Unlock the White House Watch newsletter for free
Your guide to what Trump’s second term means for Washington, business and the world
The Federal Reserve issued a warning about increasing economic risks during its recent meeting in early May, where it decided to keep interest rates stable. The upcoming release of the meeting minutes next week is eagerly awaited by investors, who are looking for further insights into the concerns highlighted by the Fed.
Chair Jay Powell emphasized the growing “uncertainty” surrounding the trajectory of the US economy in his speech at the beginning of May. Market reactions have been volatile, especially in response to President Trump’s announcements regarding trade tariffs.
Currently, markets are pricing in the likelihood of up to two interest rate cuts by the end of the year. However, some strategists believe this outlook may be overly optimistic, particularly as investors are also anticipating an inflation rate of around 3.4 per cent a year from now.
The upcoming minutes from the May FOMC meeting are expected to shed light on how the Federal Open Market Committee perceives the potential economic impact of Trump’s trade policies. Since the last meeting, there have been significant changes in the president’s approach, including recent tariff agreements with China and threats of imposing tariffs on EU imports.
“The May FOMC minutes should highlight the Fed’s cautious approach until there is more clarity on policy,” according to Bank of America strategists. They also noted that any indication of how the Fed would respond to stagflation, if it were to occur, would be of interest to the markets.
Additionally, the upcoming inflation data for April will be closely monitored. ING strategists expect the core Personal Consumption Expenditures index, which is the Fed’s preferred inflation gauge, to show a 0.1 per cent increase month-on-month. George Steer
Is the trade war back on?
Concerns about tariffs appeared to have diminished for financial markets this week, overshadowed by news about US government spending and tax policies. However, Trump’s recent threat of a 50 per cent tariff on EU imports on Friday reignited worries about a potential trade war.
Market reactions to this news were immediate, with European and US stocks declining while safe assets like gold and sovereign debt saw increased demand. This development has raised the specter of a disruptive global trade scenario.
While some analysts believe that the trade war may not escalate further, drawing parallels to Trump’s strategy with China, others caution that negotiations with the EU could be more complex. Investors are advised against prematurely assuming a resolution to the trade tensions. Emily Herbert
Will bitcoin’s rally continue?
Bitcoin has experienced a remarkable rally in recent weeks, reaching record highs and outperforming traditional assets like gold and stocks. The surge in the cryptocurrency’s value has been attributed to various factors, including uncertainties surrounding US tariffs and the increasing institutional interest in bitcoin.
Market observers point to corporate treasuries buying bitcoin, geopolitical uncertainties, and the potential US regulations on stablecoins as factors supporting bitcoin’s price surge. The scarcity of bitcoin and its perceived resilience in the face of economic challenges have also contributed to its rally.
As bitcoin continues its upward trajectory, analysts are divided on how far the rally can go. Some forecasts predict significant price increases for bitcoin in the coming months. Philip Stafford