FED warns of risk of more frequent “shocks”

The US Federal Reserve (FED) has just warned of the risk of more frequent and prolonged “shocks” to supply, amid US tariff policies increasing market uncertainty.
The US Federal Reserve (FED). (Illustrative photo: Xinhua)
The US Federal Reserve (FED). (Illustrative photo: Xinhua)

FED Chairman Jerome Powell noted that the US economy is entering a period of more frequent surprises related to supply, and this shift is occurring more often. Powell believed this poses a challenge for the economy and central banks.

Assessing the significant increase in long-term interest rates over the past five years, Powell expressed concern about increased economic volatility in the future. The FED is considering adjusting its monetary policy strategy for more flexibility when inflation temporarily deviates from the long-term target of 2%. According to the US Department of Labour, April’s Consumer Price Index (CPI) increased by 2.3% year-on-year, lower than March’s 2.4% and the lowest level since February 2021.

On social media, President Donald Trump urged the FED to cut interest rates. However, Ben Ayers, senior economist at the US financial services and insurance company Nationwide, noted that CPI could rebound this summer, and with the current inflation momentum, the FED will not rush to adjust its interest rate policy in the short term.

Meanwhile, the US Treasury Department announced that the budget deficit for the first seven months of fiscal year 2025 (starting October 1, 2024) had reached 1.049 trillion USD, despite a record surplus in April. The US risks hitting the debt ceiling in August. US Treasury Secretary Scott Bessent warned of the risk that the US will no longer be able to meet its financial obligations by next August and called on Congress to act quickly to prevent the risk of default.

The US debt ceiling is approximately 36 trillion USD – a limit approved by Congress and officially exceeded since January 2025. Since then, the Treasury Department has had to implement “extraordinary measures” to maintain liquidity and prevent the risk of default.

The US Treasury Secretary believed these tools would reach their limit in August if Congress does not act in time. The U.S. Congress is discussing adjusting the debt ceiling as part of a broader fiscal package linked to President Donald Trump’s policy priorities, but discussions have yielded no clear results.

While the economy faces many challenges, the US government faces domestic and foreign lawsuits related to tariff policies. Five small businesses in the US have just asked the country’s Court of International Trade to block the widespread tariffs imposed by President Donald Trump under an emergency decree, arguing that he exceeded his authority by declaring a national emergency to unilaterally impose tariffs on imported goods. This is one of seven lawsuits related to the US administration’s tariff policies, and the first to ask the court to prevent the enforcement of tariffs.

In addition, the court is expected to hear another tariff lawsuit next week, filed by the governments of 12 US states. California Governor Gavin Newsom criticised these tariffs for causing serious economic damage to the state, with an estimated loss of about 25 billion USD for Californians and threatening more than 64,000 jobs.

As the world’s leading economy, every move by the US can cause turmoil in global markets. In the context of a slow global economic recovery and facing many challenges, the appearance of more frequent and prolonged shocks in the US will further darken the gloomy picture of the global economy.

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