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Hello and welcome to World Business Report from the BBC World Service I'm Victoria Craig, live in New York.
And on this edition, monetary policy and tariffs are front and center.
But don't go anywhere because there is lots to dig into and plenty of excitement, I promise, in this packed program.
That's because September is live in a speech heard around the world. signaled the U.S. central bank may be ready to cut interest rates next month for the first time since December. with policy in restrictive territory.
The baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.
Plus, Canada is removing tariffs on U.S. goods that are compliant with the existing North American Free Trade Agreement.
We'll dig into what's in place, what's not, and what it means for businesses up north of where I am.
And the U.S. government confirmed it's taking a stake in chip giant Intel.
We'll have the very latest details on that deal with our North American technology correspondent.
We start today though in Jackson Hole, Wyoming, where the Federal Reserve has been hosting an annual gathering of global central bankers.
In a highly anticipated and very closely watched speech, Fed Chair Jay Powell set the stage for an interest rate cut at the U.S. central bank's meeting next month.
In the near term, risks to inflation are tilted to the upside. and risks to employment to the downside, a challenging situation.
When our goals are intention like this, our framework calls for us to balance both sides of our dual mandate. our policy rate is now 100 basis points closer to neutral than it was a year ago. and the stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance.
Nonetheless, with policy in restrictive territory, the baseline outlook, and the shifting balance of risks, may warrant adjusting our policy stance.
Well, that latest statement may likely be music to President Donald Trump's ears, as we've talked extensively on this program.
He's been piling pressure on Powell for months to lower interest rates.
The process of doing so will be a careful balancing act, though.
So before we dive into the significance of Powell's speech and the complexities of adjusting that policy.
I want to sort of set the scene for you, especially for our listeners outside the US, because there is a stark contrast. between Powell's comments, described as a rocket boost for chatter on interest rates, and the bucolic place in which that speech was actually delivered.
Hannah Merzbach is a reporter for Wyoming Public Radio.
She's in Jackson Hole for us today and spoke to me a bit earlier.
Yeah, well, I mean, amid all of that, it's relatively peaceful.
It's on this, like, iconic location in Grand Teton National Park.
It's in this lodge that has floor to ceiling windows that you can see the mountains and the lake outside.
And it does feel a little bit like a vacation for these central bankers coming together.
But the lobby's filled with journalists ferociously typing on their computers, trying to follow what's happening inside.
Certainly all eyes are trained on Jackson Hole this week, that's for sure. are there in the heart of it.
You were watching Fed Chair Jay Powell's speech today at the event center.
And you caught up with a few central bankers from other global central banks to find out what their reaction was.
What have they been telling you? Yeah, pretty supportive.
Everybody that I talked to really noted that Powell got a standing ovation at the beginning, which I guess is rare here.
Here's what they had to say. My name is Mauricio Villamizar.
I'm a board member of the Colombian Central Bank.
One of the things that struck me the most was actually before his speech. where everyone in the conference, myself included, gave him a standing ovation. for that lasted for about one minute of applause and everyone stood up and i don't think that's ever happened before So the message behind the standing ovation was basically a major support for central bank. independence and autonomy.
And I think that's one of the big messages that we try to convey in the conference room.
Achim Nagel, president Deutsche Bundesbank.
Governor Paul is one of the central bankers.
I can really say he's standing for our profession.
He delivered today a clear message when it comes to price stability and full employment here in the United States.
So it was an important speech, very impressive.
So, Hannah, as Fed Chair Jay Powell was speaking at that conference, there was a bit of a confrontation happening outside in the lobby.
It's significant to point out because Powell didn't explicitly. address the political pressure that has been mounting on the Federal Reserve.
But this was sort of a show of a little bit of that.
Give us some flavor of what happened, what you saw.
Yeah, well President Donald Trump has been calling on a member of the Federal Reserve Board of governors to resign that's lisa cook He's been accusing her of mortgage fraud.
She's denied those accusations, but over in the lobby, what's believed to be a investor, yelled at Lisa Cook as she walked by, accusing her mortgage fraud.
That was kind of the spiciest thing that's happened today.
And what happened after that? Was she sort of shuttled off or did she react in some way?
