The stage is set for high-stakes Trump-Xi meeting

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Good morning from the Financial Times. Today is Monday, October 27th, and this is your FT News Briefing. The stage is set for presidents Donald Trump and Xi Jinping to ease mounting trade tensions, and Britain's chancellor tries to secure her own deal at the so-called Davos in the Desert Investment Conference. Plus, all eyes are on Jerome Powell ahead of this week's U.S. Federal Reserve meeting.

The door has been kind of left open for the Fed to make the cut of 25 basis points that's been anticipated for some time. I'm Victoria Craig, and here's the news you need to start your day.

President Trump is on a whirlwind diplomatic tour of Asia this week, all culminating in a high-stakes meeting with China's Xi Jinping. Trump arrived in Malaysia on Sunday, agreed a flurry of trade deals, and addressed the ASEAN bloc of Southeast Asian countries, emphasizing his interest in forging stronger U.S. ties with the region.

In addition to the agreement with Malaysia this week, we're also signing or nearing completion on trade deals with many other Indo-Pacific partners from Cambodia to Japan to South Korea. That is all a prelude for the Trump-She meeting on Thursday. The pair will speak on the sidelines of an Asia-Pacific economic summit in South Korea, their first face-to-face meeting since Trump's return to office.

Ahead of those talks, U.S. Treasury Secretary Scott Besant met with China's vice premier and said a, quote, very positive framework had been set. Here he is on Beat the Press. I think... We are going to be able to discuss substantial soybean and ag purchases for our American farmers. I think we are going to be able to discuss more balanced trade.

Well, here to explain the stakes of Trump's travels is our Washington Bureau Chief James Politi. Hi, James. Hi. So how significant is this framework ahead of that all-important meeting later this week between the two presidents? Well, I think it's important mainly for what it prevents, which is that Trump had threatened to impose an extra hundred... percent tariffs on Chinese imports starting on November 1st.

And if they reach a deal during the summit with President Xi, then those tariffs are not going to happen. That would be a sort of significant... de-escalation and what has turned out to be, you know, a pretty serious flare-up in tensions between the U.S. and China this month. Indeed. So can you walk us through sort of what this preliminary deal...

covers, but perhaps more importantly, what is still left to be hammered out between those two leaders? Well, I think the essence of the deal is that China would agree to some... purchases of farm products. It would agree to delay the imposition of its restrictions on rare earth exports, which had really angered the US earlier this month. And in exchange, the U.S. will not go ahead with its planned 100% tariffs, extra tariffs on November 1st. And there will be some sort of delay in the truce.

on tariffs which began in May and had been already once extended, and it looks like it's going to be extended again. So in extension, is that sort of fueling optimism that an official cool-off is going to last longer term between the U.S. and China? Well, I think what we've learned from the last few weeks is that... even though there are these temporary cool-offs in economic relations between the countries.

they are at risk of flaring up at any time and that there's a lot of sort of suspicion, a lot of skepticism that either side will. play by the rules and keep the terms of the deal in place. So I think if we get another truce, I think it's going to be a very precarious truce. There are still some fundamental disagreements. on the US side at least, with China's economic model that don't look like they're going to be resolved anytime soon.

So, James, those negotiations between the U.S. and China are definitely in the spotlight. But since President Trump arrived in Asia on Sunday, he has been very busy making deals with other countries in the region. And before he meets with President Xi, he'll also sit down with...

new prime minister of Japan. Can you give us a sense of what we're expecting from some of these discussions? I mean, I think this is an attempt by Trump to... reset some of the key relationships in Southeast Asia to begin with that had been jeopardized by the flood of tariffs that he had imposed on them earlier this year. There was a lot of dismay in the region at the initial tariffs.

The widespread concern that this was a sign of U.S. economic disengagement that could leave a vacuum open for China. And I think that Trump is trying to, you know, perhaps correct that. to a certain extent, in his own way. And I don't know to what extent that's going to be successful. And with regard to Japan... They did reach a deal earlier this summer to ease some of their own trade tensions, but I think...

this will be a chance for him to cement his relationship with the new prime minister of Japan. And that's going to be a sort of critical relationship going forward for the U.S. James Politi is the FT's Washington Bureau Chief. James, thanks so much for your time. Yeah, thanks so much for having me.

