This article is also available in French and German. President Donald Trump denounced Europe as a “decaying” group of nations led by “weak” people in an interview with POLITICO, belittling the traditional U.S. allies for failing to control migration and end the Russia-Ukraine war, and signaling that he would endorse European political candidates aligned with his own vision for the continent. The broadside attack against European political leadership represents the president’s most virulent denunciation to date of these Western democracies, threatening a decisive rupture with countries like France and Germany that already have deeply strained relations with the Trump administration. “I think they’re weak,” Trump said of Europe’s political leaders. “But I also think that they want to be so politically correct.” “I think they don’t know what to do,” he added. “Europe doesn’t know what to do.” Trump matched that blunt, even abrasive, candor on European affairs with a sequence of stark pronouncements on matters closer to home: He said he would make support for immediately slashing interest rates a litmus test in his choice of a new Federal Reserve chair. He said he could extend anti-drug military operations to Mexico and Colombia. And Trump urged conservative Supreme Court Justices Samuel Alito and Clarence Thomas, both in their 70s, to stay on the bench. Trump’s comments about Europe come at an especially precarious moment in the negotiations to end Russia’s war in Ukraine, as European leaders express intensifying alarm that Trump may abandon Ukraine and its continental allies to Russian aggression. In the interview, Trump offered no reassurance to Europeans on that score and declared that Russia was obviously in a stronger position than Ukraine. Trump spoke on Monday at the White House with POLITICO’s Dasha Burns for a special episode of The Conversation. POLITICO on Tuesday named Trump the most influential figure shaping European politics in the year ahead, a recognition previously conferred on leaders including Ukrainian President Volodymyr Zelenskyy, Italian Prime Minister Giorgia Meloni and Hungarian Prime Minister Viktor Orbán. Trump’s confident commentary on Europe presented a sharp contrast with some of his remarks on domestic matters in the interview. The president and his party have faced a series of electoral setbacks and spiraling dysfunction in Congress this fall as voters rebel against the high cost of living. Trump has struggled to deliver a message to meet that new reality: In the interview, he graded the economy’s performance as an “A-plus-plus-plus-plus-plus,” insisted that prices were falling across the board and declined to outline a specific remedy for imminent spikes in health care premiums. Even amid growing turbulence at home, however, Trump remains a singular figure in international politics. In recent days, European capitals have shuddered with dismay at the release of Trump’s new National Security Strategy document, a highly provocative manifesto that cast the Trump administration in opposition to the mainstream European political establishment and vowed to “cultivate resistance” to the European status quo on immigration and other politically volatile issues. In the interview, Trump amplified that worldview, describing cities like London and Paris as creaking under the burden of migration from the Middle East and Africa. Without a change in border policy, Trump said, some European states “will not be viable countries any longer.” Using highly incendiary language, Trump singled out London’s left-wing mayor, Sadiq Khan, the son of Pakistani immigrants and the city’s first Muslim mayor, as a “disaster” and blamed his election on immigration: “He gets elected because so many people have come in. They vote for him now.” The president of the European Council, António Costa, on Monday rebuked the Trump administration for the national security document and urged the White House to respect Europe’s sovereignty and right to self-government. “Allies do not threaten to interfere in the democratic life or the domestic political choices of these allies,” Costa said. “They respect them.” Speaking with POLITICO, Trump flouted those boundaries and said he would continue to back favorite candidates in European elections, even at the risk of offending local sensitivities. “I’d endorse,” Trump said. “I’ve endorsed people, but I’ve endorsed people that a lot of Europeans don’t like. I’ve endorsed Viktor Orbán,” the hard-right Hungarian prime minister Trump said he admired for his border-control policies. It was the Russia-Ukraine war, rather than electoral politics, that Trump appeared most immediately focused on. He claimed on Monday that he had offered a new draft of a peace plan that some Ukrainian officials liked, but that Zelenskyy himself had not reviewed yet. “It would be nice if he would read it,” Trump said. Zelenskyy met with leaders of France, Germany and the United Kingdom on Monday and continued to voice opposition to ceding Ukrainian territory to Russia as part of a peace deal. The president said he put little stock in the role of European leaders in seeking to end the war: “They talk, but they don’t produce, and the war just keeps going on and on.” In a fresh challenge to Zelenskyy, who appears politically weakened in Ukraine due to a corruption scandal, Trump renewed his call for Ukraine to hold new elections. “They haven’t had an election in a long time,” Trump said. “You know, they talk about a democracy, but it gets to a point where it’s not a democracy anymore.” Latin America Even as he said he is pursuing a peace agenda overseas, Trump said he might further broaden the military actions his administration has taken in Latin America against targets it claims are linked to the drug trade. Trump has deployed a massive military force to the