Daily update
Daily update
- US Commerce Secretary Lutnick suggested US rates should be cut now, and Federal Reserve Chair Powell should resign or be fired. Do investors want to live in a world where Fed independence is compromised and Lutnick influences policy? To judge from the dollar’s reaction, the answer is “no”.
- Two problems emerge from casting the Fed as a scapegoat for coming economic problems. Fed attacks mean supporting rate cuts (for legitimate economic reasons) might create the perception of being a political puppet. Even if the Fed remains independent, its reputation for independence is undermined—and reputations take years to rebuild. An independent central bank is not an absolute requirement for reserve currency status, but it helps—and the US is now suffering on this category.
- The ECB’s independence has not been questioned lately, but it is not expected to cut rates today. Uncertainty about taxing US consumers of EU products and possible retaliation by the EU is likely to delay the rate cut. Nonetheless, global disinflation forces (outside the US) argue for a later rate cut.
- US initial and continuing jobless claims attract justified attention, as the US labor market is looking fragile. European business sentiment polls attract unjustified attention—as their ties to economic reality may be compromised.