As Donald Trump talks trade in Asia this week, UK Chancellor Rachel Reeves is in Riyadh today to try to push through her own deal with Gulf nations. Reeves is traveling with a delegation of British business leaders to an event in Saudi Arabia dubbed Davos in the Desert. The U.K. has already secured trade agreements with the U.S., the E.U., and India, and Reeves said she's determined to build on that momentum.

Officials said the chancellor will work toward progress on trade talks, which began in 2022 with the Gulf Cooperation Council, a regional bloc. The government estimates that a trade deal could boost economic growth by about $2 billion a year. with Reeves looking to increase exchange in AI, life sciences, and financial services. The chancellor's trip comes as she tries to fill a fiscal gap in next month's budget.

All eyes are trained on the Federal Reserve this week. That's because the U.S. Central Bank will decide whether to cut rates for the second time this year. The Fed is walking the tightrope of its dual mandate. Inflation data out at the end of last week showed consumer prices a rise.

at the fastest rate since the start of the year. That's as worries persist about weakness in the labor market and concerns grow about how a nearly month-long government shutdown is affecting the Fed's sightline into the health of the U.S. economy. The FT's U.S. economics correspondent has been looking into all of this for us. Hi, Miles.

Hey, Victoria. All right. So let's start with those inflation numbers. They showed consumer prices in September rose at a 3% pace. That's up from 2.9% in August. Just talk to us about what's driving that inflation and how worried... central bankers might be about that rise, which is faster than the target. So as you say, Victoria, we had an inflation reading of about 3% for September on Friday, slightly more than we had in the previous month, but less than what economists were anticipating.

Underpinning this inflation, which we've seen a slight uptick in throughout the summer, is Donald Trump's tariff regime. But crucially, the impact on inflation from tariffs hasn't been anywhere near as bad as a lot of economists were expecting. it to be this year, which means from the Fed's point of view, it leaves the door open for them to make the cuts that people are anticipating they'll make both in this week's meeting and the next meeting in December.

without running the risk of turbocharging inflation. And I should mention also that the White House indicated on Friday that because of the shutdown, there may not be an inflation report next month as well. There have also been concerns about how those tariffs could affect the labor market, which is the other side of the Fed's dual mandate. What do we know about the state of the jobs market now, and how is that going to factor into the decision?

So the jobs market has been weakening all year. We've had some pretty dismal employment numbers throughout the summer. The picture, as you mentioned earlier, is now complicated a little bit in that we don't have the regular jobs reports coming from the federal government that we would usually have, which makes it trickier for the Fed to gauge where exactly the jobs market is at the moment.

But looking at data from private data providers, the trend seems pretty clear that the softening in the labour market is continuing. And indeed, Fed Chair Jay Powell warned recently that... the softening was continuing and that it was an increasing worry. How will policymakers then balance those two concerns? Because the fix for inflation is different than the fix for the labor market.

Yeah, well, it's that dual mandate for the Fed balancing, looking after the labour market and combating inflation. How things are looking at the moment based on the inflation reading we got on Friday is that the path has been paved. The door has been kind of left open for the Fed to make the cut of 25 basis points. It's been anticipated for some time.

when it meets this week, simply because inflation isn't as bad as it could be and the jobs market is weakening. So the option for the Fed to take seems to be to make a cut. So if we look at the longer term picture here, you mentioned the government shutdown. That's sort of... clouding the picture, I suppose, for the Fed a bit. We also have Stephen Myron, who is a Trump ally who joined the Fed in September. He was calling for much lower rates at last month's meeting. How could that play into

This month's decision, but also sort of the longer term trajectory of how the Fed thinks about interest rates. Yeah. So Stephen Myron was put on the Fed board by President Trump with. one thing in mind, and that was to encourage the board to cut rates. Myron wants to see rates brought down by 125 basis points by the end of this year, and will be pushing for a bumper cut.

at this week's meeting. But he has conceded in recent weeks that based on conversations with other members of the Fed board, that is highly unlikely to happen. And Myron said he reckons that we'll probably get about 50 basis points of a cut. By the end of the year, 25 basis points in each of the next two meetings, which seems to be on par with what markets are expecting at this point. Miles McCormick, the FT's U.S. economics correspondent. Thank you. Thanks, Victoria.

One last thing to mention before we go. Argentines cast their ballots this weekend in midterm elections that could determine the future of President Javier Malay's free market reforms. It's a critical test for the libertarian leader, and the outcome has the potential.

to help ease pressure on the peso currency. You can stay tuned to FT.com for the very latest on those election results. And as always, you can read more on all of the stories in today's show for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.

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