She was shuttled off. He kept yelling and I didn't hear any response.
That was Hannah Merzbach, a reporter for Wyoming Public Radio in Jackson Hole for us today.
President Trump has doubled down on that threat to fire Fed Governor Lisa Cook if she does not voluntarily resign.
In a statement last night, she said she has no intention of quote being bullied to step down from her position because of some questions raised in a tweet.
She added that she will take seriously questions about her financial history and provide the facts.
So with political pressure on the U.S. central bank continuing to mount and a potential policy pivot on the horizon now.
We're joined live by Claudia Somm. She is chief economist at New Century Advisors. and a former economist for the Federal Reserve Board.
Claudia, thanks so much for joining us. What is your reaction today to Chair Powell's speech?
Did anything surprise you? I thought it was a really good speech.
It's so important. Part of the speech was sharing updates to the Fed's framework.
So kind of their principles, the strategies they use for monetary policy, And while that part of the speech maybe wasn't what investors were honed in on, It's so important in terms of the Fed clearly communicating how they try to do their job, how they try to get us to price stability and maximum employment. and lessons learned from the last five years.
They didn't turn out the way the Fed had thought.
And so that part of the speech, I think, was so important.
And it's And it really fits in that piece of the Fed being an independent agency.
Like they need to be accountable. and being clear and communicating is part of that.
The part of the speech that I think was most watched was the economic outlook, what's going to happen with interest rates.
And he very much was applying those principles and framework.
The dual mandate, that price stability, maximum employment, it's intention right now.
And so I think the big takeaway in something, you know, I was really curious to hear too is how they were assessing the risk to the u.s labor market particularly after we got the last jobs report that revised down jobs quite a bit and how the Fed was interpreting that.
It was clear they've taken notice of it and are not comfortable with the potential direction the labor market's going in.
And that is an important piece of setting up that they may make this first rate cut in September, but it does suggest we're headed in that direction.
Well, the other part of that dual mandate is, of course, inflation price stability, as they call it.
Powell did say that the effects of President Trump's tariffs are working their way into consumer prices.
We've been warned repeatedly that that follow-through may take many, many months to see.
But we've already seen some of that evidence in retail earnings this week.
Walmart, for example, said it's seeing wealthier customers. customers come through its doors sort of looking for some deals.
Is there a risk that the Fed could cuts rates just as inflation really begins to surge.
Absolutely. And that was clear in Powell's speech as well.
Like he talked about the risk of employment.
Those were some newer ones. We've gotten some recent data, but he definitely talked about the risk of inflation. with a lot of focus on the tariffs.
And the piece with the tariffs is typically that'd be this adjustment in the price level.
Right. You know, it would happen one time.
And as Pau said, one time doesn't mean all at once like this could happen over. quite a period of time, which means inflation could get pushed away from the Fed's target for some time.
And they talked about the risk that that would somehow get embedded.
If we had this higher inflation for a longer period of time, the people would expected or workers would ask for raise it like that.
It would kind of perpetuate something And, you know, at this point they see, well, they recognize the risk.
He didn't put them like the spotlight on them.
Like we really think this is happening. So it's a tricky situation, and it does underscore that – they're going to have to keep bringing in each piece of data they have, interpreting it, applying it to their forecast, thinking about the risks.
So while it may be that the Fed begins cutting interest rates again in September, We're going to be very deliberative.
Like this isn't necessarily, oh, they start cutting and then a whole percentage point is gone. like it was last year.
This is probably going to be a slower kind of feeling their way through these risks.
And with those tariffs, the tariff risk policy is still changing.
Even today, announcements being made. Yes.
Certainly, that dual mandate is going to be a fine line for Fed officials to walk.
Before I let you go, Claudia, I just want to ask, you know, we've mentioned the political pressure on Powell. and now as we're seeing more broadly on other Federal Reserve officials.
If the president does continue these efforts to try to remove governors or officials that he can reappoint, A, how could that affect future policy, but B, Is it a distraction for the Fed or are they largely, I mean, they're not talking much about it publicly.
Are they largely ignoring it? Well, the Fed needs to just put their nose down and do their work. explaining what they're doing, like they did today.
