Federal Reserve is Set to Cut Rates Again

The exterior of the Marriner S. Eccles Federal Reserve Board Building is seen in Washington, D.C., US, June 14, 2022. REUTERS/Sarah Silbiger/File Photo
The exterior of the Marriner S. Eccles Federal Reserve Board Building is seen in Washington, D.C., US, June 14, 2022. REUTERS/Sarah Silbiger/File Photo
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Federal Reserve is Set to Cut Rates Again

The exterior of the Marriner S. Eccles Federal Reserve Board Building is seen in Washington, D.C., US, June 14, 2022. REUTERS/Sarah Silbiger/File Photo
The exterior of the Marriner S. Eccles Federal Reserve Board Building is seen in Washington, D.C., US, June 14, 2022. REUTERS/Sarah Silbiger/File Photo

No one knows how Tuesday's presidential election will turn out, but the US Federal Reserve's move two days later is much easier to predict: With inflation continuing to cool, the Fed is set to cut interest rates for a second time this year.
The presidential contest might still be unresolved when the Fed ends its two-day meeting Thursday afternoon, yet that uncertainty would have no effect on its decision to further reduce its benchmark rate. The Fed's future actions, though, will become more unsettled once a new president and Congress take office in January, particularly if Donald Trump were to win the White House again, The Associated Press reported.
Trump's proposals to impose high tariffs on all imports and launch mass deportations of unauthorized immigrants and his threat to intrude on the Fed's normally independent rate decisions could send inflation surging, economists have said. Higher inflation would, in turn, compel the Fed to slow or stop its rate cuts.
On Thursday, the Fed's policymakers, led by Chair Jerome Powell, are on track to cut their benchmark rate by a quarter-point, to about 4.6%, after having implemented a half-point reduction in September. Economists expect another quarter-point rate cut in December and possibly additional such moves next year. Over time, rate cuts tend to lower the costs of borrowing for consumers and businesses.
The Fed is reducing its rate for a different reason than it usually does: It often cuts rates to boost a sluggish economy and a weak job market by encouraging more borrowing and spending. But the economy is growing briskly, and the unemployment rate is a low 4.1%, the government reported Friday, even with hurricanes and a strike at Boeing having sharply depressed net job growth last month.
Instead, the central bank is lowering rates as part of what Powell has called “a recalibration” to a lower-inflation environment. When inflation spiked to a four-decade high of 9.1% in June 2022, the Fed proceeded to raise rates 11 times — ultimately sending its key rate to about 5.3%, also the highest in four decades.
But in September, year-over-year inflation dropped to 2.4%, barely above the Fed's 2% target and equal to its level in 2018. With inflation having fallen so far, Powell and other Fed officials have said they think high borrowing rates are no longer necessary. High borrowing rates typically restrict growth, particularly in interest-rate-sensitive sectors such as housing and auto sales.
“The restriction was in place because inflation was elevated,” said Claudia Sahm, chief economist at New Century Advisors and a former Fed economist. “Inflation is no longer elevated. The reason for the restriction is gone.”
Fed officials have suggested that their rate cuts would be gradual. But nearly all of them have expressed support for some further reductions.
“For me, the central question is how much and how fast to reduce the target for the (Fed's key) rate, which I believe is currently set at a restrictive level,” Christopher Waller, an influential member of the Fed's Board of Directors, said in a speech last month.
Jonathan Pingle, an economist at Swiss bank UBS, said that Waller's phrasing reflected “unusual confidence and conviction that rates were headed lower."
Next year, the Fed will likely start to wrestle with the question of just how low their benchmark rate should go. Eventually, they may want to set it at a level that neither restricts nor stimulates growth — “neutral” in Fed parlance.
Powell and other Fed officials acknowledge that they don't know exactly where the neutral rate is. In September, the Fed's rate-setting committee estimated that it was 2.9%. Most economists think it's closer to 3% to 3.5%.
The Fed chair said the officials have to assess where neutral is by how the economy responds to rate cuts. For now, most officials are confident that at 4.9%, the Fed's current rate is far above neutral.
Some economists argue, though, that with the economy looking healthy even with high borrowing rates, the Fed doesn't need to ease credit much, if at all. The idea is that they may already be close to the level of interest rates that neither slows nor stimulates the economy.
“If the unemployment rate stays in the low 4's and the economy is still going to grow at 3%, does it matter that the (Fed's) rate is 4.75% to 5%?” said Joe LaVorgna, chief economist at SMBC Nikko Securities, asked. “Why are they cutting now?”
With the Fed's latest meeting coming right after Election Day, Powell will likely field questions at his news conference Thursday about the outcome of the presidential race and how it might affect the economy and inflation. He can be expected to reiterate that the Fed's decisions aren't affected by politics at all.
During Trump's presidency, he imposed tariffs on washing machines, solar panels, steel and a range of goods from China, which President Joe Biden maintained. Though studies show that washing machine prices rose as a result, overall inflation did not rise much.
But Trump is now proposing significantly broader tariffs — essentially, import taxes — that would raise the prices of about 10 times as many goods from overseas.
Many mainstream economists are alarmed by Trump’s latest proposed tariffs, which they say would almost certainly reignite inflation. A report by the Peterson Institute for International Economics concluded that Trump’s main tariff proposals would make inflation 2 percentage points higher next year than it otherwise would have been.
The Fed could be more likely to raise rates in response to tariffs this time, according to economists at Pantheon Macroeconomics, "given that Trump is threatening much bigger increases in tariffs.”
“Accordingly," they wrote, “we will scale back the reduction in the funds rate in our 2025 forecasts if Trump wins.”



