Fed slashes US growth forecast as Trump’s policies affect outlook

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Good morning and welcome back to FirstFT Asia. In today’s newsletter:

Trump’s policies weigh on the Fed’s outlook
Why China delayed BYD’s Mexico plant
Goldman’s succession plans

The Federal Reserve has slashed its US growth forecast and lifted its inflation outlook, underscoring concerns that Donald Trump’s tariffs will knock the world’s biggest economy.

The Fed’s latest set of projections showed officials now expect GDP to expand by 1.7 per cent this year, with prices forecast to rise by 2.7 per cent. Policymakers kept the central bank’s main interest rate on hold yesterday.

Fed chair Jay Powell acknowledged to reporters after the meeting that the US president’s plan to hit trading partners with sweeping tariffs had affected the central bank’s outlook for inflation and the economy.

“Clearly some of it, a good part of it,” was related to the impact of Trump’s tariffs, Powell said, adding that they “tend to bring growth down and push inflation up”. He also said progress on inflation was “probably delayed for the time being”.

The Fed’s new forecasts “signalled essentially that we are in a stagflation economy, with lower growth and higher inflation”, said Torsten Slok, chief economist at investment firm Apollo. Here’s what that means for US rate-setters.

Read more news from a busy day in central banking:

Japan: The Bank of Japan held interest rates as the rising risk of a global trade war and potential downturn in the US weighed on Japan’s hope for a sustained economic revival.
Indonesia: The south-east Asian nation’s central bank intervened “boldly” in the foreign exchange market as the rupiah hovers close to five-year lows amid concerns over a sluggish economy.

For more insight into what rate-setters are thinking, sign up for our Central Banks newsletter by Chris Giles if you’re a premium subscriber, or upgrade your subscription here.

Here’s what else we’re keeping tabs on today:

Economic data: Hong Kong reports February CPI inflation data and Australia publishes labour force figures for the month.
Monetary policy: The People’s Bank of China announces its loan prime rate decision.
Olympics: The International Olympic Committee will vote on a new president — the most powerful position in global sport.
Results: CK Hutchison Holdings and China Mobile report 2024 full-year results.

Five more top stories

1. Turkish police have detained Istanbul’s mayor Ekrem İmamoğlu, the main political challenger to President Recep Tayyip Erdoğan, as the government’s sweeping crackdown on the opposition intensified. The Republican People’s party was set to name İmamoğlu, one of the country’s most popular political figures, as its presidential candidate on Sunday.

2. China is delaying approval for carmaker BYD to build a plant in Mexico, after plans were first announced in 2023. People familiar with the matter said Beijing was worried that the smart car technology developed by China’s biggest electric-vehicle maker could leak across the border to the US.

3. President Donald Trump proposed that the US take over Ukraine’s nuclear power plants in a phone call with Ukrainian President Volodymyr Zelenskyy yesterday. Zelenskyy also agreed to back an American proposal to halt strikes on Russian energy infrastructure. Read more about their call.

Israel-Hamas war: Israel has started a new ground operation in Gaza, reclaiming territory it ceded as part of a now-shattered ceasefire.
Go deeper: How the US president’s peacemaking ambitions in Ukraine and the Middle East unravelled.

4. China’s Hesai has denied short-seller allegations that the company misled investors over financial reporting and alleged ties to the People’s Liberation Army. Shares in the world’s biggest maker of laser sensors for EVs slid on Tuesday after Texas-based Blue Orca Capital released a report alleging the tech group was “dishonest” in insisting it was not involved with the Chinese military.

5. Semiconductor materials group JX Advanced Metals surged on its first day of trading after raising $3bn in Japan’s biggest IPO in almost seven years. The listing served as a test of investor appetite for chip-related stocks amid a tech sell-off in recent weeks.

The Big Read

Goldman chief executive David Solomon and his lieutenant John Waldron with its New York headquarters — Goldman chief executive David Solomon and his lieutenant John Waldron © Carolina Vargas/FT/Bloomberg

Many on Wall Street regard John Waldron as heir apparent to Goldman Sachs chief executive David Solomon. Interviews with more than 20 of his current and former colleagues, clients and other people familiar with Waldron’s career paint a picture of a well-liked client whisperer with a relentless work ethic and ability to build bridges between the bank’s different businesses. But can he thrive without Solomon’s guidance?

We’re also reading . . .

Beijing’s open-source AI push: Why is China giving away its most advanced AI models? June Yoon explains.
War on encryption: Government demands to access encrypted data via back doors will leave it vulnerable to hacks and theft, writes Signal president Meredith Whittaker.
Stock vigilantes: It is time to give up on the idea that Trump will change his policies if stock markets tumble, writes Katie Martin.

Chart of the day

Samsung Electronics has promised angry shareholders it will pursue “meaningful achievements” in deals this year to revive growth after the South Korean tech giant suffered market share declines across all its core businesses in 2024. Here’s our report from the company’s annual meeting.