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The U.S. central bank, to President Donald Trump’s chagrin, will likely leave interest rates unchanged at a policy meeting this week, but that’s not to say there won’t be a vigorous debate, with one if not two Federal Reserve governors possibly casting a rare dissent in support of lower borrowing costs. The majority of Fed policymakers, though, remain concerned that Trump’s tariffs could undo progress on bringing inflation back to the central bank’s 2% goal, outweighing for now worries about the labor market. The trade deal struck between the U.S. and Japan last week, with tariffs set at 15%, and reported progress for a similar rate in talks with the European Union make it more likely that import duties overall will end up well below the punishing levels Trump announced on his April 2 “Liberation Day.” Even so, U.S. tariffs are at their highest level in 90 years, and the effects are starting to show up in household purchases. A surge in prices of goods like furnishings and apparel helped drive overall consumer inflation to an annualized 3.5% pace in June. So soon after a bout of 40-year-high inflation, policymakers fear fast-rising prices could “freak out” households, as Chicago Fed President Austan Goolsbee sometimes phrases it, triggering a wider inflationary spiral. While Fed Chair Jerome Powell says that is only one of many possible scenarios, he has argued the central bank can wait to learn more before adjusting rates, especially with a 4.1% unemployment rate near or below estimates of full employment. Other data and the outlook amid Trump’s broader economic program, including tax cuts and deregulation, invite differing views on the central bank’s policy-setting Federal Open Market Committee. “Considering the clear divergence in the near-term policy outlook between (Fed Governor Christopher) Waller and (Fed Vice Chair of Supervision Michelle) Bowman and the other FOMC participants, we expect both Waller and Bowman to dissent in favor of a 25-bp (basis-point) cut,” wrote analysts at Nomura Securities, one of several Wall Street firms predicting the first double dissent from Fed governors since 1993. Both Waller and Bowman were appointed to the Board of Governors by Trump, who has excoriated Powell for resisting the White House’s demand for an immediate rate cut and broached the idea of firing the Fed chief before his term expires next May. Last week, during a rare but tense visit to the Fed’s headquarters in Washington, Trump once again pressed the case for lower rates, though he also said he didn’t think it was necessary to fire Powell. Waller, who has been mentioned as a possible successor to Powell, sees private-sector job growth nearing stall speed and fears companies could turn to layoffs in the absence of easier credit conditions. Private-sector hiring accounted for just half of the gain of 147,000 U.S. jobs in June, and Waller says other data suggests even that reading overestimates the true increase. Bowman has also expressed worries about labor market deterioration and feels a rate cut may be needed to prevent it. Both are skeptical tariffs will lead to persistent inflation. Several others, including Boston Fed President Susan Collins, also see recent muted price increases as suggesting tariffs may not push up inflation as much as earlier thought. RECORD-BREAKING ECONOMY Ahead of the scheduled release on Wednesday of the Fed’s policy statement, the Commerce Department is widely expected to report that economic activity reaccelerated in the second quarter, pushing total output above $30 trillion in non-inflation-adjusted terms for the first time. That may shore up Trump’s bragging rights to what he says is a U.S. economy that would take off like a rocket if only the Fed cut rates. But central bankers will see it as more ambiguous. The expected increase follows a first-quarter drop in GDP from a historic rush to front-run Trump’s tariffs on imports from U.S. trading partners. “While a sharp reversal in imports will mechanically boost Q2 GDP, tariff-induced cost pressures, persistent policy uncertainty, severely curtailed immigration, and elevated interest rates are collectively dampening employment, business investment and household consumption,” wrote Gregory Daco, chief economist at EY-Parthenon. “The U.S. economy continues to navigate a complex set of cross-currents, obscuring a clear reading of its underlying momentum.” Consumer spending, accounting for two-thirds of economic output, has been reasonably strong, with retail sales rising more than expected last month. Though household bank account balances are lower on a year-over-year basis, data from the JPMorganChase Institute last week suggests overall cash reserves are in better shape. Bank credit extended to consumers and businesses is up from the prior year for the first time in more