Federal Reserve set to cut interest rates – but still Trump won’t be happy

2 days ago

Stocks soared on Friday following the strongest signal yet that US the Federal Reserve is gearing up to start cutting interest rates again this fall,But how long can this celebration last?While Wall Street cheered the biggest headline from the speech by the Fed chair, Jerome Powell, at the annual Jackson Hole symposium in Wyoming, Powell also delivered a reality check on where interest rates could settle in the longer term,“We cannot say for certain where rates will settle out over the longer run, but their neutral level may now be higher than during the 2010s,” said Powell,In other words: even if the Fed does start cutting interest rates again this year, they may not fall back to their pre-pandemic levels,It’s a signal, despite the short-term optimism on potential rate cuts, that the Fed’s long-term outlook is more unstable.

“Markets might be ahead of their skis on how aggressive the Fed is going to be in reducing interest rates, because the neutral rate might be higher than some believe,” Ryan Sweet, an economist at Oxford Economics, said.Higher rates means borrowing money for loans, such as mortgages, will be more expensive.The average 30-year fixed mortgage rate was just under 3% in 2021, when interest rates were near zero.Now the average mortgage rate is closer to 6.7%.

Paired with home prices at near-record highs, elevated mortgages mean many Americans will continue to struggle to purchase a home.Although Trump has been pushing the Fed for months to decrease rates to 1%, claiming that Powell is “hurting the housing industry very badly”, it seems unlikely that rates will return to such a level any time soon.The Fed is trying to achieve a Goldilocks balance.Rates that are too high risk unemployment, while rates that are too low could mean higher inflation.Policymakers are searching for a “neutral” level, where everything is just right.

Many economists believed the central bank was close to achieving this balance before Trump started his second term.In summer 2022, as inflation scaled its highest levels in a generation, the Fed started raising rates, at the risk of hurting the labor market, in an attempt to get inflation down to 2%.Rates rose to about 5.3% in less than two years, but the jobs market remained strong.Unemployment was still at historically low even as inflation came down.

Although some economists had feared rapidly increasing rates would throw the US economy into a recession, instead the Fed appeared to achieve what is known as a “soft landing”.But things were thrown into a tailspin when Trump returned to office, armed with campaign promises to enact a full-blown trade war against the US’s key trading partners.The president has long argued that tariffs would boost American manufacturing and set the stage for better trade deals.“Tariffs don’t cause inflation.They cause success,” Trump declared back in January, acknowledging that there might be “some temporary, short-term disruption”.

But so far, success has been limited.Economists doubt the policies will generate a manufacturing renaissance, and Trump’s trade war has inspired new commercial alliances that exclude the US.All the while, US consumers are starting to see higher prices due to Trump’s tariffs.At Jackson Hole on Friday, Powell said tariffs had started to push some prices up.In June and July, inflation was 2.

7% – up 0.4 percentage points since April, when Trump first announced the bulk of his tariffs.This is still only a modest increase in price growth, but the bulk of the White House’s highest tariffs only went into effect in early August.Fed policymakers are waiting to see whether Trump’s aggressive trade strategy will cause a one-time shift in price levels – or if the effects will continue.The once strong labor market has grown sluggish.

Though there are fewer job openings, there are also fewer people looking for jobs.Powell called it “a curious kind of balance” where “both the supply of and demand for workers” have slowed.He noted that the balance was unstable and could eventually tip over, prompting more layoffs and a rise in unemployment.This instability in the labor market has made Fed officials more open to a rate cut.Powell pointed to a slacking in consumer spending and weaker gross domestic product (GDP), which suggests an overall slowdown in economic activity.