Caribbean to strike alleged drug runners and pressure the authoritarian regime in Venezuela. In the interview, Trump repeatedly declined to rule out putting American troops into Venezuela as part of an effort to bring down the strongman ruler Nicolás Maduro, whom Trump blames for exporting drugs and dangerous people to the United States. Some leaders on the American right have warned Trump that a ground invasion of Venezuela would be a red line for conservatives who voted for him in part to end foreign wars. “I don’t want to rule in or out. I don’t talk about it,” Trump said of deploying ground troops, adding: “I don’t want to talk to you about military strategy.” But the president said he would consider using force against targets in other countries where the drug trade is highly active, including Mexico and Colombia. “Sure, I would,” he said. Trump scarcely defended some of his most controversial actions in Latin America, including his recent pardon of the former Honduran President Juan Orlando Hernández, who was serving a decades-long sentence in an American prison after being convicted in a massive drug-trafficking conspiracy. Trump said he knew “very little” about Hernández except that he’d been told by “very good people” that the former Honduran president had been targeted unfairly by political opponents. “They asked me to do it and I said, I’ll do it,” Trump acknowledged, without naming the people who sought the pardon for Hernández. HEALTH CARE AND THE ECONOMY Asked to grade the economy under his watch, Trump rated it an overwhelming success: “A-plus-plus-plus-plus-plus.” To the extent voters are frustrated about prices, Trump said the Biden administration was at fault: “I inherited a mess. I inherited a total mess.” The president is facing a forbidding political environment because of voters’ struggles with affordability, with about half of voters overall and nearly 4 in 10 people who voted for Trump in 2024 saying in a recent POLITICO Poll that the cost of living was as bad as it had ever been in their lives. Trump said he could make additional changes to tariff policy to help lower the price of some goods, as he has already done, but he insisted overall that the trend on costs was in the right direction. “Prices are all coming down,” Trump said, adding: “Everything is coming down.” Prices rose 3 percent over the 12 months ending in September, according to the most recent Consumer Price Index. Trump’s political struggles are shadowing his upcoming decision on a nominee to chair the Federal Reserve, a post that will shape the economic environment for the balance of Trump’s term. Asked if he was making support for slashing interest rates a litmus test for his Fed nominee, Trump answered with a quick “yes.” The most immediate threat to the cost of living for many Americans is the expiration of enhanced health insurance subsidies for Obamacare exchange plans that were enacted by Democrats under former President Joe Biden and are set to expire at the end of this year. Health insurance premiums are expected to spike in 2026, and medical charities are already experiencing a marked rise in requests for aid even before subsidies expire. Trump has been largely absent from health policy negotiations in Washington, while Democrats and some Republicans supportive of a compromise on subsidies have run into a wall of opposition on the right. Reaching a deal — and marshaling support from enough Republicans to pass it — would likely require direct intervention from the president. Yet asked if he would support a temporary extension of Obamacare subsidies while he works out a large-scale plan with lawmakers, Trump was noncommittal. “I don’t know. I’m gonna have to see,” he said, pivoting to an attack on Democrats for being too generous with insurance companies in the Affordable Care Act. A cloud of uncertainty surrounds the administration’s intentions on health care policy. In late November, the White House planned to unveil a proposal to temporarily extend Obamacare subsidies only to postpone the announcement. Trump has promised on and off for years to unveil a comprehensive plan for replacing Obamacare but has never done so. That did not change in the interview. “I want to give the people better health insurance for less money,” Trump said. “The people will get the money, and they’re going to buy the health insurance that they want.” Reminded that Americans are currently buying holiday gifts and drawing up household budgets for 2026 amid uncertainty around premiums, Trump shot back: “Don’t be dramatic. Don’t be dramatic.” SUPREME COURT Large swaths of Trump’s domestic agenda currently sit before the Supreme Court, with a generally sympathetic 6-3 conservative majority that has nevertheless thrown up some obstacles to the most brazen versions of executive power Trump has attempted to wield. Trump spoke with POLITICO several days after the high court agreed to hear arguments concerning the constitutionality of birthright citizenship, the automatic conferral of citizenship on people born in the United States. Trump is attempting to roll back that right and said it would be “devastating” if the court blocked him from doing so. If the court rules in his favor, Trump said, he had not yet considered whether he would try to strip citizenship from people who were born as citizens under current law. Trump broke with some members of his party who have been hoping that the court’s two oldest conservatives, Clarence Thomas and Samuel Alito, might consider retiring before the midterm elections so that Trump can nominate another conservative while Republicans are guaranteed to control the Senate. The president said he’d rather Alito, 75, and Thomas, 77, the court’s most reliable conservative jurists, remain in place: “I hope they stay,” he said, “’cause I think they’re fantastic.”