than two years, Fed data shows. Similarly, loan volume and demand rose beginning in late May after sluggish or no growth since the year began, a Dallas Fed survey shows, and bankers expect increased economic activity and rising credit demand through the end of this year. In another sign the economy isn’t rolling over, Fed data shows manufacturing output grew last quarter, albeit by a slower 2.1% annualized pace than the first quarter’s 3.7% pace. A measure of how fully firms are using their resources edged up to 77.6% in June from 77.5% in May. Still, business investment may be faltering. Data on Friday showed non-defense capital goods orders excluding aircraft unexpectedly dropped 0.7% in June as firms grew more cautious about spending. Other data points to a weakening economy, bolstering the minority argument for rate cuts soon. Employment growth has slowed and hiring breadth is narrowing, led by just a few service-providing sectors. Finding a job after losing one is getting harder. Half of those collecting unemployment benefits remain on the jobless rolls for at least two-and-a-half months. And the housing and construction sectors are clearly on the back foot, feeling the drag of 30-year fixed-rate mortgages hovering near 7%. Overall construction spending has fallen for nine straight months a streak unseen since the 2007-2009 financial crisis and new single-family home starts were the lowest in nearly a year in June. Sales of new and existing homes remain anemic. “Weak housing demand is convincng evidence that rates are still restrictive, with factors like a softening labor market and high uncertainty possibly also weighing on demand,” Citi economists wrote. Ann Saphir, Reuters
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E-Commerce
The United States and the European Union agreed on Sunday to a trade framework setting a 15% tariff on most goods, staving off at least for now far higher import duties on both sides that might have sent shock waves through economies around the globe.The sweeping announcement came after President Donald Trump and European Commission chief Ursula von der Leyen met briefly at Trump’s Turnberry golf course in Scotland. Their private sit-down culminated months of bargaining, with the White House deadline Friday nearing for imposing punishing tariffs on the EU’s 27 member countries.“It was a very interesting negotiation. I think it’s going to be great for both parties,” Trump said. The agreement, he said, was “a good deal for everybody” and “a giant deal with lots of countries.”Von der Leyen said the deal “will bring stability, it will bring predictability, that’s very important for our businesses on both sides of the Atlantic.” Many facets will require more work As with other, recent tariff agreements that Trump announced with countries including Japan and the United Kingdom, some major details remain pending in this one.Trump said the EU had agreed to buy some $750 billion worth of U.S. energy and invest $600 billion more than it already is in America as well as make a major military equipment purchase. He said tariffs “for automobiles and everything else will be a straight across tariff of 15%” and meant that U.S. exporters “have the opening up of all of the European countries.”Von der Leyen said the 15% tariffs were “across the board, all inclusive” and that “indeed, basically the European market is open.”At a later news conference away from Turnberry, she said the $750 billion in additional U.S. energy purchases was actually over the next three years and would help ease the dependence on natural gas from Russia among the bloc’s countries.“When the European Union and the United States work together as partners, the benefits are tangible,” Von der Leyen said, noting that the agreement “stabilized on a single, 15% tariff rate for the vast majority of EU exports” including cars, semiconductors and pharmaceuticals.“15% is a clear ceiling,” she said.But von der Leyen also clarified that such a rate wouldn’t apply to everything, saying that both sides agreed on “zero for zero tariffs on a number of strategic products,” like all aircraft and component parts, certain chemicals, certain generic drugs, semiconductor equipment, some agricultural products, natural resources and critical raw materials.It is unclear if alcohol will be included in that list.“And we will keep working to add more products to this list,” she said, while also stressing that the “framework means the figures we have just explained to the public, but, of course, details have to be sorted out. And that will happen over the next weeks.” Further EU approval needed In the meantime, there will be work to do on other fronts. Von der Leyen had a mandate to negotiate because the European Commission handles trade for member countries. But the Commission must now present the deal to member states and EU lawmakers, who will ultimately decide whether or not to approve it.Before their meeting began, Trump pledged to change what he characterized as “a very one-sided transaction, very unfair to the United States.”