Last week, President Donald Trump intensified his criticism of Jerome Powell, adding to investor jitters over the Fed’s independence and the chair’s position. Locally, SA Reserve Bank governor Lesetja Kganyago has warned against a knee-jerk reaction to newly imposed (and now paused) US tariffs, urging businesses to focus on improving competitiveness rather than resorting to protectionist measures.
International Market Developments
Last week, U.S. Federal Reserve Chair Jerome Powell warned that the tariff increases announced by the Trump administration are significantly larger than initially anticipated, suggesting their economic impact could also exceed expectations. Speaking on the implications for monetary policy, Powell noted that the Fed now expects higher inflation and softer economic growth in the near term. Despite these headwinds, he emphasized that the central bank can afford to wait for greater clarity on trade developments before considering additional cuts to the federal funds rate. Powell underscored the Fed’s responsibility to anchor long-term inflation expectations, cautioning that a temporary spike in prices should not be allowed to evolve into a persistent inflation problem. He also acknowledged the potential for a challenging policy environment, where the Fed’s dual mandate of price stability and maximum employment may come into conflict.
In response, President Trump has intensified his criticism of Federal Reserve Chair Powell, stating that the end of Powell’s term “cannot come fast enough” and accusing him of being “always too late and wrong” on monetary policy. Trump has long advocated for lower interest rates, arguing that the Fed should have acted sooner, particularly in line with moves by the European Central Bank (ECB). He reiterated that the Fed should cut rates immediately to prevent an economic slowdown. Trump’s repeated public pressure on Powell—and suggestions that he might have the power to remove him—have sparked renewed concerns over the Federal Reserve’s independence, a principle traditionally respected to ensure that monetary policy remains free from political influence.
Looking ahead, there is a slew of economic data releases scheduled for this week in the US. The spotlight will be on the University of Michigan inflation expectations.
Local Market Developments
Last week, Finance Minister Enoch Godongwana reaffirmed his stance on the proposed VAT increase, stating that there is no viable alternative to plug the Budget gap. He warned that abandoning the increase would necessitate additional borrowing, which could strain South Africa’s public finances, damage investor confidence, and elevate the cost of debt. Godongwana cautioned that such outcomes would disrupt the delicate fiscal balance of the national budget, potentially triggering further consequences such as credit rating downgrades. Meanwhile, discussions within the Government of National Unity (GNU), including the ANC and other parties, continue in an effort to break the Budget impasse.
Looking ahead, the March CPI is in the spotlight this week (Wednesday) and is expected to come in at 2.9% year-on-year, from 3.2% year-on-year in February.