LONDON — Financial markets gave a cautious welcome to Chancellor Rachel Reeves’ budget — to the extent that they could make sense of it. The presentation of the U.K. government’s fiscal plans for the next year was badly disrupted when the Office for Budget Responsibility accidentally published its analysis of the bill before Reeves had even announced it in parliament. That forced investors into a frantic search for its key details. As the initial uncertainties lifted, the pound rose by 0.2 percent against the dollar and a little more against the euro, on the key takeaway that the annual tax take will rise by £26 billion by the 2029-2030 fiscal year. That will squeeze the budget deficit and give Reeves more room for maneuver in the event of a fresh downturn. “The Chancellor more than doubled her fiscal headroom from around £10 billion to just under £22 billion,” Deutsche Bank analyst Sanjay Raja said in a note to clients. Such considerations should reduce the U.K.’s vulnerability to swings in global financial markets, which has been exposed more than once in a year when U.S. President Donald Trump has upended the global trading order. Investors had worried all year that a global economic slowdown could push Britain in the direction of a debt crisis. But Reeves now estimates the budget deficit will fall to 1.9 percent of GDP by 2030, from 4.5 percent of GDP in the current year. That will stabilize the debt ratio well below 100 percent of GDP, but at a cost. By freezing income tax thresholds for the rest of this parliament, and by a host of smaller measures, Reeves will raise the overall tax take to a record 38 percent of gross domestic product, according to the OBR. The new debt trajectory generated a measure of relief in bond markets, visible in a drop of 0.05 percentage points in the government’s key 10-year borrowing cost to 4.44 percent by 2 p.m. in London. That was the lowest since the leak of Reeves abandoning her planned increase in income tax rates two weeks ago. It also fed through into slightly stronger expectations of interest rate cuts from the Bank of England. The two-year gilt yield, which closely tracks expectations of the Bank Rate, fell 0.03 percentage points to a 15-month low of 3.74 percent. Reeves was careful to avoid the mistakes of her last budget which, by raising regulated prices sharply, drove headline inflation back to 4 percent over the summer. In her statement on Tuesday, she went in the other direction, freezing rail and bus fares and removing some of the government-directed charges on energy bills. The OBR said these measures would take 0.4 percent off the rate of inflation over the next year. “I have cut the cost of living with money off bills and prices frozen,” Reeves said. Deutsche’s Raja said the measures would have a “modest but meaningful” impact on inflation, making the Bank’s job “slightly easier” for the next 12 months. The Bank of England held off from cutting the key Bank Rate at its latest Monetary Policy Committee meeting this month, despite increasingly signs of the job market weakening. Most analysts had said at the time they would expect a cut in December, as long as the budget didn’t add to inflationary pressures.

