US CPI data dampens rate cut hopes, President Trump repeats call for cuts

CGTN Europe

CGTN Europe spoke to Joshua Mahony, Chief Market Analyst at Scope Markets.

Transcript

00:00President Trump commenting and saying that interest rates should be lowered, does he have a point?

00:08Well it's not up to him quite frankly, and it really comes down to what the central bank's mandate is

00:14and primarily that is to keep a lid on inflation and look after growth and unemployment.

00:20Inflation clearly remains a problem, we've seen it once again here and the US economy is in a relatively strong position

00:27so certainly if one side of the coin is already taken care of, they're going to have to focus on the other side of it

00:33and that is inflation, and until we see signs that it is likely going to go back down towards that 2% target

00:39I think the Federal Reserve are going to have to remain patient, which unfortunately means higher interest rates

00:45and higher borrowing costs look to be here for the time being.

00:48Well you say what happens at the Fed is not up to President Trump, but given these comments

00:53how much interference can we expect do you think and what goes on there and what does that mean for the way it does things?

01:01Well look we've already seen questions just today on whether Jerome Powell will step down if Donald Trump asks him to

01:09and he said that he wouldn't resign, so certainly there's previous when it comes to trying to influence the decision making of the FOMC

01:17and they will be aware of it, but that being said it's quite obvious what the lay of the land is right now

01:23inflation is a problem, the last half a year has seen month for month inflation rise and rise and rise

01:29now we're at 0.5, we thought last month's reading of 0.4 for the month was going to be the peak

01:35and today was going to see it come back heavily, instead we've just seen it continue to climb

01:39so there just isn't a basis here for the Federal Reserve to cut rates in the coming months

01:43and instead markets are now continuing to push back those expectations on when we're going to see the first rate cut

01:49Well let's talk about those inflation figures there and as you say rising and rising, what's behind that, what's going on?

01:57Yeah I mean it's pretty concerning, I mean first and foremost we're seeing a resurgence in terms of services inflation

02:04which is a problem because we had been seeing that come down and that was pretty encouraging

02:08we also saw a move higher in terms of monthly shelter costs, shelter costs have been a massive problem

02:13and it looked like we'd finally been sort of keeping a lid on that and driving it down

02:18so around about a third of the inflation metric comes down to shelter

02:22well that moved upwards for the month for month metric

02:26we also saw fuel costs despite the downside we saw in terms of crude oil over the course of January

02:31we saw fuel costs moving towards the upside and used cars once again a problematic issue

02:36another strong reading from that area of the US economy when it comes to the inflation front

02:42so problematic across a number of different points here

02:45You mentioned Jerome Powell, the head of the US Fed, he's speaking again in front of Congress for a second day

02:51and there's already been quite a lot to talk about in this first session since Trump became President again

02:59Yeah of course and I mean ultimately the theme is quite predictable

03:02because the Federal Reserve has a lot of uncertainty ahead of it

03:06and you know we're used to talking about this data dependent approach from central banks

03:10well that is particularly important at a time where they don't necessarily have complete clarity

03:15over what the trade relationships will be between the US and other nations when it comes to tariffs

03:19what the fiscal policy is going to look like, the borrowing outlook is going to look like

03:23what growth is going to look like, how inflation will be

03:26so why would they start to make major decisions now on just guesses of what things will turn out to be

03:32so they're going to be patient especially with the fact that inflation is on the rise

03:36and they're essentially just going to put the ball into Trump's court and say

03:39you can do what you're going to do and we're just going to have to react when we see the data

03:44Let's talk about tariffs, we've talked about them a lot already in the programme

03:47but what do they mean for investors do you think, how concerned should they be?

03:53Yeah I mean anyone that was trading and following financial markets

03:56during the previous presidency of Donald Trump will know that it just feels like a merry-go-round

04:01where one day you check the markets and they're down because Trump's warned of a massive tariff on a country

04:08like the likes of China, the next day you might see him saying well actually I don't want to impose those

04:14and we're going to speak to Xi Jinping and try and work through it

04:17so it's like up and down and up and down

04:19and the fact of the matter is that there are major consequences when it comes to the growth outlook

04:23there's major consequences when it comes to inflation

04:26so people are trying to gauge what the outlook is going forward

04:29and it's very difficult to judge what that will be

04:32when you don't know what all of these trade relationships will be like

04:35and you don't know what the reaction will be from the other countries

04:38because they might then impose similar measures in return on the US

04:42and it might just continue to heighten rather than finding an agreement

04:45Well all of that being factored in no doubt by the head of the US Fed Jerome Powell

04:50if he does end up stepping down from his position

04:53who or what kind of person might we see taking his place?

04:59Well it's a difficult one but ultimately you're going to look at more of the same from Donald Trump

05:05and that is that he has in his second time in office always tried to appoint people

05:10that are receptive to his view and essentially take the exact line that he would take

05:15so we saw it previously when he's bringing people into his cabinet

05:20that perhaps in the first stint were pushing back against him

05:24that's why a number of people resigned

05:26but this time around it feels like they're all pushing in the same direction

05:30he would most likely try and bring someone in that would look to bring down interest rates

05:34but it might be quite hard finding someone right now that is an ardent central banker

05:40or someone in that kind of strength of position as an economist

05:43that thinks that right now they need to cut interest rates because the economy is doing well

05:48but inflation certainly is proving to be sticky and problematic

05:51Joshua great to talk to you, thank you so much for being on the programme

05:54that's Joshua Mahoney from Scope Markets

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