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The price of borrowing starts to fall in the US.
I'm hopeful that there could be another decrease in the next couple of months.
That could benefit everybody within my particular industry.
We really have been monitoring our labor very closely and trying not to hire people unless we absolutely have to.
This is World Business Report from the BBC World Service.
I'm Sam Fenwick.
And yes, for the first time this year, the world's most powerful central bank has cut interest rates.
But after heavy pressure from the president, the decision was far from unanimous.
And Donald Trump rolls into Britain with pomp, pageantry and a $40 billion tech deal.
So at long last, the US central bank has pulled the trigger on its first rate cut of the year, trimming borrowing costs by a quarter point to a range of 4 to 425.
The move comes as America's once-hot jobs market shows clear signs of cooling, even as Donald Trump's tariffs threaten to push up prices.
Here's the chair of the Federal Reserve, Jerome Powell.
My colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people.
While the unemployment rate remains low, it has edged up.
Job gains have slowed and downside risks to employment have risen.
At the same time, inflation has risen recently and remains somewhat elevated.
In support of our goals and in light of the shift in the balance of risks, today the Federal Open Market Committee decided to lower our policy interest rate by a quarter percentage point.
Now, the decision to reduce rates wasn't unanimous.
One of the Fed's newest members, Stephen Myron, a Trump ally, pushed for a much deeper cut.
But investors are already betting that this is just the beginning, with Wall Street expecting more reductions before the end of the year.
Well, let's get some reaction to this.
We're joined by Susan Schmidt, portfolio manager at Exchange Capital Resources in Chicago, and Chris Campbell, who served as US Assistant Treasury Secretary for Financial Institutions during Donald Trump's first term.
Susan, I'll come to you first of all.
Just explain why a cut now?
It's taken quite a few months, hasn't it?
We were predicting more cuts than this at the beginning of the year.
The markets were anticipating more cuts, but we also didn't understand exactly what those impacts of tariffs would be.
The Fed has held off thinking that the economy underlying has been healthy.
They've waited to see what the impact of the tariffs would be, wanting to make sure that it didn't further aggravate inflation.
This quarter percentage point decrease today is because the Fed is taking a look at the economic data, worrying about that dual mandate that we just heard Chairman Powell mention regarding labor.
And they want to make sure the employment levels are still healthy.
We're seeing softening in the labor market.
And that means that the Fed is feeling that risk allows now to take this quarter percent point off the interest rate, hoping to ease the economy and help bolster the labor market.
And interestingly, Jerome Powell was talking about immigration as part of the problem.
Absolutely.
We do have concerns because with immigration leaving, we're losing some of that labor force in the US and yet, as we just heard, employers are hesitant to hire.
So we're in a tough point.
Lowering the cost of labor.
Lowering interest rates allows for the labor market hopefully to loosen up and will also ease the interest rate on the consumer's pocketbook, allowing for more business and money flow, and that should help things overall.
Let's bring Chris Campbell into the programme, into the conversation.
As we say, he was the US Assistant Treasury Secretary for Financial Institutions during Mr Trump's first term.
So talking about tariffs there Susan, and talking about the labour market and immigration, two policies brought in at the beginning of the year when Mr Trump became president.
Yeah, so you're right.
The president on his second term has certainly been very aggressive on tariff policy and also on immigration policy in the United States, which has constricted the labor supply by a little bit.
But I think one challenge I think is what we've seen and the chairman suggested today when he was speaking was Chairman Powell was that tariffs have not had a dramatic impact on inflation.
And candidly, I think if they would have, there would have been a one-time price increase anyway.
And when I served with President Trump in the first term, we also imposed tariffs, and they did not have a dramatic inflationary impact as well.
And so it's a bit curious to some why the Federal Reserve has delayed lowering interest rates this long into the second term.
But I'm happy now that they are doing so, and I expect much more to come by the end of the year.
Earlier this week, President Trump took to his social media platform and wrote in capital letters must cut rates now and bigger than he had in mind.
Housing will soar.
He was talking about Jerome Powell.
