Fed trims growth, hikes inflation outlook

Good morning. Here's what happened overnight and what you need to know today.

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1.

Growth cut: The Federal Reserve held interest rates steady in the 4.25%-4.5% range, as expected, while releasing new economic projections that downgraded GDP growth forecasts to 1.7% this year, down from a previously expected 2.1% in December. The central bank also marked up the outlook for inflation to 2.7% by December, up from 2.5%. Fed chair Jerome Powell said “a good part” of that had come from uncertainty over President Donald Trump’s tariffs, although it was difficult to say exactly how much. Although the median Fed forecast still points to cuts worth 50 basis points this year, projections have become more divided. Nine policymakers now expect two cuts, down from 10 in December. The number of officials predicting one or no cuts doubled to eight, from four previously. And only two policymakers foresee three cuts, down from five. Despite uncertainty over Trump’s trade policies, which have weakened consumer sentiment and heightened inflation risks, Powell said the US economy was still “strong overall” and that the bank was still not in a “hurry to adjust its policy stance”. The central bank also said it will reduce the pace of decline in its balance sheet. (US Fed)(Reuters)(Bloomberg)

2.

Zelensky call: Hours after Russian President Vladimir Putin agreed to stop targeting Ukraine’s energy infrastructure, both sides accused each other of new attacks, casting doubt on the agreement reached in separate calls with US President Donald Trump. A person familiar with the matter told Bloomberg Ukrainian President Volodymyr Zelenskiy agreed to halt strikes on Russian energy assets during his call with Trump. Trump described the conversation as “very good” and said discussions were “on track.” Despite the agreement, Reuters reported Ukraine accused Russia of launching drone strikes on hospitals and homes, while Moscow said Ukraine hit an oil depot in southern Russia. A prisoner swap, facilitated by the UAE, went ahead, with each side releasing 175 troops. Meanwhile, the UK rejected Putin’s demand that Ukraine’s allies suspend military aid. Reuters reported Trump’s National Security Council has paused efforts to counter Russian sabotage operations in Europe, according to multiple officials. Trump’s envoy, Steve Witkoff, said a full ceasefire could be reached in a couple of weeks, with negotiations likely in Saudi Arabia. (Bloomberg)(AP)

3.

Budget item: Prime Minister Anthony Albanese will promise Australians won't pay any more than $25 for a script under the Pharmaceutical Benefits Scheme (PBS) today, in a further sign that Labor is making health a key plank of its re-election bid. Following the Albanese government's $8.5 billion promise to deliver an additional 18 million bulk-billed GP visits each year, the PM will commit to a more than 20% cut in the maximum cost of PBS medicines, saving Australians around $200 million each year. The initiative, which will be in next Tuesday's budget, will cost a total of $689 million and mean that four out of five PBS medicines will become cheaper. The last time that PBS medicines cost no more than $25 was in 2004. “Cheaper medicines is another way we are helping with the cost of living, while putting downward pressure on inflation,” Albanese says. (Capital Brief)

4.

Steel shield: The European Union will cut steel import quotas by 15% from 1 April to curb cheap steel inflows after Donald Trump’s new tariffs. The move, reported by Reuters citing an EU official, follows the US imposing a 25% tariff on steel and aluminium, making its market less viable for exporters from Canada, India, and China. The European Commission aims to protect its industry amid concerns of a steel glut. A draft of the European Steel and Metals Action Plan seen by Reuters proposes stricter import controls, including a "melted and poured" rule to prevent origin changes. "Steel is a strategic issue," said European Commission Vice-President Stephane Sejourne. "The EU can't be the only continent that lets its industry fall apart." (Capital Brief)(Reuters)

5.

Opposition crackdown: Turkish police detained President Recep Tayyip Erdoğan’s key political rival and mayor of Istanbul, Ekrem İmamoğlu, on Wednesday, triggering a selloff in stocks and the Turkish lira. The currency fell as much as 11% before trimming losses to 3.5% to trade at 37.9535 per US dollar. While the relative stability of the lira was safeguarded by the intervention of Turkish banks, which sold between USD8-USD9 billion, stocks plummeted so abruptly that they twice triggered trading halts. Turkish prosecutors said İmamoğlu’s arrest was tied to terrorist links from support he may have received from a pro-Kurdish political group in his 2024 mayoral campaign. Turkey’s next general election is scheduled for 2028, but İmamoğlu was set to be named leader of the opposition Republican People’s party in a primary vote on Sunday. İmamoğlu said via X: “The will of the people cannot be silenced through intimidation or unlawful acts.” (Twitter), (Anadolu Ajansi)(Bloomberg)(AP)(Capital Brief)

6.

AI alliances: Microsoft and BlackRock’s Global AI Infrastructure Investment Partnership (AIP) has tapped Elon Musk’s xAI to join their effort to build USD30 billion ($47.4 billion) worth of data centres and AI infrastructure. Nvidia Corp, which was already named as a technical adviser to AIP when it launched last year is also formally joining the partnership. Details around the nature of AIP’s member commitments were not provided. Launched by BlackRock, Microsoft and Abu Dhabi AI investment fund MGX in September last year, AIP aims to address the intensive power and digital infrastructure demands required to build AI products. AIP says the initial USD30 billion in capital will mobilise up to USD100 billion in total investment potential (including debt financing). AIP’s investments will primarily focus on the US, OECD and US partner countries, and will target energy solutions with partner energy suppliers GE Vernova and NextEra Energy. (AIP)(Bloomberg)(Capital Brief)

7.

EU defence: Arms companies from the US, UK and Turkey will be excluded from a new €150 billion ($258 billion) EU defence funding push unless their home countries sign defence and security pacts with Brussels. A European Commission proposal published on Wednesday explains that the bloc will raise up to €150 billion on capital markets and substantially increase investments in Europe's defence capabilities. The proposal qualifies that the funds will be disbursed to interested Member States upon demand, on the basis of national plans. The instrument, Security Action for Europe (SAFE) will allow non-members that have signed Security and Defence Partnerships with the EU to join common procurements and contribute to aggregated demand. The FT writes that the policy is a victory for France and other countries that have demanded a “Buy European” approach to the continent’s defence investment push. (FT)(European Commission)

8.

Gaming win: Tencent’s Q4 2024 profits beat expectations thanks to a surge in games and advertising revenue, clocking its fastest pace of growth in over a year. Tencent’s results show Q4 profits climbed 90% year-on-year to 51.3 billion yuan ($11.2 billion), compared with 46.03 billion yuan projected. Tencent’s revenues increased above projections at 11% to 172.5 billion yuan for the three months ended December. Tencent’s games revenue in China rose 23% year-on-year to 33.2 billion yuan in Q4, while its international gaming revenue jumped 15% from the year prior to 16 billion yuan. On top of gaming revenues, Tencent’s marketing business surged 17% year-on-year to 35 billion yuan. The company announced a HK$80 billion share buy back and proposed a 32% rise in its annual dividend for 2025. Tencent also outlined plans to plough funding into AI infrastructure. (Tencent)(Bloomberg)(Capital Brief)