari said he expects another cut to come in December, but that will depend on “what the data looks like” at that time.
As for Trump’s other major policy proposals like a sweeping immigrant deportation plan, Kashkari noted that the inflation threat is still unclear and so the Fed is still taking a “wait and see” approach before adjusting its policy.
Trump and his backers like billionaire Tesla CEO Elon Musk have also been outspoken about their desire to give the president input on Fed policy decisions. The central bank views its political independence as a core feature that allows it to shape monetary policy exclusively based on the health of the U.S. economy, not election incentives.
But Kashkari said he is not concerned about politics permeating Fed decisions.
“I’m confident that we will continue to focus on our economic jobs,” he said. “That’s what should be dictating what we’re doing and that is what’s dictating what we’re doing.” More

In 1971 John Connally, then the American treasury secretary, told his European counterparts that the dollar was “our currency, but your problem”. Over the following half-century the global economy has transformed, but Connally’s adage still rings true: even though the value of the dollar remains largely set by domestic developments in America, its swings almost always send ripples across the world. One such big swing may be on the cards, as the economic policies promised by Donald Trump, America’s president-elect, look set to turbocharge the greenback. That spells trouble for growth in the rest of the world. More

The exchange-traded fund industry is trying to make pair-trade strategies more accessible to everyday investors.
Tidal Financial Group’s Michael Venuto filed last month for eight two-stock ETFs: going long one stock and short the other.

“They should come out probably in about two or three months,” Venuto, the firm’s chief investment officer and co-founder, said on CNBC’s “Halftime Report” this week.

Arrows pointing outwards

These new ETFs aim to simplify long-short trades by bundling both positions into one product and eliminating the need for separate trades, according to U.S. Securities and Exchange Commission filings.

Arrows pointing outwards

VettaFi’s Todd Rosenbluth noted the convenience these ETFs bring to investors.
“Instead of having to short something yourself, the ETF is going to do that for you. And so, there’s a convenience factor that’s out there,” the firm’s head of research said on CNBC’s “ETF Edge” this week.
This streamlined approach could attract investors looking for ease of access in balancing market positions.

Rosenbluth also pointed out the potential popularity of these ETFs.
“I think the ETF adoption is going to continue, even if we have some of these niche-oriented products sitting side by side with Vanguard 500 in a portfolio,” Rosenbluth said.
CORRECTION: This article has been updated to reflect the Securities and Exchange Commission’s filings description of two-stock ETFs.

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China on Friday announced a five-year package totaling 10 trillion yuan ($1.4 trillion) to tackle local government debt problems, while signaling more economic support would come next year.
The debt swap program, however, fell short of many investors’ expectations for more direct fiscal support.

BEIJING – China on Friday announced a five-year package totaling 10 trillion yuan ($1.4 trillion) to tackle local government debt problems, while signaling more economic support would come next year.
Minister of Finance Lan Fo’an told reporters Friday that authorities planned to “actively use” the available deficit space that can be expanded next year. He called back to October, when he had said that the space to take this step was “rather large.”

His comments, translated by CNBC, came after the standing committee for China’s parliament, the National People’s Congress, on Friday wrapped up a five-day meeting that approved a proposal to allocate an additional 6 trillion yuan to increase the debt limit for local governments.
The program takes effect this year and will run through the end of 2026 for around 2 trillion yuan a year, Lan told reporters.
He added that, starting this year, central authorities would issue an annual 800 billion yuan in local government special bonds over a five-year stretch, for a total of 4 trillion yuan.
The policies would contribute to local governments’ efforts to reduce their so-called “hidden debt,” which Lan estimates could drop from 14.3 trillion yuan as of the end of 2023 to 2.3 trillion yuan by 2028, Lan said. He noted how the new measures would alleviate pressure on local authorities and free up funds for supporting economic growth.
“The local government’s hidden debt resolution measures introduced by China today are a concrete manifestation of the central government’s economic policy shift, with a total debt amount beating market expectations, to a certain extent,” said Haizhong Chang, executive director for corporates at Fitch Bohua.