Although it set the stage for a rate cut as soon as next month, Powell’s speech was far from optimistic.“In this environment, distinguishing cyclical developments from trends, or structural developments is difficult,” he said.“Monetary policy can work to stabilise cyclical fluctuations but can do little to alter structural changes.”From Powell, who is typically diplomatic and reserved in his public statements, this seemed to be a careful warning: when executive policies destabilise the economy, the Fed can only do so much to limit the damage.

cultureSee all

Helen Mirren decries condescending attitudes towards couples in their 80s

It’s a sight that makes even the most hard-hearted millennial coo: an octogenarian couple expressing their affection towards one another.But Helen Mirren has railed against being so “insulting”, saying such condescension makes her want to tell people to “fuck off”.The actor said the hardest part of turning 80 last month was the “condescension” she was forced to endure when holding hands in public with her husband, Taylor Hackford.Speaking to the Times while promoting the release of her latest film, The Thursday Murder Club, she said: “It really annoys me.“If my husband and I are holding hands, someone might say: ‘Oh, look

2 days ago

Women’s groups hail Noel Clarke libel defeat as victory for victims and press freedom

Women’s groups have said a high court judgment dismissing a libel claim against the Guardian by actor Noel Clarke marks a victory not just for his victims, but for press freedom and public interest reporting as a whole.They said too often “wealthy and abusive men” have been able to use the courts to try to silence victims, hiding “behind injunctions, NDAs, [and] threats of defamation suits”.Clarke claimed the allegations published by the Guardian after an investigation were false and he had been the victim of an unlawful conspiracy.During the five-week civil case, 26 witnesses gave evidence against him, detailing allegations of bullying and professional and sexual misconduct.On Friday, Mrs Justice Steyn rejected Clarke’s claims, ruling the Guardian had proved both its defences: truth and public interest

2 days ago

‘New Noel Clarkes will surface’ without change in film and TV, say female witnesses

The culture of the television and film industries needs to change to protect women from the actions of sexual predators, women who gave evidence against Noel Clarke in his failed libel action have said.“Noel’s behaviour was an open secret, everyone knew,” said Penelope, a pseudonym for an actor who filmed a sex scene with Clarke. “He didn’t work alone. Those who enabled and protected him should be accountable.“He found a way to operate as he did because there is a culture across these industries of actors not being protected while at work and having no way of whistleblowing,” she told the Guardian after the court dismissed Clarke’s case on Friday

2 days ago

The Guide #205: In an age of streaming clutter, why not rediscover Britain’s rich documentary past?

The state of British TV documentary film-making is a little depressing at the moment. Open up the documentaries tab on iPlayer, Now, ITVX or Channel 4, and you’ll be assaulted by a rush of true crime docs, each with their own macabre/salacious title – Satan’s Au Pair, Catching the Frying Pan Killer, that sort of thing – and a little rectangular title card with said killer looking evil, preferably in a grainy black and white picture with a bloody thumbprint overlaid.The Guardian’s journalism is independent. We will earn a commission if you buy something through an affiliate link. Learn more

2 days ago

Eddington to Deftones: your complete entertainment guide to the week ahead

EddingtonOut now From Hereditary to Beau Is Afraid, Ari Aster’s films are always an event. They’re also an acquired taste, with this neo-western about a hotly contested mayoral election set during the pandemic in New Mexico dividing critics. It stars Joaquin Phoenix, Pedro Pascal, Austin Butler and Emma Stone.The Life of ChuckOut now Based on a Stephen King novella, this fantasy drama centres on Charles “Chuck” Krantz (played by different actors at different ages, including Tom Hiddleston in middle age), an accountant who loves to dance and whose image begins to appear on billboards and in adverts, as society experiences environmental and technological breakdowns.Sorry, BabyOut now Literature professor Agnes (Eva Victor, who also wrote and directed) works at a college in rural New England in this dark comedy

2 days ago

Notting Hill carnival came ‘very close’ to not happening, says chair in funding appeal

About 2 million people are expected to take to the streets this weekend at the annual Notting Hill carnival for its mix of music, food and Caribbean culture, but for the man who runs it, there is a sense of relief to see it taking place at all.The chair of Notting Hill Carnival Ltd, Ian Comfort, told the Guardian that the event needed to secure a sustainable future after a year of funding rows, public disagreements with the Met police, and negative press after violence last year.This year’s event was saved only a few weeks ago after almost £1m of funding was raised to provide extra safety and infrastructure measures, with Comfort admitting it came “very close” to not happening.Comfort, who usually stays in the background and rarely gives interviews, says that cannot continue. He says the whole conversation around carnival, which costs more than £11m a year to police but is worth about £400m to the local economy, needs to change

3 days ago

businessSee all