VIENNA — Donald Trump’s trade war has been less damaging for Europe’s economy than widely feared, and there is a hope that a stable recovery is underway, European Central Bank governing council member Martin Kocher said.  “We have not seen the strong reduction in growth rates and the inflationary effects of the trade conflicts that were anticipated in March and April,” the Austrian National Bank governor told POLITICO in an interview on Wednesday. On the same day that a closely-watched business survey pointed to an unexpected and marked pickup in activity in October, Kocher suggested there were emerging signs of an economic pickup. Kocher, who served as economy minister before joining the central bank in September, nonetheless warned against complacency. “I don’t want to sugarcoat what we are seeing,” he said. “This is the highest level of tariffs since the 1930s, and there will be effects on the world economy.” The impact on the eurozone will be exceptionally difficult to predict because we have not experienced anything similar in nearly 100 years, Kocher said, adding that this was the primary reason for diverging views about the ideal monetary policy path ahead on the ECB’s governing council. Falling inflation has allowed the ECB to cut its key deposit rate eight times since the middle of last year, bringing it down from a record-high 4 percent to 2 percent currently — a level that the Bank says is no longer restricting the economy. A behavioral economist rather than a monetary one, Kocher is one of the newest faces on the governing council, having succeeded Robert Holzmann earlier this year. Most analysts expect a more moderate approach from him than from the veteran hawk Holzmann, who was often the lone dissenter on the rate-setting body. The governor’s office leaves no doubt there is a change in style underfoot — the wooden desk replaced by a modern, height-adjustable table and new, colorful paintings by Austrian artists Wolfgang Hollegha and Hans Staudacher on the wall. While policymakers unanimously agreed to keep interest rates on hold last week, ECB President Christine Lagarde revealed that “there are different positions and different views” on whether the Bank may yet have to cut them one more time. “The difficulty is to assess whether most of the effects of the trade conflicts have already materialized or whether we will see them trickle down in the economy over the next couple of months and perhaps even years,” he said. “I’m convinced that we’ll see more effects over time. But whether they will be overall inflationary, or rather disinflationary in the euro area, is difficult to tell.” RISKY OUTLOOK Kocher explained it’s reasonable to expect deflationary pressure from the rerouting of trade from China to Europe that was flowing to the U.S. before the trade conflict began, but it’s equally plausible that geopolitical conflicts may hamper supply chains and boost prices. And things can change very fast. “Last week’s APEC summit with some interim agreement between the U.S. and China might have changed the outlook again,” he noted. While policymakers unanimously agreed to keep interest rates on hold last week, ECB President Christine Lagarde revealed that “there are different positions and different views” on whether the Bank may yet have to cut them one more time. | Nikolay Doychinov/AFP via Getty Images At the summit, the U.S. and China committed to lowering the temperature in their trade and tech rivalry. The so-called “Gyeongju Declaration” called for “robust trade and investment” and committed leaders to deepen economic cooperation. In this environment, “we have to wait and see to what extent [risks] materialize” as it’s difficult to take rate decisions “primarily based on the risk outlook,” Kocher said. As things stand, he said, the ECB would need to “see some risk materializing that would reduce … the GDP projection to a significant extent, and that would lead perhaps to some disinflationary effects” before it discussed cutting again. The governing council next meets in December, when a new set of forecasts will include estimates for growth and inflation in 2028 for the first time. Kocher warned against placing too much emphasis on the 2028 numbers, which many economists and investors focus on as an indication of whether the Bank is on track to meet its medium-term inflation target. While the forecast will offer more certainty about the outlook for 2026 and 2027, that for 2028 will be little more than “indicative,” he argued. “You always have to take projections with a grain of salt. And the further away the projection horizon, the larger the grain of salt.” GREEN BATTLE CONTINUES Kocher was speaking on the day that a majority of the EU’s 27 governments decided to water down their collective target for pollution reduction, seen by many as a sign that political momentum has swung after half a decade of green victories on climate policy. But Kocher fiercely defended the ECB’s commitment to green central banking. “Whatever is decided today, there’s no significant change in the targets of the European Union to become climate neutral in the near future,” Kocher said. And so long as it does not interfere with the ECB’s inflation-targeting mandate, the ECB has the “freedom” to support those objectives. He said the governing council had reaffirmed the view, even in the last couple of months, that it is essential to take climate risks into account in its projections, citing the massive impact that extreme weather events can have on growth and inflation. In contrast to his predecessor, Kocher also backs the inclusion of a climate criterion in the Bank’s collateral framework, a step that could one day make it more expensive for polluting companies than for green ones to borrow money. Critics of green central banking have argued that it is up to elected politicians, rather than central bankers, to create incentives for green business. But Kocher, a former downhill racer who has seen Austria’s key tourism sector struggle with an ever-shorter ski season, is unconcerned. “As long as it does not create a trade-off with our inflation target, I am perfectly fine with it,” he said.

