Independence in focus

Daily update

US Treasury Secretary Bessent suggested a “wholesale review” of the Federal Reserve was necessary (while supporting central bank independence). In the context of recent challenges, these remarks may trouble investors. Central bank independence was critical to the post-1970s moderation of inflation, and helped prevent the post-pandemic inflation from being worse than it was.
Bessent cited recent US inflation numbers as a reason to criticize the Fed’s rate caution. However, US President Trump’s trade taxes were always going to raise US inflation with a lag, so current inflation rates are not indicative of the near-term risks. Trade taxes with an independent central bank imply a 12-18-month inflation shock. Trade taxes without an independent central bank suggest parallels to the more enduring inflation of the mid-1970s. Fed Chair Powell speaks at a regulation conference.
UK government borrowing data tends to be better than consensus forecasts, which might reflect high frequency data releases missing some of the economic activity taking place (TikTok content creators rarely appear in employment data, but do—or should—pay taxes). Bank of England Governor Bailey is to testify on financial stability.
Speculation about trade negotiations with the US is likely to continue. The positions of the EU and Japan are in focus.