Our decisions are based on data. This is how we're reading it, being clear.
They might not make the right call, but they need to be very clear it's about reality and not politics.
So far, so good with the Fed. In terms of what the administration is doing, This is a very dangerous path to go down in the US and all over the world when politicians take control over this. central bank, it leads to bad economic outcomes, typically higher inflation and financial instabilities.
The Fed is built for, you know, these you know, people trying to influence it.
I mean, this is not the first time this has happened in the history of the Fed.
But if the Trump administration is successful and they're trying lots of strategies, But if they're successful, this is bad for the US economy and potentially the global economy.
Plenty of implications, definitely, to continue monitoring. and a former economist at the Federal Reserve Board herself.
Claudia, thank you so much for your time.
I want to turn now to Chris Lowe, chief economist at FHN Financial.
Also here in New York City, stock markets certainly reacting with enthusiasm. to Chair Powell's speech today.
Just to give you a bit of a flavor of that, the Dow Jones Industrial Average jumped nearly 2%.
The S&P 500 broke a five-session losing streak.
Chris, what are investors liking about this speech?
Well, I think the biggest thing they liked was that they weren't expecting it.
We've heard from quite a few other Fed officials this week, and most of them including presidents of the Kansas City Fed, of the Atlanta Fed. are skeptical about cutting rates, are emphasizing inflation risk over employment.
And so we went into this speech expecting Powell to repeat the message of the first four meetings of the year, that we probably will cut rates this year, but we're not ready yet.
So it was a surprise. And I think the most important element, as he said, they're still watching inflation.
But that is a one-off, as Claudia explained, maybe not all at once.
But they're also watching increasing fragility in the labor market.
And the risk there, as Powell explained, is if not addressed.
That weakness could become a longer term problem if the U.S. slides into a recession.
And we've also seen today a rally in tech shares.
The Nasdaq composite index also surged about. the same margin that we saw on the Dow Jones Industrial Average.
A number of headlines to digest there, but one of the big ones that came through in the last couple of hours is Intel shares themselves rallied 5.5% late in the session after President Trump told reporters at the White House he that the company had agreed for the U.S. government to take a 10% stake in it.
Chris, I just want to take a second. Let's hear a bit from President Trump.
And I said, I think you should pay us 10% of your company.
And they said, yes. That's about $10 billion.
I don't get it. This comes to the United States of America.
And I said, I think it would be good having the United States as your partner.
He agreed. And they've agreed to do it.
And I think it's a great deal for them. Well, the U.S.
Commerce Secretary in the last hour or so has confirmed that that is indeed happening.
Chris, what would that mean for Intel investors?
It's a fairly unusual deal. It's a very unusual deal.
I think maybe one of the most important things is It is non-dilutive.
These are non-voting shares. The US government does not have a seat. on the board, which means that the current shareholders will still own the company and effectively control it as well as they had before. but it means an absolutely necessary capital infusion. that is going to allow Intel to move forward.
The company not too many months ago was talking about getting out of the chip fabrication business all the time. together.
So it's an injection of new life for them.
Chris, thank you very much. We'll be back with you just a bit later in the program.
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You're listening to World Business Report from the BBC World Service.
And for more on that story, let's go now to Lily Jamali.
She's our North American technology correspondent.
Lily, what do we know at this point about this deal?
Well, just in the last half hour, Intel has confirmed that this deal is in fact happening.
So we heard first from Donald Trump, then the Commerce Secretary Howard Lutnick, posted a photo of himself with Intel's boss, Lipu Tan, and now Intel saying that, um, You know, really welcoming this, for one thing, to Chris's point a moment earlier, they need this money. and praising President Trump, saying it's a historic investment in a vital industry.
And across administrations, the Biden administration, which spearheaded the CHIPS Act, wanted the same thing.
They wanted to reshort chip manufacturing here to the United States.
And this enables them to at least take a big step forward towards doing that.
Now, for our listeners who haven't been following the twists and turns of this, why is the U.S. is interested in taking a stake in this company.
Yeah, so I think we all remember during the pandemic, we all learned a lot about supply chains and just how delicate they are.
And obviously, this stuff is a lot more important than something like toilet paper.