LONDON — Nigel Farage’s second-in-command called for a rethink of the U.K.’s interest rate-setting committee in a fresh sign that a Reform UK government could intervene in Britain’s independent central bank. Richard Tice, the deputy leader of the populist-right party that’s surging in U.K. polls, told POLITICO in an interview that there should be a debate over potentially sweeping changes to the make-up and role of the Bank of England’s Monetary Policy Committee (MPC).  “It’s not unreasonable to check whether or not we’ve got the membership of the MPC right. I mean, it’s almost 30 years,” he said, referencing the 1997 establishment of the MPC. “So you could say, well, have we got the membership right? Have we got the number of government representatives right? Should they or shouldn’t they have a vote? Have we got the mandate right?”  He added: “Should it have a growth mandate? We should have that debate.”  The BoE’s rate-setting committee is made up of nine members, including Governor Andrew Bailey, four senior central bank executives, and four independent external members appointed by the chancellor. A representative from the U.K. Treasury joins MPC meetings but is not allowed to vote.   Monetary policy has become increasingly politicized since the Covid-19 pandemic, after which inflation soared to double digits and the BoE raised rates to their highest levels in 15 years. The International Monetary Fund has warned the U.K. faces the highest inflation in the G7 this year and next.   Tice’s comments come ahead of a speech in the City of London Wednesday, where he is expected to set out a wide-ranging aspiration for financial services deregulation should Reform UK enter government in Britain’s 2029 general election. The deputy leader said the U.K. needs a “complete sea change” in how risk is approached in the City, and called for further red tape cutting on banks, hedge funds and other City giants. “No one’s stepping back and asking big, philosophical questions,” he said.   Tice told POLITICO his party is “happy” with the BoE’s independence, but said it is “ridiculous” that “no one dares to” question the performance of the central bank despite the U.K. “outsourcing all responsibility for massive issues that affect ordinary people.”  He argued the BoE had “failed” under Conservative Liz Truss, who was forced out as prime minister after bond yields spiked in the wake of a tax-cutting budget, leading banks to increase their lending rates. Tice accused City regulators of “missing” the issue of liability-driven investments (LDIs), which increased the strain on pension funds during that period, and said the Bank of England “could have actually stepped in and prevented the carnage.”  Truss has repeatedly blamed the Bank of England for failing to anticipate the market consequences of her budget. The central bank intervened after her mini-budget to calm the markets by implementing an emergency bond buying scheme.  WIDER REFORM Reform leader Farage, who is set to give a speech in the City Monday on his broader vision for the economy, has gone further, saying Bailey has “had a good run” and he “might find someone new” if the party wins the next election.  Bailey’s term is due to end in 2028, before the election. Tice did not rule out the prospect of a Reform government forcing out an underperforming central bank governor in future, saying: “At the end of the day, any public official has to be accountable for their performance.”  However, he declined to liken Reform’s stance to Donald Trump’s approach to the Federal Reserve, after the U.S. president repeatedly attempted to get rid of chair Jerome Powell.  Reform UK is currently ahead in the polls, as Britain’s Labour government continues to struggle with its messaging on the economy, immigration and frustration within Prime Minister Keir Starmer’s top ranks. Reform leader Nigel Farage, who is set to give a speech in the City Monday on his broader vision for the economy. | Mark Kerrison/Getty IMages Tice argued Labour — which has made growth its primary objective by rolling back 2008 financial crisis legislation — is adding rather than removing regulation, and accused it and the opposition Conservatives of “tinkering around the edges.”  “We’re not going to create any form of meaningful growth under the current trajectory of this government, or under the trajectory of any Conservative plans,” he said. “We are heading towards impoverishment and growth has relentlessly declined as borrowing has relentlessly increased, particularly if you look per head. And it requires a complete sea change in the way that we think about risk and reward.”  Asked whether a Reform government would go further than Labour on deregulation, Tice said: “Yes. We want to ask some very big questions about how we do things.”  Tice also argued that regulators such as the Financial Conduct Authority — which Farage hopes to strip of its role regulating banks — have “utterly failed to do their job.”  Asked if he believes Britain has now moved on enough since the 2008 financial crisis to strip away “protections,” he replied: “There are all sorts of different reasons why the ’08 crash happened. But we supposedly had all the mechanisms of protection there, and they failed. No one was properly held to account.” 

