Fed chair Powell insists there’s no rush to cut US interest rates, despite Trump criticism – business live | Business

Back in the UK, one of the more dovish policymakers at the Bank of England is arguing for a cut in interest rates.

Dave Ramsden, a deputy governor at the BoE, is one of three policymakers who voted to cut rates this month (but were outvoted 6-3).

Explaining his decision, Ramsden says he is taking a “watchful and responsive approach” to setting interest rates. He argues there is a risk that inflation (currently 3.4%) settles below the Bank’s 2% target, unless borrowing costs are cut.

He tells the Barclays-CEPR Monetary Policy Forum 2025 that his vote to cut was “a finely balanced judgement”, but also “robust for two main reasons”…..

First because even at 4% I assess that monetary policy would remain clearly in restrictive territory. So if evidence emerged that pointed to higher inflation in the medium term then Bank Rate could be held higher for longer than would otherwise be the case.

Second given the environment we are operating in I think it is important that monetary policy is outlook dependent and should respond and be seen to respond when the evidence on the outlook requires it. I continue to take a watchful and responsive approach to setting policy.

I think this is in line with the emphasis the MPC puts in its collective communications on policy not being on a pre-set path and that we will consider the degree of restraint which is required from meeting to meeting.

Notably, Ramsden also refers four times to the “hump in inflation”, suggesting a split with the more hawkish Megan Greene who this morning warned it may be a “plateau” instead (see earlier post).

Wall Street has opened higher, as investors welcome the fragile ceasefire between Israel and Iran announced overnight.

Despite president Trump claiming that the two sides “don’t know what the fuck they’re doing”, following clashes this morning, New York investors seem hopeful that the truce will hold.

The Dow Jones industrial average has risen by 362 points, or 0.85%, to 42,944 points in early trading. The broader S&P 500 index is also up 0.85%.

Jay Powell will also warn Congress that the trade war has already pushed up inflation expectations, although not to alarming levels.

His prepared testimony says:

Near-term measures of inflation expectations have moved up over recent months, as reflected in both market- and survey-based measures. Respondents to surveys of consumers, businesses, and professional forecasters point to tariffs as the driving factor.

Beyond the next year or so, however, most measures of longer-term expectations remain consistent with our 2 percent inflation goal.

Jerome Powell’s prepared testimony suggests he would push back on calls for US interest rates to be cut as soon as July.

In recent days, two members of the Fed’s board – Christopher Waller and Michelle Bowman – have indicated they could support a rate cut as soon as next month.

Waller argued last week that the Fed should cut to avoid a potential slowdown in the labor market. Yesterday, Bowman suggested that the inflationary effect of the trade war could be lower than expected.

Newsflash: America’s top central banker is not bowing to Donald Trump’s demands to cut interest rates.

Jerome Powell is set to testify to the US House of Representatives’s Committee on Financial Services, and will tell Congress that interest rate cuts can wait until policymakers have more clarity on the economic impact of Trump’s tariffs.

Powell will explain that Federal Reserve believes these tariffs, paid on imported goods, will push up prices.

That impact might only last a short time, or could have longer-term impacts – and the Fed chair is keen to keep inflation expectations pegged down, by holding interest rates for longer.

Powell’s prepared testimony, just released, says:

Policy changes continue to evolve, and their effects on the economy remain uncertain. The effects of tariffs will depend, among other things, on their ultimate level. Expectations of that level, and thus of the related economic effects, reached a peak in April and have since declined. Even so, increases in tariffs this year are likely to push up prices and weigh on economic activity.

The effects on inflation could be short lived — reflecting a one-time shift in the price level. It is also possible that the inflationary effects could instead be more persistent. Avoiding that outcome will depend on the size of the tariff effects, on how long it takes for them to pass through fully into prices, and, ultimately, on keeping longer-term inflation expectations well anchored.

The FOMC’s obligation is to keep longer-term inflation expectations well anchored and to prevent a one-time increase in the price level from becoming an ongoing inflation problem. As we act to meet that obligation, we will balance our maximum-employment and price-stability mandates, keeping in mind that, without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans.

For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.

That is not what Donald Trump wants to hear. Earlier today, the US president urged Congress to “really” work Powell over, claiming the Fed chair was a “very dumb, hardheaded person” for not having lowered rates by two or three percentage points already.

Three oil tankers which turned back from the strait of Hormuz on Monday turned around again and continued their journeys towards the Gulf this morning, even as Israel and Iran continued to exchange fire.

Oil tankers Coswisdom Lake, Damsgaard and South Loyalty were among six vessels which changed direction on Monday to travel away from the key trade route, according to data from ship traffic and maritime analytics provider MarineTraffic. However, these vessels subsequently decided to resume their original route and pass through the strait between Iran and Oman, through which around 20% of global oil and gas flows.

Twelve days of war between Israel and Iran has thrown shipping routes into disarray, prompting vessels to alter their journeys, as well as speed up or pause their trips.

The conflict has pushed seen war risk insurance premiums higher. Premiums to transit Hormuz have reportedly climbed from 0.125% of a ship’s value pre-conflict to 0.3%, leading to an increase of $175,000 for a $100 million oil tanker, or representing $4,000/day on a round-trip voyage to the Far East, according to analyst Omar Nokta at Jefferies.