Will this rate cut be enough to quiet the president for now?
No, I think the president expects that.
I think that most people, including myself and most in the market, expect a full point reduction by the end of the year.
I think that's probably where we need to be.
And I think it's where we'll actually end up.
Well, let's talk to some businesses now to see what these rate cuts really mean on the ground.
Earlier, I spoke to two people who know firsthand.
Jennifer Heasley runs a restaurant and a catering company and is the owner of Sweet Mama's Mambo Sauce.
She's in Pennsylvania.
But first, you'll hear from Tracy Tappany.
She is the co-owner of Wyoming Machine, a sheet metal manufacturer.
The most immediate impact of the small rate decrease that we heard about today or that was just announced, combined with the new tax laws that have recently gone into effect, could help manufacturing in the sense that we have bonus depreciation, which makes it more affordable to purchase capital equipment combined with a slightly lower interest rate.
Those are both positive things that can help manufacturers like mine continue to invest in their business.
So Jennifer, what's the immediate impact on your business?
The immediate impact on my business is, with the lower interest rates, I have people that are more likely to be the consumer.
It's more from the consumer side.
So people more inclined to purchase, going into the holidays, doing events.
I'm impacted because from the consumer standpoint, that's how I'm more directly impacted.
How long does it normally take for one of these cuts to filter through to your customers?
I would say a month, to be honest with you.
What about you, Tracy?
Is it that quick for your kind of customers who are obviously buying bigger, more expensive kit from you?
Yeah, I think that you know.
We'll see that financial institutions will start adjusting rates immediately.
And I think we've even heard some indication that in some lending rates had already been adjusted, expecting this small rate cut today.
Jennifer, Jerome Powell was talking in his press conference about consumer spending stalling.
How bad has it been for your business in terms of getting people in and getting them spending on your stuff?
I think on the day-to-day, from like the restaurant standpoint, the spending has decreased.
Now on the larger scale, the catering people are going to have weddings, people are going to have graduation parties, things like that.
They just weren't going to the extreme, as they had maybe previously, you know, scaling back on the amounts that they were spending.
One of the other elements that added to this rate cut was concern over jobs.
Tracey what's the job situation like for you?
We are more able to find some of the workers that we need to fill open positions, indicating there are people out looking for jobs.
Additionally, we don't see a lot of turnover internally.
People are not finding other employment opportunities outside of the company.
But, due to the uncertainty caused by tariffs and some of the other higher costs that we've been paying, we really have been monitoring our labor very closely and trying not to hire people unless we absolutely have to, just because it is such an uncertain time with tariffs and other rising costs.
So if someone was to leave their job at your company, would you fill it immediately?
No, we would really consider what other ways we might get the work done.
Sometimes that's through investing in technology to try to fill those gaps or just trying to find ways to streamline the work that we're doing, and then really hiring as a last resort.
I suppose we can't talk about inflation without talking about tariffs.
How are they affecting your business, Jennifer?
The food prices definitely increased.
So there was definitely an impact across the board as far as my food prices.
I have to import the bottles that I use for my sauce company.
So the bottles increased as well.
I've still tried to maintain the prices that I've kept for the last year or so.
So hopefully right now with this drop, you know, with the rate drop, I'll be able to maintain that.
But if things fluctuate, if they go back up again, I'm probably going to have to increase my prices.
Josie, what about tariffs?
How are they affecting your business?
Most people are familiar with the idea that we are paying tariffs on aluminum and steel.
And of course, we are seeing prices rising because even domestic producers of those items, at a time like this, raise their prices to more closely match what you're paying for tariffs good.
How important are further rate cuts this year for your business, Jennifer?
The consumer spending skyrockets.
Whenever you have these.
You know people are going to use their credit cards.
People have access to loans.
You know, they have access to loans and credit when the rates go down.
So in my business, that benefits me.
We were listening to Jennifer Heasley, who owns a catering company in Pennsylvania, and Tracy Tappany, who's the co-owner of Wyoming Machine.
It's a sheet metal manufacturer.
I wanted to pick up, Chris, with you on something that...
