News of the week summary - 24/08/2025

Powell opens the door to a September rate cut

Jerome Powell, chair of the Federal Reserve, hinted that the central bank may lower interest rates as early as next month. Speaking at the Fed’s annual economic symposium in Jackson Hole, he suggested that a weakening U.S. labor market could outweigh the risk that Donald Trump’s new tariffs might reignite inflation.

The Fed’s task has grown increasingly complex. On the one hand, tariffs usually raise consumer prices since imported goods become more expensive, fueling inflation. On the other, a softening job market, evidenced by a disappointing July employment report, signals slower economic momentum. If unemployment rises, it reduces households’ purchasing power, which in turn dampens inflationary pressures. Powell indicated that while tariffs are pushing prices higher in the short term, their impact is likely temporary, making them less of a long-term inflation threat.

Markets quickly reacted to Powell’s remarks. U.S. government bonds rallied, pushing the yield on the two-year Treasury down to 3.69%. Stock markets surged, with the S&P 500 climbing 1.6%, while the dollar weakened nearly 1% against other major currencies. These moves reflect investors betting on looser monetary policy, which tends to support equities and bonds while putting pressure on the dollar.

For now, the Fed’s benchmark rate remains at 4.25–4.5% after a series of cuts totaling one percentage point earlier this year. But Powell’s speech marked a clear shift: futures markets now see a 90% chance of a quarter-point cut in September, up sharply from just a day earlier. If confirmed, it would signal the Fed’s willingness to prioritize stabilizing employment over the inflationary risks posed by tariffs.

The political backdrop adds further tension. President Trump has repeatedly accused the Fed of keeping rates too high and has openly pressured Powell and other officials to deliver aggressive cuts. The White House even escalated its criticism this week, with Trump threatening to dismiss Governor Lisa Cook after allegations of regulatory irregularities, an episode Cook dismissed as political bullying.

EU pushes for relief on U.S. car tariffs

The European Union is scrambling to finalize a trade agreement that would ease painful U.S. tariffs on its car exports, a crucial sector for the bloc and especially for Germany. After weeks of negotiation, Brussels and Washington outlined the terms of a deal struck in principle last month in Scotland. Under it, tariffs on EU car exports to the U.S. would fall from the current 27.5% to 15%, but only once the EU passes legislation lowering duties on a range of American products.

The timing matters. Europe’s auto industry, led by companies like Mercedes-Benz, BMW, and Volkswagen, is losing hundreds of millions of euros each month because of the elevated tariff burden. The U.S. hike came after President Trump reimposed a 25% duty on European car imports in March, on top of the longstanding 2.5% rate. While Europe avoided the 30% tariff Trump had initially threatened, the new rate still represents a threefold increase over pre-2024 levels.

In exchange for tariff relief on cars, the EU has agreed to eliminate duties on all U.S. industrial goods and to expand market access for American agricultural exports such as pork, dairy, and nuts. Brussels also pledged to purchase $750 billion worth of U.S. liquefied natural gas, oil, and nuclear energy by 2028, underscoring how energy trade has become entangled with industrial negotiations.

The deal, however, is not yet sealed. It requires approval from EU member states and the European Parliament, and Washington has made clear it will not implement the lower auto tariff until Brussels takes concrete legislative steps. This conditionality reflects U.S. concerns about follow-through and highlights how political brinkmanship continues to characterize transatlantic trade talks.

Other sectors are also affected. The agreement caps U.S. tariffs on European pharmaceuticals, lumber, and semiconductors at 15%, which is a relief to the EU since all three industries were under threat of higher duties under “national security” investigations. Meanwhile, the U.S. will drop tariffs entirely on aircraft parts, generic pharmaceuticals, and certain natural resources.

Even with these concessions, Europe faces a mixed outcome. Passenger cars benefit from the reduction to 15%, but pickup trucks, an especially lucrative segment in the American market, remain subject to a 25% tariff. Furthermore, Brussels agreed to move towards “mutual recognition” of U.S. auto standards, a politically sensitive concession given the EU’s historically stricter regulatory framework.

Russian petrol prices surge to record highs

Russia is facing a surge in domestic fuel prices and shortages across several regions after a wave of Ukrainian drone strikes damaged key oil refineries. Wholesale prices for Russia’s most common petrol grade, A95 (Euro 95), climbed to a record ₽82,300 ($1,023) per tonne this week on the St. Petersburg exchange, an increase of 55% since January and 8% since the start of August.

The disruption has forced Moscow to suspend petrol exports altogether, in order to prioritize domestic supply. While Russia had already introduced partial restrictions on fuel exports, the new blanket ban announced at the end of July underscores the severity of the supply crunch.