“I think both sides want to see fairness,” the Republican president told reporters.Von der Leyen said the U.S. and EU combined have the world’s largest trade volume, encompassing hundreds of millions of people and trillions of dollars and added that Trump was “known as a tough negotiator and dealmaker.”“But fair,” Trump said.Trump has spent months threatening most of the world with large tariffs in hopes of shrinking major U.S. trade deficits with many key trading partners. More recently, he had hinted that any deal with the EU would have to “buy down” a tariff rate of 30% that had been set to take effect.But during his comments before the agreement was announced, the president was asked if he’d be willing to accept tariff rates lower than 15%, and he said “no.” First golf, then trade talk Their meeting came after Trump played golf for the second straight day at Turnberry, this time with a group that included sons Eric and Donald Jr. In addition to negotiating deals, Trump’s five-day visit to Scotland is built around golf and promoting properties bearing his name.A small group of demonstrators at the course waved American flags and raised a sign criticizing British Prime Minister Keir Starmer, who plans his own Turnberry meeting with Trump on Monday.Other voices could be heard cheering and chanting “Trump! Trump!” as he played nearby.On Tuesday, Trump will be in Aberdeen, in northeastern Scotland, where his family has another golf course and is opening a third next month. The president and his sons plan to help cut the ribbon on the new course.The U.S. and EU seemed close to a deal earlier this month, but Trump instead threatened the 30% tariff rate. The deadline for the Trump administration to begin imposing tariffs has shifted in recent weeks but is now firm and coming Friday, the administration insists.“No extensions, no more grace periods. Aug. 1, the tariffs are set, they’ll go into place, Customs will start collecting the money and off we go,” U.S. Commerce Secretary Howard Lutnick told “Fox News Sunday” before the EU deal was announced. He added, however, that even after that “people can still talk to President Trump. I mean, he’s always willing to listen.”Without an agreement, the EU said it was prepared to retaliate with tariffs on hundreds of American products, ranging from beef and auto parts to beer and Boeing airplanes.If Trump eventually followed through on his threat of tariffs against Europe, meanwhile, it could have made everything from French cheese and Italian leather goods to German electronics and Spanish pharmaceuticals more expensive in the United States.“I think it’s great that we made a deal today, instead of playing games and maybe not making a deal at all,” Trump said. “I think it’s the biggest deal ever made.” Associated Press writers Seung Min Kim in Cincinnati and Samuel Petrequin in London contributed to this report. Will Weissert, Associated Press
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E-Commerce
Union members who assemble Boeing’s fighter jets in the St. Louis area have “overwhelmingly voted” to reject the company’s contract offer on Sunday, with the company now preparing for an imminent strike. Boeing’s proposal, which was sent on Tuesday to more than 3,200 members of the International Association of Machinists and Aerospace Workers (IAM) District 837, included a 20% general wage increase over four years and a $5,000 ratification bonus, as well as more vacation time and sick leave. “The proposal from Boeing Defense fell short of addressing the priorities and sacrifices of the skilled IAM Union workforce,” the IAM union said. Dan Gillian, Boeing’s Air Dominance vice president, general manager and senior St. Louis Site executive said in an emailed statement that it is disappointed Boeing employees voted down “the richest contract offer we’ve ever presented to IAM 837 which addressed all their stated priorities.” “We’ve activated our contingency plan and are focused on preparing for a strike. No talks are scheduled with the union,” Gillian added. The current contract expires on Sunday following which there is a seven-day cooling off period before a strike would begin, the union added. Boeing’s defense division is expanding manufacturing facilities in the St. Louis area for the new U.S. Air Force fighter, the F-47, after it won the contract earlier this year. The Next Generation Air Dominance (NGAD) fighter jet program, initially conceived as a “family of systems” centered around a sixth-generation fighter jet, is meant to replace the F-22 Raptor. Rishabh Jaiswal and Angela Christy, Reuters
Category:
E-Commerce
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