United States:
Fed Signals Law Is on Its Side If Trump Tries to Remove Powell
The world’s most powerful central bank is making clear it thinks the law is on its side if President Donald Trump tries to remove Jerome Powell as Federal Reserve chairman. White House lawyers have equipped Trump with a possible blueprint for demoting Powell by stripping him of his chairmanship and leaving him as only a governor, according to people familiar with the matter. But the Fed, which faces frequent attacks from Trump for not being more accommodating to his economic agenda, has hinted for the second time that it won’t back down easily. In response to inquiries Tuesday about the White House review of the legality of removing Powell, Fed spokeswoman Michelle Smith offered a direct response, saying the chair can “only be removed for cause.” For his part, Powell has previously demonstrated his resolve: “The law is clear that I have a four-year term. And I fully intend to serve it,” he told the CBS News program “60 Minutes” in March. The latest episode in Trump’s battle with the central bank was revealed as the Fed entered a two-day policy meeting, after which Powell will hold a news conference. Trump, meanwhile, officially launched his re-election bid on Tuesday, a campaign in which he’ll ask voters to keep him in the White House largely on the strength of the U.S. economy.
Europe:
Draghi Stimulus Comes With More Punch as ECB Claims Room to Act
Mario Draghi is set on pushing the limits of the European Central Bank’s firepower right up until he leaves office. With little more than four months to go in his job, the ECB president has all but pledged new stimulus for Europe’s flagging economy that may include both interest-rate cuts and asset purchases. Adding potency to that statement is his declaration that the institution shouldn’t be hemmed in by its rules restricting the room for maneuver. In response, European bonds enjoyed one of their biggest rallies in recent memory as yields tumbled to record lows across the region. German 10-year rates are now hovering just above the ECB’s minus 0.4% deposit rate, while those on French securities dropped below zero for the first time. Traders in money markets are pricing a rate cut by September. Tuesday’s threat of stimulus succeeded where the ECB failed earlier this month in placating investors. It prompted inflation expectations to rise and the euro to fall. According to the institution’s former chief economist, that’s because the extent of Draghi’s pledge opens the door to far more powerful policy action than officials had previously signaled was even possible. “What is very important is the optionality — to make the options more credible,” Peter Praet, who left the ECB at the start of this month, told Bloomberg Television. “I am not sure that markets say you need to act now, but the markets want to be reassured that if the environment doesn’t improve, do you have the necessary tools to do that.”
Canada:
Canadian Inflation Surges As Core Rate Hits Highest Since 2012
Canadian inflation quickened in May on increases across all eight major components, giving the Bank of Canada plenty of scope to hold interest rates steady. The consumer price index jumped 2.4% from a year earlier, compared with 2% in April and versus a median economist forecast of 2.1%, Statistics Canada said Wednesday from Ottawa. It was the highest annual rate since October, boosted by increases in food and durable goods prices. Core inflation, closely watched by policy makers, surged, with the average of the three key measures rising to 2.07%, the highest since February 2012. Canada’s currency climbed after the report, rising as much as 0.3% against the U.S. dollar. It was trading at C$1.3344 at 8:33 a.m. in Toronto.