Shipping rates for oil tankers have also been climbing during the conflict, Nokta, said in a note, pushing global average rates to $65,000/day, and to $72,000/day for the benchmark Middle East to China route. Freight rates for gas tankers have also been rising, with spot rates for vessels in the Middle East reaching a $2,000 a day premium.

“The direction in freight rates is likely to be dictated to an extent by insurance premiums going forward,” Nokta said in a note.

Shares have risen in London, and across Europe, this morning as hopes of de-escalation in the Middle East cheer investors.

The UK’s FTSE 100 share index is currently up 35 points, or 0.4%, at 8793 points. Airline stocks have led the rally, with easyJet up 6.4% and IAG (British Airways’s parent company) gaining 5.7%,

European markets are holding most of their earlier gains too, with Germany’s DAX up 1.8% and France’s CAC 1.1% higher.

Markets jumped when trading began, after president Trump announced a ceasefire between Israel and Iran.

That pushed the oil price down to its lowest level in two weeks, with Brent crude down more than 5% at one stage to $67.50 per barrel.

Oil pushed higher, though, after Israel accused Iran of violating the ceasefire, and both sides continued to exchange fire this morning.

Trump has now said both sides have violated the ceasefire he announced this morning, telling reporters he was especially unhappy with Israel.

Trump declared:

“We basically have two countries that have been fighting so long and so hard that they don’t know what the fuck they’re doing.”

Brent is currently trading at $69.20 per barrel, still down 3% today, and adding to Monday’s 7% slide.

The UK will not meet targets for electric vehicle sales unless the government creates more incentives for consumer to buy including reform of VAT and energy prices, the car industry has warned.

Mike Hawes, chief executive of Society of Motor Manufacturers and Traders, says the industry is paying six times as much tax on energy in British factories as their equivalent in the EU pay.

And despite a years-long campaign to slash prices consumers pay to charge their cars, there is still inequality on the road with those lucky enough to have their own drive paying 5% VAT while those in big urban areas are penalised by paying 20% VAT on electricity from chargers on the public road.

Sam Lister, director general for industrial strategy at the department of business and trade, told the SMMT annual conference this morning that the UK had some of the highest energy prices in the world.

“I think fundamentally, we were at our bottom of the European league table, the global leage table, at £160 per megawatt hour … cabinet definitely backed getting it to £120, so it is significant and gets it to the middle [of the table] in terms of Europe … but [compared with] Texas where it is something like £50 .. there are still some really competitive challenges,” he said.

Hawes also renewed calls for changes in the UK’s Zero Emissions Vehicle (ZEV) rules which sets the percentage of new car and van sales that must be zero emission, saying the current set-up is not working.

Under the government’s ZEV rules 28% of new cars sold this year must by EVs, rising to 80% in 2030 and 100% in 2035.

Hawes said:

I think if you decide to set a regulation which effectively is seeking to control the market, and the market doesn’t respond, you’ve got to look at the fundamentals behind the market… which is showing that the underlying level of demand for EVs is below the regulation last year, at 19.6% against 22%. This year we’re running at about 21%, but against [the target of] 28%, so there is a gap.

UK factories have suffered a drop in orders this month.

The CBI’s latest Industrial Trends reports shows that order books were the weakest since January. A net balance of 33% of manufacturers reported that their total order books were reported as below “normal” in June, up from 30% in May.

The report also found that output fell across the sector last month, with the chemicals, metal products and mechanical engineering sectors driving the decline.

The CBI explains:

Manufacturing output volumes fell in the three months to June, at a similarly steep pace to the three months to May. The decline was widespread with output falling in 14 out of 17 sub-sectors.

Looking ahead, firms anticipate that the pace of decline will slow over the three months to September. Total and export order books remained weak in June, with both balances broadly unchanged from last month and below their respective long-run averages.

Manufacturers indicated that stock adequacy for finished goods fell slightly relative to May, with the balance standing below the long-run average. Expectations for selling price inflation eased this month but they remain above the long-run average.

One of the more hawkish policymakers at the Bank of England has warned that UK inflation may plateau in the near term, rather than rising over a hump and dropping back again.

Megan Greene has told the National Institute of Economic and Social Research (NIESR) that she is worried about the near-term profile for inflation this year, which she believes “resembles more of a ‘plateau’ than a ‘hump’”.

UK inflation slipped slightly to 3.4% in May, still some way above the Bank’s target of 2%.

Greene fears that current inflation levels will push up the public’s expectations, leading to larger pay rises and higher prices in the shops.

She says:

We expect inflation to resume its fall towards our target from early next year. However, there is a risk that elevated inflation of roughly 3.5% the rest of this year will feed through into inflation expectations, and therefore wage and price setting behaviour.

Aside from energy and regulated prices buoying inflation, food prices have surprised consistently to the upside. Energy and food prices are particularly salient for inflation expectation setting. Household inflation expectations have been rising for months and are at the upper end of the band we might expect given consumer prices.

Business expectations are also elevated but are less out-of-line with the past. I think the risk that our near-term plateau in inflation feeds through into second round effects is skewed to the upside.

Overall, the balance of risks are “skewed to the downside on growth and to the upside on inflation”, Greene argues, adding “This is an uncomfortable place to be for a central banker”.

Greene is one of the six policymakers on the Bank’s Monetary Policy Committee who voted to leave interest rates on hold last week, with just three policymakers pushing for a rate cut (updated).