By David Lawder

WASHINGTON (Reuters) -The International Monetary Fund on Thursday said the U.S. Federal Reserve should not cut interest rates until "late 2024" and the government needs to raise taxes to slow the growing federal debt - including on households earning less than President Joe Biden's $400,000-a-year threshold.

The prescriptions came in the detailed staff report from the IMF's annual "Article IV" review of U.S. economic policies released on Thursday. The Fund has been emphasizing in recent weeks the need for more fiscal prudence as U.S. deficits continue to grow despite robust economic growth and as Republicans and Democrats formulate tax and spending proposals ahead of November's presidential election.

IMF chief economist Pierre-Olivier Gourinchas told Reuters on Tuesday that the Fed could afford to wait longer to start easing monetary policy due to a strong labor market.

But the staff report specifies that this shift should come in "late 2024," to avoid more upside surprises in inflation data, without specifying a particular month. The Fed's next policy-setting meeting is July 30-31, with other meetings scheduled for Sept. 17-18, Nov. 6-7 - after the U.S. election - and Dec. 17-18.

"Given salient upside risks to inflation — brought into stark relief by data outturns earlier this year — it would be prudent to lower the policy rate only after there is clearer evidence in the data that inflation is sustainably returning to the FOMC’s 2% goal."

RAISE TAXES

The IMF said that the U.S. public debt to GDP ratio is projected to remain well above pre-pandemic forecasts over the medium term, reaching 109.5% by 2029 compared to 98.7% in 2020.

"Such high deficits and debt create a growing risk to the U.S. and global economy," the IMF said, adding that progressive tax increases were needed, including for those earning less than $400,000 per year, and eliminating a range of tax expenditures.

Biden has proposed raising tax rates on corporations and wealthy Americans but has vowed not to increase taxes on households with annual earnings below $400,000. Republican rival Donald Trump has said he wants to preserve tax cuts passed when he was president in 2017 and possibly cut some taxes further for middle-income Americans and corporations.

Individual income tax cuts are scheduled to expire at the end of 2025, snapping back to pre-2017 levels unless Congress acts to extend or adjust them. The Congressional Budget office estimates that extending the cuts would add a further $4.6 trillion to deficits over 10 years.

The IMF, which often requires fiscal prudence among its borrowing countries, recommended a series of options to lower deficits, including reducing some longstanding tax deductions and exemptions that it said were "poorly targeted." These include tax exemptions for the value of employer-provided healthcare plans and capital gains on the sale of a primary residence, and deductions for mortgage interest and state and local taxes - breaks that add up to about 1.4% of U.S. GDP per year.

The U.S. should consider closing the "carried interest" provision under which investment partnership income can be taxed at lower capital gains income rather than normal income, the IMF said. It added that corporate tax rates should be raised and the corporate tax system shifted to a cash flow tax.

The IMF also recommended raising federal excise taxes on gasoline and diesel, which have not been raised since 1993.

On the expenditure side, the IMF recommended indexing Social Security benefits to the chained consumer price index and subjecting earnings greater than $250,000 a year to payroll taxes.

SEOUL (Reuters) - South Korea's finance minister on Thursday vowed to take policy steps to stabilise the real estate market, as house prices are rising in the area of the capital Seoul.

"Volatility is increasing in the real estate market recently, with apartment prices rising more sharply in Seoul and the wider capital area," Finance Minister Choi Sang-mok said during a policy meeting with the land minister.

"The government will make an all-out effort to stabilise the real estate market," Choi said.

Choi said the government would take policy measures to increase house supplies, speed up the restructuring of real estate project financing, and step up efforts to control the rise in household debt.

The government will consider "extraordinary" measures if the real estate market is deemed overheated due to speculative demand, Choi said.

Last week, the Bank of Korea said household debt growth and rising home prices were key factors the central bank was watching, as it opened the door for rate cuts after keeping the policy rate unchanged at 3.50%, the highest since late 2008, for the 12th straight meeting.

In June, South Korea's house prices rose 0.04% over the month, snapping a six-month run of declines. Prices rose 0.38% in Seoul, the fastest since November 2021, according to Korea Real Estate Board data.

By David Shepardson and Karen Freifeld

(Reuters) - The U.S. Commerce Department plans to issue proposed rules on connected vehicles next month and expects to impose limits on some software made in China and other countries deemed adversaries, a senior official said Tuesday.

"We're looking at a few components and some software - not the whole car - but it would be some of the key driver components of the vehicle that manage the software and manage the data around that car that would have to be made in an allied country," said export controls chief Alan Estevez at a forum in Colorado.

