Fed split over rate cuts

Good morning and welcome back to the start of the working week. On today’s agenda:

• Fed board split ahead of rate decision

• AfD makes electoral gains in Germany

• Gen Z fuelled insurrections in Asia

• How Goldman Sachs is using AI tools

A divided Federal Reserve is set to make its first interest rate cut this year, as it faces fierce pressure from Donald Trump and a split over whether the weakening jobs market can counter the inflationary risk posed by the US president’s tariffs.

What do investors expect: The Federal Open Market Committee is widely expected to lower borrowing costs by a quarter point at Wednesday’s policy vote. But some Trump allies are likely to argue for a bigger 50 basis point cut, citing the weakening labour market. However, there are others, such as Chicago Fed president Austan Goolsbee and Kansas City Fed head Jeff Schmid, who are more dovish and believe the threat of inflation warrants a more cautious approach. The FOMC has not been split three ways since 2019.

Why it matters: After cutting borrowing costs by 100bp last year, the Fed has kept interest rates on hold at 4.25 to 4.5 per cent since December. Trump has made it clear since coming to office that he believes US borrowing costs should be lower. The two-day meeting starts tomorrow but it remains unclear whether Fed governor Lisa Cook will attend. The Trump administration has accused Cook of mortgage fraud, an allegation she has denied. The justice department last week filed a motion with the US Court of Appeals in Washington to stop a lower court judge’s temporary halt on Trump’s attempt to fire Cook. The government called on the court to rule by close of business today. Read more on the high-stakes meeting.

US economics editor Claire Jones will be answering readers’ questions in a special edition of FirstFT at the weekend about the Fed and the US economy. If you have a question for Claire, email it to firstft@ft.com. Here’s what else we’re keeping tabs on today:

• US-China trade talks: Officials from Washington and Beijing meet in Madrid for a second day of talks as hopes for a Xi-Trump summit fade. In this week’s Economics Show podcast, Unhedged co-author Aiden Reiter talks to Dan Wang, author of Breakneck: China’s Quest to Engineer the Future, about the economic challenges facing the country.

• Switzerland: Parliament votes on banking reforms that will determine the levels of capital the country’s biggest bank UBS must hold.

• UK-US relations: Prime Minister Sir Keir Starmer will announce a UK-US nuclear energy agreement today ahead of this week’s state visit by Trump.

• Nvidia shares: A Beijing regulator has found that the chipmaker violated China’s antitrust law in a preliminary finding. Shares of the US company fell 2 per cent in pre-market trading.

Five more top stories

1. Exclusive: The head of the Securities and Exchange Commission is moving to scrap the aggressive enforcement agenda pursued under former president Joe Biden, pledging to give businesses notice of any technical violations before regulators “bash down their door”. Read the full interview with Paul Atkins.

2. The London Stock Exchange Group has completed its first transaction using a blockchain-powered system, marking the debut of its new infrastructure based on the technology behind cryptocurrencies. The LSEG is the first major global stock exchange to launch a complete blockchain-powered system.

3. Alternative for Germany is set to make strong gains in local elections in the country’s most populous state, underlining the far-right party’s advance in the first electoral test for Chancellor Friedrich Merz’s coalition government. Despite relaxing Germany’s debt brake and unveiling a massive €1tn spending plan for defence and infrastructure, Merz has been grappling with low public approval ratings. Read more on Sunday’s municipal elections in North Rhine-Westphalia.

• More Europe news: A Russian drone entered Romania’s airspace and was tracked by the Romanian air force for nearly an hour before leaving, the second breach of Nato territory by Moscow within a week.

4. Chinese export restrictions on germanium, a metal crucial for the defence industry, have created a “desperate” supply crunch and pushed prices to their highest level in at least 14 years, traders say. Germanium is essential to the production of thermal imaging systems used in military equipment, including fighter jets. One trader said supplies had “completely dried up”.

5. Utah’s Governor Spencer Cox said social media had played a “direct role” in fuelling political violence in the US, as the country grapples with the fatal shooting of conservative activist Charlie Kirk at a college in the state last week. “It took us a decade to realise how evil these algorithms are,” he said on NBC’s Meet the Press yesterday.

The Big Read

This month’s demonstrations in Nepal have been dubbed the “Gen Z” revolution after young people took to the streets against what they saw as an ageing and crooked political elite. The protests in the south Asian country are part of a regional trend of insurrections by the younger generation who have grown frustrated with the spoils of growth reverting back to entrenched political classes and not improving their own lives.

We’re also reading . . . 

Chart of the day

Apollo Global Management built its financing machine on a regulatory arbitrage, exploiting the difference between capital rules for banks and insurers to funnel retirees’ savings into private credit loans and pocketing the spread. The private capital group has been the US’s biggest seller of retail annuities for two years running, and it is hungry for more. But the strategy is approaching its limits.

Take a break from the news . . . 

Imagine spending the last seven weeks of this year working for free. This is in effect what women across the world do when compared with men because of the endurance of gender pay gaps, writes Pilita Clark.