Al-Rumayyan: PIF Investments in Local Content Exceed $157 Billion

Yasir Al-Rumayyan speaks to the audience in the opening speech of the Public Investment Fund and Private Sector Forum (Middle East)
Yasir Al-Rumayyan speaks to the audience in the opening speech of the Public Investment Fund and Private Sector Forum (Middle East)
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Al-Rumayyan: PIF Investments in Local Content Exceed $157 Billion

Yasir Al-Rumayyan speaks to the audience in the opening speech of the Public Investment Fund and Private Sector Forum (Middle East)
Yasir Al-Rumayyan speaks to the audience in the opening speech of the Public Investment Fund and Private Sector Forum (Middle East)

Yasir Al-Rumayyan, governor of Saudi Arabia’s Public Investment Fund (PIF), announced that spending by the sovereign fund’s programs, initiatives, and companies on local content reached 591 billion riyals ($157 billion) between 2020 and 2024.

He added that the fund’s private sector platform has created more than 190 investment opportunities worth over 40 billion riyals ($10 billion).

Speaking at the opening of the PIF Private Sector Forum on Monday in Riyadh, Al-Rumayyan said the fund is working closely with the private sector to deepen the impact of previous achievements and build an integrated economic system that drives sustainable growth through a comprehensive investment cycle methodology.

He described the forum as the largest platform of its kind for seizing partnership and collaboration opportunities with the private sector, highlighting the fund’s success in turning discussions into tangible projects.

Since 2023, the forum has attracted 25,000 participants from both public and private sectors and has witnessed the signing of over 140 agreements worth more than 15 billion riyals, he pointed out.

Al-Rumayyan emphasized that the meeting comes at a pivotal stage of the Kingdom’s economy, where competitiveness will reach higher levels, sectors and value chains will mature, and ambitions will be raised.

PIF Private Sector Forum aims to support the fund’s strategic initiative to engage the private sector, showcase commercial opportunities across PIF and its portfolio companies, highlight potential prospects for investors and suppliers, and enhance cooperation to strengthen the local economy.


Pakistan’s Finance Minister to Asharq Al-Awsat: We Draw Inspiration from Saudi Arabia

The Pakistani Finance Minister during his meeting with Saudi Minister of Economy and Planning Faisal Alibrahim on the sidelines of the AlUla Conference (SPA)
The Pakistani Finance Minister during his meeting with Saudi Minister of Economy and Planning Faisal Alibrahim on the sidelines of the AlUla Conference (SPA)
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Pakistan’s Finance Minister to Asharq Al-Awsat: We Draw Inspiration from Saudi Arabia

The Pakistani Finance Minister during his meeting with Saudi Minister of Economy and Planning Faisal Alibrahim on the sidelines of the AlUla Conference (SPA)
The Pakistani Finance Minister during his meeting with Saudi Minister of Economy and Planning Faisal Alibrahim on the sidelines of the AlUla Conference (SPA)

Pakistani Finance Minister Muhammad Aurangzeb discussed the future of his country, which has frequently experienced a boom-and-bust cycle, saying Pakistan has relied on International Monetary Fund (IMF) programs due to the absence of structural reforms.

In an interview with Asharq Al-Awsat on the sidelines of the AlUla Conference for Emerging Market Economies, Aurangzeb acknowledged that Pakistan has relied on IMF programs 24 times not as a coincidence, but rather as a result of the absence of structural reforms and follow-up.

He stressed the government has decided to "double its efforts" to stay on the reform path, no matter the challenges, affirming that Islamabad not only has a reform roadmap, but also draws inspiration from "Saudi Vision 2030" as a unique model of discipline and turning plans into reality.

Revolution of Numbers

Aurangzeb reviewed the dramatic transformation in macroeconomic indicators. After foreign exchange reserves covered only two weeks of imports, current policies have succeeded in raising them to two and a half months.