“Compared with the amount of debt resolution in recent years, the scale is significantly larger this time,” he said.
The debt swap program, however, fell short of many investors’ expectations for more direct fiscal support. The iShares China Large-Cap ETF (FXI) was nearly 5% lower in premarket trading.
“While the market may have to wait for more substantial policy changes, the potential for future monetary and fiscal measures remains,” Chaoping Zhu, Shanghai-based global market strategist at J.P. Morgan Asset Management, said in a note. “Factors such as a deep stock market correction, export headwinds, or mounting fiscal pressures on local governments could serve as catalysts for policy escalation.”

Stimulus steps

Authorities here have ramped up stimulus announcements since late September, fueling a stock rally. On Sept. 26, President Xi Jinping led a meeting that called for strengthening fiscal and monetary support and stopping the real estate market slump.
While the People’s Bank of China has already cut several interest rates, the country’s fiscal policy governed by the Ministry of Finance would require major increases in government debt and spending, which need parliamentary approval.
During a similar meeting in October of last year, authorities had approved a rare increase in China’s deficit to 3.8%, from 3%, according to state media. This year’s gathering did not announce such a change.
Daily official readouts of the parliamentary meeting this week had said officials were reviewing the proposal to increase the local government debt limit to address hidden debt.
Analysts expect an increase in the scale of fiscal support after Donald Trump — who has threatened harsh tariffs on Chinese goods — won the U.S. presidential election this week. But some are still cautious, warning that Beijing may remain conservative and not issue direct support to consumers.
“We don’t expect policymakers to increase stimulus this year, as they need to know more about the new U.S. trade policy,” Larry Hu, chief China economist at Macquarie, said in a report Friday. “As such, the NPC meeting this week focused on debt swap rather than new stimulus.”
When discussing planned fiscal support at a press conference last month, Lan emphasized the need to address local government debt problems.

Nomura estimates that China has 50 trillion yuan to 60 trillion yuan ($7 trillion to $8.4 trillion) in such hidden debt, and expects Beijing could allow local authorities to increase deb issuance by 10 trillion yuan over the next few years.
That could save local governments 300 billion yuan in interest payments a year, Nomura said.
In recent years, the country’s real estate slump has drastically limited a significant source of local government revenues. Regional authorities have also had to spend on Covid-19 controls during the pandemic.
Even before then, local Chinese government debt had grown to 22% of GDP by the end of 2019, far more than the growth in revenue available to pay that debt, according to an International Monetary Fund report. More

Jeffrey Gundlach speaks at the 24th Annual Sohn Investment Conference in New York, May 6, 2019.
Adam Jeffery | CNBC

DoubleLine Capital CEO Jeffrey Gundlach said Thursday that interest rates could shoot higher if Republicans end up controlling the House, securing a governing trifecta that gives President-elect Donald Trump free rein to spend as he pleases.
Gundlach, a noted fixed-income investor whose firm manages over $96 billion, believes the higher government spending would require more borrowing through Treasury issuance, putting upward pressure on bond yields.

“If the House goes to Republicans, there’s going to be a lot of debt, there’s going to be higher interest rates at the long end, and it’ll be interesting to see how the Fed reacts to that,” Gundlach said on CNBC’s “Closing Bell.”
The race to control the House is undecided as of Thursday after Republicans clinched their new Senate majority. The Federal Reserve cut rates Thursday, and traders expect the central bank to cut again in December and several times in 2025.
Notable investors such as Gundlach have been voicing concerns about the challenging fiscal situation. Fiscal 2024 just ended with the government running a budget deficit in excess of $1.8 trillion, including more than $1.1 trillion dedicated solely to paying financing costs on the $36 trillion U.S. debt.
“Trump says he’s going to cut taxes … he’s very pro cyclical stimulus,” Gundlach said. “So it looks to me that there will be some pressure on interest rates, and particularly at the long end. I think that this election result is very, very consequential.”
If the Trump administration extends the 2017 tax cuts or introduces new reductions, it could add a significant amount to the nation’s debt in the next few years, worsening the already troublesome fiscal picture.

