KUWAIT: US President Trump signed an executive order imposing 25 percent tariffs on steel and aluminum imports, with no exceptions. Plans for additional tariffs raised fears of a global trade war, potentially increasing inflation and limiting the Federal Reserve’s ability to cut interest rates. Investors were also focused on Fed Chair Jerome Powell’s testimony for insights into future rate policies.

US Federal Reserve Chair Jerome Powell recently spoke before Congress for the first time since President Donald Trump took office. He praised the strong economy Trump inherited but avoided answering questions about tariffs, Elon Musk’s involvement in government, bank safety, and other issues highlighting the administration’s rocky start. Powell’s biannual visits to Congress often cover more than just the economy and monetary policy, which are his main focus. With unemployment at 4 percent, inflation close to the Fed’s 2 percent target, and steady growth, Powell said the economy is in a “pretty good place.”

He mentioned the Fed isn’t rushing to cut interest rates further but will act if inflation drops or the job market weakens. However, during his two-hour appearance before the Senate Banking Committee, led by new chair Tim Scott, the Fed’s core goals of stable prices and maximum employment took a backseat.

Senators asked about the future of the Consumer Financial Protection Bureau, which Trump wants to reduce or dismantle, whether Musk’s team tried to access Fed systems, if bank accounts are safe given Musk’s Treasury role, and steps to ease bank regulations. They also pressed Powell on whether Trump’s new tariffs could raise inflation, a concern for the Fed, though policymakers avoid directly judging such policies. Powell stated that free trade still makes sense logically but emphasized that it’s not the Fed’s role to set or comment on tariff policy. Instead, the Fed aims to respond to such policies thoughtfully.

US inflation rises

In January 2025, the annual inflation rate in the US increased to 3.0 percent from 2.9 percent in December, exceeding market expectations and signalling stalled progress in controlling inflation. Energy costs rose by 1 percent year-on-year, the first increase in six months, driven by smaller declines in gasoline and fuel oil prices. Prices for used cars and trucks rebounded, while transportation costs accelerated, and the decline in new vehicle prices slowed.

Food inflation remained steady at 2.5 percent, while shelter inflation eased slightly to 4.4 percent. On a monthly basis, the Consumer Price Index (CPI) rose by 0.5 percent, higher than the previous month’s 0.4 percent and above forecasts of 0.3 percent, with shelter costs accounting for nearly 30 percent of the increase. Meanwhile, core inflation unexpectedly climbed to 3.3 percent annually, surpassing expectations of a decline to 3.1 percent, while the monthly core rate rose by 0.4 percent.

US retail sales

The latest US Advance Monthly Sales for Retail and Food Services report reveals a 0.9 percent decline in January 2025, following a revised 0.7 percent increase in December 2024. Despite this monthly decline, overall sales were 4.2 percent higher than in January 2024. Retail trade sales dropped 1.2 percent from December 2024, though they remained 4.0 percent higher year-over-year. Key sector highlights include a 6.4 percent annual increase in motor vehicle and parts sales and a 5.4 percent rise in food services. The US Dollar index closed the week at 106.710.

Switzerland inflation slows

The Switzerland consumer price index rose 0.4 percent y/y in January 2025, lower than expectations and the previous 0.6 percent figure. The slower than expected rise in inflation is attributed to lower prices for electricity and supplemental costs. A decrease was also seen in transport as well as clothing and footwear, mainly due to seasonal sales. Increases were seen in hotels as well as private means of transport and car insurance premiums. Meanwhile, the m/m core inflation figure decreased by 0.1 percent, while domestic and imported products rose 0.1 percent and 0.7 percent respectively. The USD/CHF currency pair closed the week at 0.8991.

The UK economy showed modest growth in December 2024, with GDP rising by 0.4 percent, driven primarily by the services sector, which saw a 0.4 percent increase in output. The production sector also expanded by 0.5 percent, while construction output declined slightly by 0.2 percent. Over the three months leading to December, GDP grew by 0.1 percent, reflecting steady but limited economic momentum. On an annual basis, GDP expanded by 0.8 percent in 2024 compared to the previous year, with services as the main driver, growing by 1.3 percent, while production output declined by 1.7 percent. These figures suggest a gradual economic recovery, though sectoral disparities remain. The GBP/USD currency pair closed the week at 1.2585.

Chins inflation jumps

China’s consumer inflation rose to a five-month high in January, while producer price deflation persisted, highlighting uneven consumer demand and weak industrial activity. The consumer price index (CPI) increased by 0.5 percent year-on-year, up from December’s 0.1 percent gain and exceeding economists’ forecast of 0.4 percent. Meanwhile, the producer price index (PPI) fell by 2.3 percent annually, matching December’s decline and extending a 28-month deflationary trend in factory-gate prices. Despite these economic signals, the government is unlikely to adjust monetary or fiscal policies before the annual parliamentary session in March. The USD/CNY currency pair closed the week at 7.2530.

Australia’s NAB business confidence index rose to 4 in January 2025, its highest level since early 2023, rebounding from -2 in December. The increase was driven by broad-based industry growth, though business conditions softened due to declines in sales, profitability, and capacity utilization. Some industries, like mining, retail, and finance, contracted, while wholesale, transport, and manufacturing expanded. Labor and purchase costs rose slightly, and while demand remained stable, the overall economic outlook remained weak, according to NAB’s chief economist.

In February 2025, Australia’s consumer inflation expectations rose to 4.6 percent from 4.0 percent, the highest since April 2024, ahead of the Reserve Bank’s first policy meeting of the year. The central bank kept the cash rate at 4.35 percent in December, citing it as sufficiently restrictive to guide inflation while supporting employment. Meanwhile, monthly CPI rose 2.5 percent in December as government energy rebates faded, though annual inflation for Q4 2024 fell to 2.4 percent, the lowest since early 2021. The trimmed mean CPI increased 3.2 percent, below forecasts but still above the central bank’s 2-3 percent target. The AUD/USD currency pair closed the week at 0.6350.

Kuwait

Kuwaiti dinar

USD/KWD closed last week at 0.30885.