Jennifer was talking about how she has managed to maintain her prices despite the increasing cost to her business because of tariffs.
But how long can a business like Jennifer's catering business carry on like that if these price hikes keep coming in?
Well, so the president, in his negotiating style has – was very aggressive at the beginning of his administration, raising tariffs, but has now dramatically shifted back those tariffs and are aggressively negotiating, country by country, to reduce those tariffs down to a 10 percent rate.
Hopefully a 10 percent rate around the world where we will have reciprocal trade agreements that will benefit both countries.
So as those negotiations are ongoing, prices will become more stable.
But the dramatic increase in tariffs that we saw at the beginning of the administration largely are not in place anymore, favoring much more reduced tariff rates.
That will stabilize prices and stabilize the cost of goods sold for small, medium and large-sized businesses around the country.
Yeah, but Tracy was saying that for her she's importing things like aluminium, where tariffs are still there of up to 25.
So it's not going to be quite so easy for her.
That's a fair statement, but I'll let the president and your prime minister talk about what they're going to do in the coming days and I think we'll learn more about certainly, where our two governments rely on those issues specifically in the press conference upcoming.
But I think that as countries engage, we will tend to see a reduction in tariffs on those sensitive issues.
And I expect to see those reductions in the coming days.
Susan, we're talking about further rate cuts before the end of the year.
The Fed has indicated that there could be up to two of those.
I mean, as we approach Christmas time, that is going to be good news for retailers, isn't it?
And businesses that are doing catering and food like Jennifer's.
I think it will be perceived well by investors and the consumers.
The expectations after today's meeting was that we really will see two more rate cuts.
At this point, I think the market is largely selecting a quarter percentage point each.
And then the Fed also indicated there might be one further rate reduction in the following year, 2026.
That will, I think, support further spend confidence from the consumer and certainly confidence from investors, in that we're making sure that the economy is taken care of and that the labour market will get support allowing for these full employment levels to be maintained.
Jerome Powell was talking about GDP growth.
So for this year, it's expected to be 1.5%, 1.6%, but down from 2.5% at 2026, 1.8%.
Do you think that they will be revised, those GDP figures, as and when these rate cuts come through?
Absolutely.
I believe, yeah, 100%.
Absolutely, they will be revised.
Susan, do you think they will be revised?
I'm not sure.
I think we'll see them be re-examined.
I don't think we're going to see an immediate revision.
In my opinion, I think we're still going to wait.
We're seeing a lot of the impact of the tariffs hit now, which we are seeing in the fourth quarter.
I think we're going to wait and hear what management and companies have to say.
And then we'll take a look maybe a month, six weeks out about –
Because if you listen to Tracy, who's got a sheet metal manufacturer, she is not employing people and probably not going to before the end of the year if someone leaves her business.
And I suppose what you need to do in the economy is get those people employing if someone leaves.
That's correct.
But that's a difficult button to push and get immediate reaction.
This is definitely a time delay process when you're moving economies and trying to adjust on both the inflation and labor front.
That's what we're seeing now.
And that's why I think there'll be a bit of a delay, as they try to figure out how long it will take for this to flow through and have an impact.
There are some that argue, Chris, that actually this cut should have been deeper.
It should have been maybe half a percentage point, not a quarter.
Do you think that maybe the Fed didn't go that far because they didn't want to be seen to have succumbed to the pressure of Donald Trump?
That's a very, very fair point.
I really don't know.
I've obviously worked with the Federal Reserve while I was at Treasury.
And the federal governors and the Fed chairman tend to be very ethical and extremely immune from politics, as they should be.
But that being said, I think that they're –
A greater reduction in rates would have certainly accelerated consumer spending and certainly grown our economy.
And so I think that, again, stepping back, it's just curious we waited this long.
And on the latter part of the Biden administration the Federal Reserve was pretty aggressive in lowering rates.
Then they pushed pause for nine months and now we see a reduction again.
And so we'll see.
But I'm very hopeful that we'll see an uptick in the economy.
Susan, just very quickly, do you agree with Chris that they shouldn't have waited this long?