Inflation in the eurozone edged down in October as higher prices for food and industrial goods were offset by another drop in energy costs. According to preliminary data from Eurostat on Friday, annual inflation slowed to 2.1 percent, in line with consensus estimates, from 2.2 percent in September. The slowdown comes despite Germany and Spain reporting higher-than-expected consumer price increases on Thursday. Energy prices fell by 0.2 percent on the month and 1.0 percent on the year, against a backdrop of continued increases in oil supply. However, unprocessed food prices continued to rise, albeit at a slower rate of 0.7 percent on the month. That left them up 3.2 percent on the year in October, down from a peak of 5.5 percent in August. Despite a modest increase of only 0.1 percent in prices in October, services price inflation hit its highest level in over six months at 3.4 percent. The metric is closely watched by the European Central Bank (ECB) because of its close link to wage growth, which accelerated to around 4 percent in the second quarter. Persistent services inflation can eventually feed through the rest of the economy, and could drive prices higher across the basket of goods being measured. However, ECB President Christine Lagarde repeated on Thursday that she expects wage growth to slow again in the coming months. The ECB held its key interest rate unchanged at 2 percent on Thursday, with the Bank emphasizing that inflation was in a “good place” and that it would continue with its wait-and- see approach. While the latest inflation reading is only a touch above the Bank’s 2-percent target, the persistence of inflation in the services sector will likely make the ECB reluctant to lower interest rates any further for the foreseeable future.

The European Central Bank left its key interest rate unchanged at 2 percent on Thursday, with the euro area economy still proving itself resilient and with inflation reasonably steady around the Bank’s target. The decision was consistent with guidance from policymakers that monetary policy is in “a good place,” giving them room to wait for year-end projections that will include the ECB’s first inflation forecast for 2028. The economy grew a faster-than-expected 0.2 percent in the third quarter of this year, while preliminary data showed inflation ticking up to 2.2 percent in October, calming fears about a possible undershoot. “The economy has continued to grow despite the challenging global environment,” the ECB said in its statement. “The robust labor market, solid private sector balance sheets and the Governing Council’s past interest rate cuts remain important sources of resilience.” At the same time, however, the ECB warned that “the outlook is still uncertain, owing particularly to ongoing global trade disputes and geopolitical tensions.” Risks remain abundant: beyond potential delayed effects from new U.S. tariffs, they include a further strengthening of the euro, as the U.S. Federal Reserve continues to lower its own rates. On Wednesday, the Fed cut rates by another quarter-point — the second consecutive reduction — citing a slowdown in job growth. Domestically, a delay to Germany’s fiscal stimulus measures and France’s ongoing budget crisis could also threaten to push the ECB out of its “good place.” Even so, a growing number of economists believe the central bank has reached the end of its easing cycle, a recent Reuters survey showed. While a slim majority of analysts last month expected one more rate cut before the end of 2026, nearly 60 percent now anticipate no further changes to borrowing costs in the current cycle.

The Central Bank of the Russia Federation lowered its key interest rate today and slashed its growth forecast for 2025 as the country’s economy is battered by a combination of high inflation and wide-ranging Western sanctions. The move comes after the U.S. imposed sanctions on two of its major oil suppliers, Rosneft and Lukoil. Oil and gas account for around a fifth of Russia’s gross domestic product (GDP). The bank updated its outlook, forecasting that the economy would grow by between 0.5 to 1 percent in 2025, down from 1 to 2 percent earlier. It also lowered its key interest rate by 0.5 percentage points, to 16.5 percent, despite forecasting an uptick in inflation next year, to between 4 to 5 percent. It’s unusual for a central bank to lower its policy rate while revising its inflation outlook upward, since lower rates are usually linked to higher inflation, and central banks are tasked with maintaining price stability. However, the combination of managing escalating foreign sanctions on the economy, together with the need to maintain a high level of industrial output to produce the armaments necessary to prolong its war on Ukraine, has put the bank’s governor, Elvira Nabiullina, in a tough spot. Ukraine’s ongoing drone campaign aimed at crippling Russia’s oil refineries has heaped further pressure on the country’s economic output. On Thursday, Herman Gref, who heads Russia’s largest lender Sberbank, said that it had been a mistake to focus too much on inflation at the expense of economic growth. In its statement, the central bank said that it sees inflationary pressures increasing in the medium term, as tax hikes, trade disruption and fluctuations in the oil price all bite. “Geopolitical tensions remain a significant uncertainty factor,” it said.