Still, Gundlach, who had predicted a recession in the U.S., said the Trump presidency makes such an economic downturn less likely.
“I do think that it’s right to see the Trump victory as being as reducing the odds for near-term recession fairly substantially,” Gundlach said. “Certainly, the odds of recession drop when you have this type of agenda being promoted in plain English for the past three months by Mr. Trump.” More

Expectations for a December interest rate cut remained strong after the Federal Reserve trimmed rates by a quarter percentage point in November.
On Thursday afternoon, the U.S. central bank lowered the federal funds rate to a target range of 4.5% to 4.75%.

Federal Reserve Chair Jerome Powell speaks during a news conference following the Nov. 6-7, 2024, Federal Open Market Committee meeting at William McChesney Martin Jr. Federal Reserve Board Building in Washington, D.C., on Nov. 7, 2024.
Andrew Caballero-Reynolds | AFP | Getty Images

Expectations for a December interest rate cut remained strong after the Federal Reserve trimmed rates by a quarter percentage point in November, but market pricing is suggesting the likelihood of a “skip” in January.
On Thursday afternoon, the U.S. central bank lowered the federal funds rate, which determines what banks charge each other for overnight lending, to a target range of 4.5% to 4.75%.

Before the Fed released this decision at 2 p.m. ET, market pricing pointed toward a 67% chance of another quarter-point cut in December and a 33% chance of a pause that month, according to the CME FedWatch Tool.
The probability of a quarter-point December rate cut rose to more than 70% following the meeting, while the chances of a pause slipped to nearly 29%. Future rate probabilities found in the CME FedWatch Tool are derived from trading in 30-day fed funds futures contracts.
Meanwhile, the odds that the Federal Reserve would skip an interest rate cut in January was around 71%. This was slightly higher from 67% before the release of the Fed’s November decision on Thursday afternoon.
— CNBC’s Jeff Cox contributed to this report.

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The Federal Open Market Committee lowered its benchmark overnight borrowing rate by a quarter percentage point, or 25 basis points, to a target range of 4.50%-4.75%.
The vote was unanimous. Fed officials have justified the easing mode for policy as they view supporting employment becoming at least as much of a priority as arresting inflation.

WASHINGTON — The Federal Reserve approved its second consecutive interest rate cut Thursday, moving at a less aggressive pace than before but continuing its efforts to right-size monetary policy.
In a follow-up to September’s big half percentage point reduction, the Federal Open Market Committee lowered its benchmark overnight borrowing rate by a quarter percentage point, or 25 basis points, to a target range of 4.50%-4.75%. The rate sets what banks charge each other for overnight lending but often influences consumer debt instruments such as mortgages, credit cards and auto loans.

Markets had widely expected the move, which was telegraphed both at the September meeting and in follow-up remarks from policymakers since then. The vote was unanimous, unlike the previous move that saw the first “no” vote from a Fed governor since 2005. This time, Governor Michelle Bowman went along with the decision.
Stocks closed positive after the meeting wrapped, with the Nasdaq, whose holdings are tilted towards the tech sector, rallying 1.5% to lead the major averages. Both the Nasdaq and the S&P 500 closed at record highs. Treasury yields plunged after roaring higher the day before.
The post-meeting statement reflected a few tweaks in how the Fed views the economy. Among them was an altered view in how it assesses the effort to bring down inflation while supporting the labor market.
“The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance,” the document said, a change from September when it noted “greater confidence” in the process.

Recalibrating policy

Fed officials have justified the easing mode for policy as they view supporting employment becoming at least as much of a priority as arresting inflation.