Well, I agree with Chris's statement that the Fed is very apolitical.
They try to really look at the economic data.
I think that they've been pushed now to this position, trying to wait in what they perceive was balanced risk-reward inflation versus jobs.
But recent economic data has shown weakness on the job front.
They had to move.
Thank you both so much for joining us today on World Business Report.
Susan Schmidt, Portfolio Manager at Exchange Capital Resources, joining us from Chicago.
And Chris Campbell, who served as US Assistant Treasury Secretary for Financial Institutions during Mr Trump's first term.
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You're listening to World Business Report from the BBC World Service.
Now roll out the red carpet because the president is back in town.
It's been day one of Donald Trump's unprecedented second state visit to the United Kingdom.
The US president spent the day with King Charles III and Queen Camilla watching a fly past over Windsor Castle, laying a wreath at Queen Elizabeth's tomb and joining a royal carriage procession.
Well, our very own BBC royalty, Rob Watson, has been at Windsor, just outside London, all day.
Well, I'm very much a peasant, I have to say.
Definitely not royalty at all.
But if you were to score royal visits, royal welcomes, on a scale of I don't know 0 to 20, this would definitely be a 20.
I mean, it's difficult to think of a redder red carpet or a more full fat welcome than this.
And indeed the Ministry of Defence here in Britain had said that This was the biggest military ceremonial welcome in living memory.
And certainly from where I was standing, it certainly looked that way.
1300 soldiers, all in full ceremonial uniform, 120 horses, horse-drawn carriages flypasts, ancient ceremonies like beating the retreat.
I mean, quite frankly, Sam, I don't see there was much more they could have done.
There's also been some big business deals going on, especially with tech.
Yes.
And indeed the way the White House and Downing Street like to talk about this is the tech prosperity deal.
And it's not, as far as one can see, it's not like a formal trade agreement.
It's not some kind of pact.
It's not something you sign.
It's basically Downing Street and the White House drawing attention to deals going on involving big companies such as Microsoft Google, Nvidia.
And it's all about things like improving the data centres for AI infrastructure in the UK, and There's a figure talked about of over 25 billion.
I mean, whether that's exactly because of this visit, I think people are somewhat doubtful, Sam.
But look, there's no doubt that the United States and the United Kingdom take a similar view that the future lies with AI and things like quantum computing.
But also investment going the other way, across the ocean and the British dog firm GlaxoSmithKline investing in the US.
Yes, which the British government has tried to put.
It's a spin as an example of well, the investment is going both ways.
But I don't think there's a doubt that there's concern over the pharmaceutical sector in the UK.
And I don't think there's much doubt that the government would much prefer this money was being used to develop factories and research in the UK.
But there is a problem with the pharmaceutical industry in the UK, and that is that companies like GSK think that the government in Britain isn't doing enough to encourage them.
And, in particular, it's not using its very powerful nationalised national health service to pay what they think would be competitive prices for their drugs.
So off they go.
There's been a state banquet during the evening, I'm sure a very plush meal.
Do you think Donald Trump's favourite word will have come up during that meal?
And I'm talking about the T word, tariffs.
I think that's probably immensely unlikely.
It's not a conversation starter, is it?
Especially when British Steel will still get a 25% tariff.
Exactly.
But what they will talk about is another matter.
He's sitting next to King Charles, who I think is the absolute master of diplomacy, and not putting your foot in it.
He's been doing it for long enough.
But you mentioned steel tariffs and tariffs.
It's definitely the case that the steel industry in the UK had been hoping to get absolutely zero percent tariffs and be able to just send their products to the US without any form of levy whatsoever.
That hasn't happened.
And there is disappointment in the steel industry here.
I mean, they're still doing better than the rest of the world.
But I think it's a reminder that there are limits to no matter how much the United Kingdom tries to butter up.
President Trump that you know there will be issues on which he doesn't move and which will leave disappointment here and which, of course, will have some critics of the government's approach saying well, hang on a minute, do you really need to be sucking up to him this much if you don't get exactly what you want?
That was the BBC's Rob Watson.