Ukraine has intensified its campaign against Russia’s oil infrastructure since early summer, striking at least four major refineries. The latest attack targeted the Novoshakhtinsk facility in southern Russia, which processes around 5 million tonnes of refined products annually, most of which are typically exported. Analysts estimate that roughly 10% of Russia’s refining capacity has been disrupted by these attacks.

The economic consequences are becoming increasingly visible. Russia continues to fund its war in Ukraine and claims battlefield momentum, but rising domestic fuel costs highlight vulnerabilities at home. Higher energy prices ripple through the economy, feeding inflationary pressures and straining regional supply chains. For Russian consumers, the seasonal uptick in summer fuel costs has been magnified into a sharp price shock, while for the government, ensuring domestic energy stability has become a matter of political necessity.

Kyiv has openly described Russia’s oil industry as a strategic target. By disrupting refining capacity, Ukraine not only cuts into Moscow’s export revenues but also forces the Kremlin to divert resources to stabilize its internal market. 

Trump calls for a Fed governor’s resignation

President Trump has intensified his confrontation with the Federal Reserve by demanding the resignation of Governor Lisa Cook over allegations tied to mortgage dealings. The call came after Bill Pulte, head of the Federal Housing Financing Agency and a close Trump ally, accused Cook of falsifying documents to obtain more favorable loan terms. Pulte’s claims, which include an allegation that Cook improperly listed two homes as her primary residence, have not been independently verified.

The episode is the latest in a series of attacks by the administration on the U.S. central bank and its leadership. Trump has repeatedly berated Fed Chair Jerome Powell for resisting aggressive rate cuts, labeling him with insults and openly pressing for his resignation. The president has also criticized a $2.5 billion renovation of the Fed’s Washington headquarters, portraying it as wasteful.

This campaign against the Fed is fueling broader concerns about the agency's independance from the government. The central bank’s credibility rests on its ability to operate free from political pressure, since its main role, setting interest rates and managing inflation, often requires unpopular decisions. Analysts say that attempts to undermine or replace Fed officials risk shaking investor confidence in the stability of U.S. monetary policy.

Recent personnel changes have already given Trump a chance to shape the central bank’s leadership. The early resignation of Governor Adriana Kugler allowed him to nominate Stephen Miran, a Council of Economic Advisers chair who shares Trump’s view that borrowing costs are too high. While Miran has avoided explicitly calling for steep rate cuts, he has advocated reforms that would make it easier for presidents to dismiss central bankers.

In May, the Supreme Court indicated that Fed officials cannot be removed by the president except “for cause,” meaning clear evidence of serious misconduct. Still, the steady drumbeat of attacks highlights the administration’s intent to reshape the Fed into a more politically responsive institution.

For markets, the risk is not immediate dismissal of Powell or Cook, but the precedent being set: if the Fed is seen as bending to political will, expectations for U.S. monetary policy could become less anchored, adding volatility to interest rates, the dollar, and global capital flows.

Treasury looks into stablecoins to absorb U.S. debt surge

U.S. Treasury Secretary Scott Bessent is turning to the crypto industry as a potential new buyer of government debt, signaling that stablecoins could become a meaningful force in supporting demand for Treasuries. Stablecoins, digital tokens pegged to the dollar and backed by safe, liquid assets like Treasury bills, are seen by Bessent as a bridge between crypto and traditional finance, and possibly a way to help absorb the record volumes of debt Washington must issue in the years ahead.

The idea is rooted in the rapid growth of stablecoins. Today the market is worth roughly $250 billion, but Bessent told Congress he expects it could swell to $2 trillion. That would still be small compared to the $29 trillion Treasury market, but enough to make stablecoins a significant marginal buyer of short-term debt. Their structure reinforces this: to maintain a one-to-one peg with the dollar, issuers like Tether and Circle must hold large reserves of Treasury bills and other safe assets.

Bessent’s focus comes as investors express growing unease over the U.S. fiscal outlook. Analysts forecast that America’s debt-to-GDP ratio will hit record highs within the next decade, accelerated by President Trump’s sweeping tax cuts. Against that backdrop, the Treasury is keen to broaden its investor base. Bessent has been in close contact with Wall Street firms and stablecoin issuers, shaping issuance plans that lean more heavily on short-term bills, which match stablecoins’ investment needs.

The regulatory environment is also shifting in ways that could cement this trend. Congress recently passed the Genius Act, which for the first time creates a federal framework for stablecoins. It requires that all tokens be backed by ultra-safe assets like Treasuries, effectively locking in demand for U.S. government debt as the market grows.

The bet on stablecoins illustrates both an opportunity and a risk. If the market grows as Bessent expects, it could help stabilize financing for the government’s mounting deficits. But it would also tie the health of U.S. debt markets more closely to the volatile crypto sector, making digital finance a potential pillar of the global financial system.