The statement slightly downgraded the labor market, saying “conditions have generally eased, and the unemployment rate has moved up but remains low.” The committee again said the economy “has continued to expand at a solid pace.”
Officials have largely framed the change in policy as an attempt to get the rate structure back in line with an economy where inflation is drifting back to the central bank’s 2% target while the labor market has shown some indications of softening. Fed Chair Jerome Powell has spoken of “recalibrating” policy back to where it no longer needs to be as restrictive as it was when the central bank focused almost solely on taming inflation.
“This further recalibration of our policy stance will help maintain the strength of the economy and the labor market and will continue to enable further progress on inflation as we move towards a more neutral stance,” Powell said at his post-meeting news conference.
There is uncertainty over how far the Fed will need to go with cuts as the macro economy continues to post solid growth and inflation remains a stifling problem for U.S. households.
Gross domestic product grew at a 2.8% pace in the third quarter, less than expected and slightly below the second-quarter level, but still above the historical trend for the U.S. around 1.8%-2%. Preliminary tracking for the fourth quarter is pointing to growth around 2.4%, according to the Atlanta Fed.
Generally, the labor market has held up well. However, nonfarm payrolls increased by just by 12,000 in October, though the weakness was attributed in part to storms in the Southeast and labor strikes.The decision comes amid a changing political backdrop.
President-elect Donald Trump scored a stunning victory in Tuesday’s election. Economists largely expect his policies to pose challenges for inflation, with his stated intentions of punitive tariffs and mass deportations for undocumented immigrants. In his first term, however, inflation held low while economic growth, outside of the initial phase of the Covid pandemic, held strong.
Still, Trump was a fierce critic of Powell and his colleagues during his first stint in office, and the chair’s term expires in early 2026. Central bankers assiduously steer clear of commenting on political matters, but the Trump dynamic could be an overhang for the course of policy ahead.
An acceleration in economic activity under Trump could persuade the Fed to cut rates less, depending on how inflation reacts.
Powell said the new administration won’t factor directly into monetary policy.
“In the near term, the election will have no effect on our policy decisions,” Powell said. The November meeting was moved back a day due to the election.
Powell also said he would not step down even if the president-elect asked for his resignation. He ended the news conference a bit shorter than usual after being peppered with questions about the incoming administration.

Pace of future cuts

Questions have arisen over what the “terminal” point is for the Fed, or the point at which it will decide it has cut enough and has its benchmark rate where it is neither pushing nor holding back growth. Traders expect the Fed likely will approve another quarter-point cut in December then pause in January as it assesses the impact of its tightening moves, according to the CME Group’s FedWatch tool.
“We interpret the statement overall as pointing to a steady-as-she-goes policy path for now as policymakers take their time to digest emerging Trump shocks to economic policy, financial conditions and animal spirits, with another cut in December a good base case,” said Krishna Guha, Evercore ISI vice chairman.
The FOMC indicated in September that members expected a half percentage point more in cuts by the end of this year and then another full percentage point in 2025. The September “dot plot” of individual officials’ expectations pointed to a terminal rate of 2.9%, which would imply another half percentage point of cuts in 2026.
Even with the Fed lowering rates, markets have not responded in kind. Treasury yields have jumped higher since the September cut, as have mortgage rates. The 30-year mortgage, for instance, has climbed about 0.7 percentage point to 6.8%, according to Freddie Mac. The 10-year Treasury yield is up almost as much.
The Fed is seeking to achieve a “soft landing” for the economy in which it can bring down inflation without causing a recession. The Fed’s preferred inflation indicator most recently showed a 2.1% 12-month rate, though the so-called core, which excludes food and energy and is generally considered a better long-run indicator, was at 2.7%.

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This is a comparison of Thursday’s Federal Open Market Committee statement with the one issued after the Fed’s previous policymaking meeting in September.
Text removed from the September statement is in red with a horizontal line through the middle.

Text appearing for the first time in the new statement is in red and underlined.
Black text appears in both statements.

Arrows pointing outwards More