And it's not just the president making the trip.
A delegation of tech bosses has travelled to the UK too, underlining the scale of that 42 billion AI deal.
The biggest single investment comes from Microsoft, which has announced a 30 billion spending package, the largest outside of the US.
Nvidia's boss, Jensen Huang, told the BBC that the UK will become an AI superpower.
This is the week that I declare that UK will be an AI superpower.
That was the mandate from Prime Minister Stormer.
He wants the UK to be an AI superpower.
He recognizes that the ingredients are all right here, that all the capabilities are here.
It just needs AI infrastructure.
It needs some partnerships, big investments, and willpower to make it happen.
Well, joining me now is Alan Carlton, a former deputy British ambassador to the United States.
Thank you for being with us on World Business Report, Alan.
Just explain to us why are state visits like this considered such powerful diplomatic tools, but also tools that will bring economic investment to both countries.
Yeah, good evening.
Yeah, they give a sense of focus.
You know the visit's going to happen at a certain time and this kind of visit is not something that's happening all around the world.
It's down to the fact that King Charles has had a very strong relationship with President Trump and President Trump seems to respect him more than just about any other head of state and that Keir Starmer perhaps surprisingly has managed to find a way of working with President Trump as well.
And so it gives a sense of focus, and the teams in the run-up to a visit can work up any number of issues, and they will find out which ones they can make progress on which ones they can't, so much so that there is something to deliver at the end.
And it brings the focus, as has just been mentioned in your previous discussions, bringing in senior people from business, from the US.
It helps to focus the mind just for that moment.
And for a diplomat, it's a very important tool.
But this AI investment, for example, would likely have happened anyway, wouldn't it?
It might well have happened anyway, but as I say, it actually brings it all together.
Typically in advance of such a visit, both sides will be looking around for what they can bring to the table.
And it may well be things that might have been happening anyway, but it helps to give an extra gloss to the visit.
That's the point. and make it seem like the US and UK are doing a lot together.
And actually the sort of statements you've just heard from NVIDIA, for example, are very welcome in the UK obviously to hear that the UK is seen as a potential AI superpower in the future.
You heard, we've heard today across the day that this is the second state visit.
It's unprecedented.
Are you quite surprised at just how big the celebrations seem to be?
There's been all sorts of fly paths by military aircraft and going off in the royal carriages, that kind of thing.
You know, in international relations you have to look at who you're dealing with and what you want to achieve.
And clearly, this is the sort of thing that President Trump likes.
And we do it and we do it very well.
You know, the pomp and circumstance.
There's no doubt that people in America will be watching this and saying gosh, they really do this very well.
And so you know you use what you've got, and this is something we do have and it's appreciated, and it leads into day two, when the real business is done at Chequers.
So we'll see how that goes.
But you know, I think again, as a diplomat, you use what you've got and it's something we're very good at.
We've got a royal family that's a king who's well-respected and has a relationship with the President of the United States, which is the most important country in the world economically and defence.
So this is something you use.
But not every country has got this kind of opportunity then, have they?
Well, not to the same degree, no.
And it's not every time that we have this opportunity with the presence of the United States.
So, you know, we have to try and make use of it.
I'm wondering how much royal memorabilia might go up in price in the United States following this visit.
Well, perhaps you can do a follow-up report on that.
I don't know.
But it is interesting, isn't it?
It does go both ways.
We've heard about the investment into the UK of AI and also the UK drug companies investing in the United States.
Yeah, absolutely.
Well, you know, there are issues.
I mean, obviously, there are challenges that the present government has.
And clearly, our pharmaceutical industry has shown it's not entirely happy.
And so that's something that they need to address.
Alan Carsland, we'll leave it there.
Thank you so much for joining us today on World Business Report.
And thank you to you for listening.
America is changing, and so is the world.
But what's happening in America isn't just a cause of global upheaval.
It's also a symptom of disruption that's happening everywhere.
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I'm Tristan Redman in London, and this is The Global Story.
Every weekday, we'll bring you a story from this intersection, where the world and America meet.
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