U.K. Chancellor Rachel Reeves’ Wednesday started with a much-needed fillip, in the form of data suggesting inflation peaked below 4 percent in September. The Office for National Statistics said consumer prices were unchanged on the month while the headline rate stayed at 3.8 percent on the year, below the City’s forecast for 4 percent. Importantly, the slowdown was the result of lower food prices, which have an outsize impact on lower-income families and on broader perceptions of inflation. Food inflation slowed to 4.5 percent from 5.1 in the year through August. The figures will come as a relief to Reeves for a number of reasons: first, they will reduce the cost of servicing Britain’s debt, a quarter of which is directly tied to the inflation rate; second, they could take some of the pressure off the upcoming public sector pay round. Those two factors have both threatened to spoil the chancellor’s arithmetic as she prepares her budget at the end of next month. The figures may also revive some expectations of an interest rate cut from the Bank of England by year-end. A string of disappointingly strong inflation reports over the spring and summer convinced most in the markets that the BoE wouldn’t be able to cut again until next year. At 3.8 percent in September, inflation is still nearly double the bank’s 2 percent target. However, with last year’s drop in regulated energy prices now falling out of the calculations, the BoE expects the headline rate to decline slowly from now on.

ROME — Italian Prime Minister Giorgia Meloni appears to be edging closer to a politically viable tax on banks, with both sides more open to compromise after earlier attempts fizzled under pressure from financial elites. It signals growing acceptance of levies on credit institutions in Europe as war, trade restrictions and rising debt put strain on government coffers ahead of annual budget talks. Since banks grew rich off rising interest rates, Meloni has sought to impose levies to make up for a perennial budget shortfall. But Italy’s influential lenders, backed by centrists in the prime minister’s coalition, have consistently pushed back, securing walk-backs and major concessions. This time, the government appears to have learned its lesson, and is seeking to engage more proactively with Italy’s banks, which have in turn accepted the need to compromise, according to three people familiar with internal dynamics. Italy’s banks have been routinely criticized by the populist right flank of Meloni’s coalition for taking advantage of rising interest rates between 2021 and 2023 to boost their profits, charging higher interest on loans while keeping the interest paid on savings accounts relatively low. Critics also point out that banks’ rising profits were derived in large part from interest paid on their large holdings with the European Central Bank rather than through productive enterprise. Despite clashes in the past, the government is now keen to strike a solution that would both satisfy the need for fresh revenue amid competing budget pressures and keep financial markets onside, especially as Meloni wins plaudits for her management of the economy. In recent weeks, both Meloni and Finance Minister Giancarlo Giorgetti have said that banks will need to make “contributions” for next year’s budget to redistribute excess profits to other, more depressed areas of the economy. What happens next remains unclear. The Association of Italian Banks (ABI), which represents much of the financial sector in dialogue with the government, hasn’t yet met with the Treasury, according to the people familiar with the matter, who were granted anonymity to discuss nonpublic discussions. But officials are already mulling a number of proposals that will then be submitted to the financial sector. One of them, according to three other people familiar with internal deliberations, is a tax of between 4 percent and 6 percent that would target profits exceeding those made between 2020 and 2022, and which would be adjusted based on the size and scope of a given bank, with smaller regional banks enjoying a lower rate. The tax, which would apply for two years from 2025 and could generate between €2.5 billion and €3 billion, echoes a similar proposal by the hard-right League, which has been the most enthusiastic supporter of a bank tax in Meloni’s coalition. According to one lawmaker, that proposal was seen as less vulnerable to legal challenge because Spain has imposed a similar levy. A Treasury spokesperson denied claims that the tax was being discussed. Whether it makes it into law or not, it’s an example of the government’s less punitive approach to lenders, in stark contrast to Meloni’s earlier policies, including an abortive push for a 40 percent windfall tax in 2023. The government heavily diluted that measure after bank stocks tumbled, and the following year it imposed only a temporary measure — expected to be extended this year — that forced banks to suspend the use of lucrative tax credits. The Spanish-style measure is “no longer framed as a populist attack on the banking sector but as a calibrated fiscal tool to channel part of the industry’s