Having semiconductor chips manufactured in the United States is vital It's considered to national security, to economic prosperity.
You know, a lot of our chips are currently made in Taiwan, which is always – it's in a very – delicate geopolitical state with respect to China.
And so This is a big part of why there is so much interest across you know, it's a bipartisan issue to try and make sure that the US chip manufacturing industry is alive and well.
I was actually down at Intel headquarters earlier this week.
It's really interesting to be there because they actually have a museum on site.
They might be the only Silicon Valley tech company with a museum. on their campus, but it really speaks to just what an icon this company has been.
They created A lot of the way things are done in Silicon Valley.
And I think there's also a piece of that.
There's sort of a nostalgia and a. you know, a commitment to maintaining this company that has quite a bit of value in terms of the history of American technology development.
Yeah, certainly something, a name certainly that our listeners will recognize, something that... everybody can sort of relate to.
I mean, we use devices that carry those Intel, those critical Intel chips almost every single day.
Lily Jamali, our North American technology correspondent.
Thanks so much. for your time there. Well, switching gears now to an effort to reset trade relations.
Starting September 1st, Canada will drop some of its billions of dollars in retaliatory tariffs. on US goods.
That is according to Prime Minister Mark Carney, who This afternoon said his country will keep levies on autos, steel and aluminum.
The move comes a day after he and President Trump spoke by phone.
Canada has imposed a 25 percent duty on a range of American goods including orange juice and washing machines.
That's in retaliation to U.S. tariffs on Canada.
Those tariffs are valued at 35% on goods not included in the existing free trade deal.
Well, Stephen Malia had to spend quite a lot of money to make his Toronto telescope accessory business complete. with US-Canada trade rules, therefore tariff-free.
He has mixed feelings about today's decision.
Bittersweet is the word that comes to mind.
I'm happy to see that there's something being done because there was a lot of comments from the U.S. side that Canada is difficult to deal with.
We felt really hurt that we had these tariffs slapped on us.
I understand why they were done. I understand why.
Prime Minister Justin Trudeau had done that in the beginning. other thing that comes to mind is like, what did they give up?
Right. Was there something given up in order to get to this point?
I think it's a little early to really understand what the impact is, but as long as we didn't lose... anything out of this and there's going to be something gaining for us, for everybody, that's the outcome I'm hoping for with it.
Well, that's the view from one company doing business on the other side of the southern Canadian border.
Let's turn now to Corrine Pullman. She is the executive vice president of Advis... advocacy group Canadian Federation of Independent Businesses. which represents more than 100,000 small businesses in Canada.
Thanks so much for your time. What is your reaction to today's decision by Mike Carney?
It's quite similar, I think, to what the speaker just said.
It's a bit of a bittersweet. I think it's good news in that it's going to help a number of small businesses who are being hurt by the Canadian counter-terrorists.
We just did a survey just last week and found that about 58% of small businesses were feeling the impact of the Canadian counter tariffs on their businesses.
In fact, 20% of them were telling us that they probably couldn't go another six months. without something changing because it was that significant.
However, there is still the steel and aluminum tariffs, there's the auto tariffs, and those also have significant impacts on many small companies in Canada, and so those remain.
And of course, that's where some of the real difficult challenges are going to come.
But for now, this is, I think, some good news.
And so hopefully for some of our members, it can be a bit of a reprieve. after a difficult six months.
Yeah, recent polling. I'm interested to hear your perspective on this because it's shown that Actually, many Canadians supported those retaliatory tariffs on U.S. goods.
Could this back and forth, in a way, risk rattling competition?
What is it that you would really like to see from? if it does become a real trade reset between these two trading partners.
Yeah, I mean, stability hasn't really been the order of the day for the last six months. that's something that I think people are is, is probably some of the hardest thing that's small businesses have really had to deal with.
We've always said that the worst thing is a bad deal.
The second worst thing is ongoing uncertainty, right?
We would hope that this would lead to something that does provide some stability for some businesses at least.
And our members are no different than the average Canadian.
They also supported these counter-terrorists, especially at the beginning of this trade war. time we've seen that support start to wane as they kind of understand the implications and the impacts this is having on their day-to-day businesses.