In May, Commerce Secretary Gina Raimondo said her department planned to issue proposed rules on Chinese-connected vehicles this autumn and had said the Biden administration could take "extreme action" and ban Chinese-connected vehicles or impose restrictions on them after the Biden administration in February launched a probe into whether Chinese vehicle imports posed national security risks.

The comments of Estevez, who is the Commerce under secretary for industry and security, are the most definitive to date about the administration's plans on Chinese vehicles that sparked wide alarm.

Connected cars have onboard integrated network hardware that allows internet access, allowing them to share data with devices both inside and outside the vehicle.

Estevez said Tuesday the threat is serious.

"A car is a very scary thing. Your car knows a lot about you. Your car probably gets a software update, whether it's an electric vehicle or an autonomous combustion engine vehicle," he said.

"A modern car has a lot of software in it. It's taking lots of pictures. It has a drive system. It's connected to your phone. It knows who you call. It knows where you go. It knows a lot about you."

The Chinese foreign ministry has previously urged the United States "to respect the laws of the market economy and principles of fair competition." It argues Chinese cars are popular globally because they had emerged out of fierce market competition and are technologically innovative.

Raimondo said in May "you can imagine the most catastrophic outcome theoretically if you had a couple million cars on the road and the software were disabled."

There are relatively few imports of Chinese-made light duty vehicles in the United States. The Biden administration has proposed sharp hikes in tariffs on Chinese electric vehicles and other goods that they expect to be in place by Aug. 1.

By Maria Martinez and Holger Hansen

BERLIN (Reuters) -Germany plans to halve its military aid to Ukraine next year, despite concerns that U.S. support for Kyiv could potentially diminish if Republican candidate Donald Trump returns to the White House.

German aid to Ukraine will be cut to 4 billion euros ($4.35 billion) in 2025 from around 8 billion euros in 2024, according to a draft of the 2025 budget seen by Reuters.

Germany hopes Ukraine will be able to meet the bulk of its military needs with the $50 billion in loans from the proceeds of frozen Russian assets approved by the Group of Seven, and that funds earmarked for armaments will not be fully used.

"Ukraine's financing is secured for the foreseeable future thanks to European instruments and the G7 loans," German Finance Minister Christian Lindner said on Wednesday at a news conference.

Washington pushed to "front load" the loans to give Ukraine a big lump sum now.

Officials say EU leaders agreed to the idea in part because it reduces the chance of Ukraine being short of funds if Trump returns to the White House.

Alarm (NASDAQ:ALRM) bells rang across Europe this week after Trump picked Senator J.D. Vance, who opposes military aid for Ukraine and warned Europe will have to rely less on the United States to defend the continent, as his candidate for vice president.

Trump sparked fierce criticism from Western officials for suggesting he would not protect countries that failed to meet the transatlantic military alliance's defence spending targets and would even encourage Russia to attack them.

Germany has faced criticism for repeatedly missing a NATO target of spending 2% of its economic output on defence.

DEPLETED MILITARY STOCKS

The stocks of Germany's armed forces, already run down by decades of underinvestment, have been further depleted by arms supplies to Kyiv.

So far, Berlin has donated three Patriot air defence units to Kyiv, more than any other country, bringing down the number of Patriot systems in Germany to nine.

Germany's fractious coalition of left-leaning Social Democrats, pro-business liberals and ecologist Greens has struggled to comply with NATO's spending target due to self-imposed rules that limit the amount of state borrowing they can take on.

Although military aid to Ukraine will be cut, Germany will comply with the NATO target of spending 2% of GDP on defence in 2025, with a total of 75.3 billion euros.

Days after Russia's 2022 invasion of Ukraine, Chancellor Olaf Scholz announced a "Zeitenwende" – German for historic turning point - with a 100 billion euro special fund to bring the military up to speed.

From this special fund, there will be 22.0 billion euros more for defence, plus 53.3 billion euros in the regular budget, still less than that sought by Defence Minister Boris Pistorius.

The defence budget is set to receive a meagre 1.3 billion euros more than in 2024, far below the 6.7 billion euros requested by Pistorius.

As ever-increasing annual operating costs outpace this rise, the defence ministry is being forced to cut ammunition orders for 2025 by more than half, reduce procurement by 260 million euros and research and development by over 200 million euros.

The budget for 2025 comes with the mid-term financial planning until 2028, the year when the armed forces' special fund to meet NATO's minimum spending goals is due to run out and 80 billion will be needed for defence, as noted in the financial plan.