exceptional profits toward social and economic support measures,” reads one memo circulated in Italian banking circles. “The new tax aims to be credible, limited, and technically sound — not a punitive gesture, but a pragmatic way to raise a few billion euros without destabilizing the market.” A key pillar of the proposal is the redistribution of profits to households, mortgage holders and businesses affected by high interest rates — highlighting growing awareness of the imbalances caused by European monetary policy. Recognition of this skewed economic reality also means there’s likely to be less resistance from the Bank of Italy, which harshly criticized the 2023 proposal. But this time, lenders are seen as sufficiently healthy to withstand any new levies, and regulatory authorities are unlikely to push back even if they disagree with them, said one senior Bank official, speaking on condition of anonymity. The politics remain complicated, however. On the one hand, opposition to a tax on windfall profits is already emerging from the late Silvio Berlusconi’s center-right Forza Italia party, a junior coalition partner which embraces a more liberal economic doctrine and has decried the idea of new levies as government overreach. “On principle, Forza Italia is against the idea of any tax on ‘extra profits’,” Maurizio Casasco, a Forza Italia lawmaker and the party’s top economic adviser, told POLITICO. “There’s no ‘right tax’ and ‘wrong tax’.” At the same time, Forza Italia is open to any new deal that’s supported by both the financial sector and the government, as last year’s measure was, Casasco added. League leader Matteo Salvini, Meloni’s deputy prime minister, has taken a much harsher line, mounting repeated attacks on banks for failing to distribute record profits to customers. The government is also mulling a tax on corporate buybacks, which would affect many banks but also countless firms, as POLITICO reported in August.

President Donald Trump has asked the Supreme Court to allow him to fire Federal Reserve board member Lisa Cook, setting up a test of the president’s ability to take control of the powerful interest-rate setting body. The Justice Department on Thursday asked the high court to reverse the decisions of two lower courts that allowed Cook to remain in her position while the broader legal fight is underway. Their decisions enabled Cook to participate in a meeting this week that resulted in a quarter-point reduction in the interest rate. Trump’s incursion on the Federal Reserve is the culmination of his bid to assume control of all facets of the executive branch, even those intended to be insulated from political pressure or control. The Supreme Court has repeatedly blessed Trump’s efforts to fire the heads of independent agencies and boards, though justices have signaled they view the Federal Reserve as a unique “quasi-private” institution. Trump’s attempt to fire Cook marks his most significant effort to reshape a central bank board that’s infuriated him with its rate decisions. The president has boasted about how rates will fall once his appointees represent a majority of the Board of Governors. Stephen Miran, Trump’s top economic adviser, took an unpaid leave of absence from the White House and was sworn in earlier this week to serve out the remainder of former Fed Gov. Adriana Kugler’s term. Still, the rate cut announced by the Fed on Wednesday was much smaller than what Trump has called for, and Federal Reserve Chair Jerome Powell cautioned that tariffs could still cause prices to climb in the coming months, an outcome that may keep the Fed from holding off on future reductions. Trump attempted to fire Cook last month under a provision of law that permits the president to remove members of the Federal Reserve board for “cause.” He contended that allegations of mortgage fraud — leveled against Cook by his appointee atop the Federal Housing Finance Agency — justified Cook’s summary termination just three years into her 14-year term. Cook, a Biden appointee, quickly sued, contending that Trump’s allegations against her were a pretext to take control of the board and violated her due process rights. U.S. District Judge Jia Cobb agreed, finding that Cook could only be removed for misconduct committed during her service on the board, not allegations that pre-dated her tenure. Cobb also found that the administration failed to offer her a meaningful chance to contest the allegations. But Solicitor General John Sauer said Cobb’s ruling overstepped the court’s ability to second-guess the president’s determination. “The Federal Reserve Act’s broad ‘for cause’ provision rules out removal for no reason at all, or for policy disagreement,” Sauer wrote. “But so long as the President identifies a cause, the determination of … is within the President’s unreviewable discretion.” “The President may reasonably determine that interest rates paid by the American people should not be set by a Governor who appears to have lied about facts material to the interest rates she secured for herself — and refuses to explain the apparent misrepresentations,” Sauer wrote. Cook has denied wrongdoing.