He also pointed out to the government's success in curbing inflation, which has fallen from a peak of 38 percent to 10.5 percent, while reducing the fiscal deficit to 5 percent after being around 8 percent.

Aurangzeb commented on the "financial stability" principle put forward by his Saudi counterpart, Mohammed Aljadaan, considering it the cornerstone that enabled Pakistan to regain its lost fiscal space.

He explained that the success in achieving primary surpluses and reducing the deficit was not merely academic figures, but rather transformed into solid "financial buffers" that saved the country.

The minister cited the vast difference in dealing with disasters. While Islamabad had to launch an urgent international appeal for assistance during the 2022 floods, the "fiscal space" and buffers it recently built enabled it to deal with wider climate disasters by relying on its own resources, without having to search "haphazardly" for urgent external aid, proving that macroeconomic stability is the first shield to protect economic sovereignty.

Privatization and Breaking the Stalemate of State-Owned Enterprises

Aurangzeb affirmed that the Pakistani Prime Minister adopts a clear vision that "the private sector is what leads the state."

He revealed the handover of 24 government institutions to the privatization committee, noting that the successful privatization of Pakistan International Airlines in December provided a "momentum" for the privatization of other firms.

Aurangzeb also revealed radical reforms in the tax system to raise it from 10 percent to 12 percent of GDP, with the adoption of a customs tariff system that reduces local protection to make Pakistani industry more competitive globally, in parallel with reducing the size of the federal government.

Partnership with Riyadh

As for the relationship with Saudi Arabia, Aurangzeb outlined the features of a historic transformation, stressing that Pakistan wants to move from "aid and loans" to "trade and investment."

He expressed his great admiration for "Vision 2030," not only as an ambition, but as a model that achieved its targets ahead of schedule.

He revealed a formal Pakistani request to benefit from Saudi "technical knowledge and administrative expertise" in implementing economic transformations, stressing that his country's need for this executive discipline and the Kingdom's ability to manage major transformations is no less important than the need for direct financing, to ensure the building of a resilient economy led by exports, not debts.


Oil Drops 1% as US, Iran Pledge to Continue Talks

The sun rises behind the Tishrin oil field in the eastern Hasakah countryside, northeastern Syria (AP)
The sun rises behind the Tishrin oil field in the eastern Hasakah countryside, northeastern Syria (AP)
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Oil Drops 1% as US, Iran Pledge to Continue Talks

The sun rises behind the Tishrin oil field in the eastern Hasakah countryside, northeastern Syria (AP)
The sun rises behind the Tishrin oil field in the eastern Hasakah countryside, northeastern Syria (AP)

Oil prices fell 1% on Monday as immediate fears of a conflict in the Middle East eased after the US and Iran pledged to continue talks about Tehran's nuclear program over the weekend, calming investors anxious about supply disruptions.

Brent crude futures fell 67 cents, or 1%, to $67.38 a barrel on Monday by 0444 GMT, while US West Texas Intermediate crude was at $62.94 a barrel, down 61 cents, or 1%.

"With more talks on the horizon the immediate ‌fear of supply disruptions ‌in the Middle East has eased ‌quite ⁠a bit," IG ‌market analyst Tony Sycamore said.

Iran and the US pledged to continue the indirect nuclear talks following what both sides described as positive discussions on Friday in Oman despite differences. That allayed fears that failure to reach a deal might nudge the Middle East closer to war, as the US has positioned more military forces in the area.

Investors are also worried about possible disruptions to supply ⁠from Iran and other regional producers as exports equal to about a fifth of the world's ‌total oil consumption pass through the Strait of ‍Hormuz between Oman and Iran.

Both ‍benchmarks fell more than 2% last week on the easing tensions, their ‍first decline in seven weeks.

However, Iran's foreign minister said on Saturday Tehran will strike US bases in the Middle East if it is attacked by US forces, showing the threat of conflict is still alive.

"Volatility remains elevated as conflicting rhetoric persists. Any negative headlines could quickly reignite risk premiums in oil prices this week," said Priyanka Sachdeva, senior market analyst at ⁠Phillip Nova.

Investors are also continuing to grapple with efforts to curb Russian income from its oil exports for its war in Ukraine. The European Commission on Friday proposed a sweeping ban on any services that support Russia's seaborne crude oil exports.

Refiners in India, once the biggest buyer of Russia's seaborne crude, are avoiding purchases for delivery in April and are expected to stay away from such trades for longer, refining and trade sources said, which could help New Delhi seal a trade pact with Washington.

"Oil markets will remain sensitive to how broadly this pivot away from Russian crude unfolds, whether ‌India’s reduced purchases persist beyond April, and how quickly alternative flows can be brought online," Sachdeva said.