In 2028, there is a gap of 39 billion euros in the regular budget, of which 28 billion euros are needed to comply with the NATO target without the special fund, sources from the finance ministry said.

Decisions on how the hole will be plugged are not likely to be taken until after the 2025 election.

"The 80 billion euros that have been put on display for 2028 simply do not exist," said Ingo Gaedechens, member of the parliament's budget committee from the conservative opposition party CDU.

"The coalition is not even trying to cover this up but are openly admitting it."

($1 = 0.9192 euros)

By Pete Schroeder

WASHINGTON (Reuters) - A top U.S. bank regulator warned on Wednesday the agency may begin pushing back against the "worrisome trend" of states adopting laws meant to police national bank activities on political grounds.

Michael Hsu, head of the Office of the Comptroller of the Currency (OCC), said in a speech that such measures are pushing "greater fragmentation" of the financial system, and the OCC may begin challenging those measures.

"Increasingly, banks are being asked by states to pick a side in service of performative politics rather than deliberative policy. The OCC is a bulwark against this. Just as the advent of national banking was able to help unify a fragmented banking system in the late 1800s, it can help ensure that parochial overreach today does not splinter our banking system," he said, according to prepared remarks provided by the agency.

Numerous states have considered or passed legislation aimed at policing bank policies considered discriminatory on largely political grounds. Many of those measures have advanced in Republican-led states like Texas, which has enacted laws prohibiting banks from doing business with the state if they are deemed to discriminate against certain industries like fossil fuels or firearms.

Recently, Florida and Tennessee passed new laws that prohibited federally-chartered banks from denying services to anyone on the basis of their political or religious beliefs, and allowing the state to investigate any discriminatory claims. Banks have long maintained that they do not discriminate against particular industries or political beliefs.

Hsu said the OCC plans to "fortify and vigorously defend" federal preemption of state laws that are deemed to interfere with national bank operations and regulation, without naming specific states or laws. He said that preemption authority is "central" to the nation's banking system and has allowed it to thrive.

He added that safety and soundness of national banks, including compliance with federal laws and regulations, is "legally absolute and non-negotiable, and the OCC will act accordingly to defend that."

By Elena Fabrichnaya

MOSCOW (Reuters) - Russia should accelerate the creation of infrastructure for payments in cryptocurrencies but carefully weigh the associated risks, its money laundering watchdog said on Wednesday, ahead of a parliamentary vote on digital assets legislation.

Russia has faced significant delays in international transactions with major trading partners such as China, India, the United Arab Emirates and Turkey, after local banks, under pressure from Western regulators, have become more cautious.

The new legislation, expected to be reviewed by parliament on July 23, will allow the use of cryptocurrency transactions in international payments to maintain trade flows.

"This is a need for businesses, especially in cases involving sanction mechanisms, when they need to enter the international market, and it can't always be resolved through standard methods," said the watchdog's head, Yuri Chekhanchin.

Countries such as Venezuela already use transactions in cryptocurrencies to bypass international sanctions, prompting concerns among U.S. lawmakers who have raised the issue with the Biden administration.

Chekhanchin highlighted loose cryptocurrency legislation in some countries as the main risk and said his watchdog should have the right to block such transactions when they break Russian law. He did not name the countries he had in mind.

Cryptocurrencies are currently not allowed for payments inside Russia, and the new law is unlikely to change that. Earlier, the central bank admitted that payment problems were one of the key challenges for the Russian economy.

President Vladimir Putin also spoke on Wednesday at a government meeting on the use of digital currencies. Apart from his opening remarks, the meeting was closed to the public.
 

Putin praised the experimental introduction of a digital rouble, a blockchain-based asset backed by the central bank.

Russian and Iranian central banks are working to connect their digital currency systems, which would allow the two sanctioned countries to carry out bilateral transactions. Similar negotiations are underway with China and Belarus.

Putin said the massive energy consumption of cryptocurrency mining farms posed risks to energy supplies in some regions of Siberia, where many such farms have sprung up exploiting low local electricity prices.

He said tax and electricity tariff regulation for mining farms should be part of the new law.

By Joe Cash

BEIJING (Reuters) - China’s sputtering economy has prompted a dire, new shorthand online for pessimism about the prospects for any turnaround for jobs, incomes and opportunity: “the garbage time of history.”

The apparently made-in-China phrase injects a term from basketball – the ragged final minutes of a game when the outcome is no longer in doubt – into what started as a discussion of history and has since become a heavily censored online discussion about whether China’s workers and investors should give up.