I think, you know, for now, it's probably a good move. to see what happens.
And of course, those same products were tariff free going into the United States.
So In some respects, I understand the move that was made today.
You mentioned that it's been difficult for a lot of Canadian businesses.
I wonder if you can quantify that a How much were those tariffs costing the businesses that you represent?
So they were very similar to the US tariffs.
So there was a 25% tariff on goods essentially hundreds and hundreds and hundreds of goods.
It was actually a fairly complicated thing as well to try to figure out if your good was on a certain list.
Those goods were thought to be worth close to I think $60 billion a year. if they had continued.
And so it's definitely had a huge impact.
Many of our members have spent thousands of dollars already on tariffs, trying to pay them as they come in.
But they've also paid in the fact that they've lost customers because their costs have gone up.
They have found it very difficult to maintain that, plus, of course, some of the regulations and understanding what you need to do in order to make sure you're abiding by the new rules adds cost to those businesses as well.
So it has been fairly significant, for many of them and that's why so many of them were telling us that it's becoming it's coming to a breaking point where they're going to have to start making some very difficult decisions.
I'm just curious if you have sort of an ongoing dialogue with government representatives and what that's been like through this very rocky road as this reset sort of gets to a finish line, if we can call it that.
What has been the response from the thousands, hundreds of thousands of small businesses across Canada.
Yeah, I mean, they certainly are empathetic to what's happening.
But as I said, at the same time, there are many Canadian small businesses that also support the counterterrorism.
They're no different than Canadians, and I would still say it's probably a 50-50 split within our own membership around whether those counterterrorists should... remain or go.
But the fact remains that they were having a significant economic impact. on many small companies who were really struggling.
So in some respects, I think it was it was I think, a good first step.
Unfortunately, we still have, I think, a long way to go to get to some stability, which is ultimately want to get to at the end of the day.
I'm also curious about, you know, we've been discussing welcome news for businesses importing from the US, but What about those that source raw materials and components elsewhere?
And perhaps exported to the U.S., maybe they would have seen costs go down from other markets. points of origin.
Would any of the businesses you represent fall into that camp?
And what might you say to them today? Well, certainly we know that there's a lot of businesses that are still going to be hurting that may still not. think this is going to be helpful to them.
And we will continue to push the Canadian government, at least, to provide relief to those businesses in some form or another.
Obviously, some of the initiatives that are happening are not of the Canadian government's making.
But the Canadian government has been collecting and will continue to collect a certain amount of tariffs. money should be used to make sure those businesses directly impacted are getting some relief.
Corrine Pullman from the Canadian Federation of Independent Businesses.
Thanks so much for your time and your perspective this evening.
Chris Lowe, chief economist at FHN Financial in New York.
I want to bring you back in. A quick last word on the program.
President Trump called Carney's decision today, quote, nice, and said he'll hop on another call with them to discuss the future of the trade relationship.
What do you make of the decision? What does it mean for U.S. tariff policy going forward?
I think it's quite encouraging. Canada is the last remaining major trade partner. where tariff rates are still much too high.
We don't have a proper deal. It does help that we've got the USMCA tariffs, which are zero.
So that's a lot of goods. But nevertheless, there's a huge amount of trade between these two countries.
So I'm thrilled to see it all. Do you see a finish line in sight?
And could this be sort of a... a signal of what's to come from what we might see from other trade agreements from other countries that we're waiting on details for?
I hope so. You know, we had the news earlier this week. the framework for the European deal, which is a much much better than the expected deal for both countries.
So that's a good thing. You know, hopefully we've shifted into a more constructive discussion. now that Carney is settled into his new role.
That's for sure. And another thing that we do know for sure is all of these things will be something that Federal Reserve officials and other central bankers all across the world are going to be keeping Very close tabs on, certainly, in the months and potentially years to come, depending on what happens there.
Chris Lowe, Chief Economist at FHN Financial, also here in New York City.
Thanks so much. for your time tonight. Really appreciate it.
Always good to have you on. And thanks as well to our producers tonight in Salford, England, and our studio directors who make us sound so good every single night.
Thanks to our listeners, and you can always find more at bbc.co.uk.
Thanks so much. Have a great weekend. Thank you.