China’s recent economic data have shaken confidence. Growth in the past quarter fell short of forecasts at 4.7%, highlighting the drag from a protracted property crisis and stalled consumer spending.

China’s Communist Party leadership concludes a closed-door meeting on Thursday expected to detail Beijing’s economic strategy for the next several years, including steps to promote technology. China Daily, in a front-page story on Wednesday, described one aim of the meeting as reviving confidence in the country’s “long-term economic trajectory.“

The fatalistic tag “garbage time” began popping up on social media platforms over the past month. It was given a more recent boost when state media and commentators lined up to denounce the phrase and any suggestion that decline would follow downturn for China.

“This is a catchphrase insinuating that there’s no help and no hope, denying and downplaying everything in China,” Beijing Daily said in a commentary last week.

It follows another buzzword China’s censors have targeted as a threat to stability since it broke into the mainstream three years ago: “lying flat,” a call to a slacker life of limited ambition and quiet protest.

Wang Wen, a finance professor at Renmin University and former columnist for the state-controlled Global Times, said earlier this month the idea of an era of garbage time was “more dangerous” because of its implicit message of hopelessness.

“It completely denies China’s current development situation and attempts to create public expectation that the country will eventually fail.”

The first apparent mention of the term on China’s internet came last September from Hu Wenhui, an editor at a small publication in Guangzhou. In an article that has been since censored, Hu argued that the history of the Soviet Union after 1979 and some Chinese dynasties suggest that some historical failures are inevitable，a comment some read as an implicit comment on current events.

“When the overall situation is set and defeat is inevitable no matter how hard you try, it’s just a futile struggle,” Hu said. “How should those unfortunate enough to encounter the garbage time of history conduct themselves?”

Hu could not be reached for comment.

In June, the topic appeared to get a boost in online discussions. Some on social media platform Weibo (NASDAQ:WB) said in comments still visible this week that the idea had struck a chord with some ordinary people. “There are quite a few people who begin to feel that as long as they can’t change anything, this is history’s garbage time,” one said.

There are other signs China’s collective confidence has suffered, according to survey data collected by Stanford University professor Scott Rozelle and others published in summary last week by the U.S. think tank Center for Strategic and International Studies.

Rozelle found Chinese respondents to a survey were more pessimistic than they had been two decades ago, more likely to blame structural factors for determining whether a person is rich or poor and far less likely to believe hard work pays off.

In 2004, 62% agreed “in our country, effort is always rewarded." That dropped to 28% in the 2023 survey.

By Indranil Sarkar and Arpan Chaturvedi

BENGALURU/NEW DELHI (Reuters) -Edtech company Byju's, once India's biggest startup valued at $22 billion, will face insolvency proceedings for failure to pay $19 million in dues to the country's cricket board, a tribunal said on Tuesday.

Byju's has suffered numerous setbacks in recent years, including boardroom exits and a tussle with investors who accused CEO Byju Raveendran of corporate governance lapses, job cuts and a collapse in its valuation to less than $3 billion. Byju's has denied any wrongdoing.

A ruling by India's companies tribunal on Tuesday, following a complaint by the Board of Control for Cricket in India (BCCI), initiated insolvency proceedings.

These will include the appointment of an interim resolution professional, Pankaj Srivastava, who will oversee the management of Byju's as the company's board of directors is suspended as per law.

CEO Raveendran will report to the resolution professional and the company's assets will remain frozen while the proceedings continue.

In a statement, Byju's said it wishes to "reach an amicable settlement with BCCI and we are confident that, despite this order, a settlement can be reached."

The company's lawyers are reviewing the order and will take necessary steps to protect the firm's interests, it added.

Byju's, which operates in more than 21 countries, became popular during COVID-19 pandemic by offering online education courses. It also offers offline coaching classes.

In February, a group of Byju's investors including Prosus (OTC:PROSF) and Peak XV voted to oust Raveendran, a move which Byju's has called invalid.

The companies tribunal said in its order "it cannot be disputed" that the parent of Byju's, Think & Learn Private Limited, had availed itself of the services of the BCCI and had defaulted on roughly $19 million in dues.

Delhi-based lawyer Bishwajit Dubey said Byju's controlling shareholders can either appeal the insolvency initiation legally or quickly settle the dispute with the cricket board to resolve the matter.

The BCCI declined a Reuters request for comment.

By Tom Westbrook

SINGAPORE (Reuters) - Gold hit a record and bonds rallied on Wednesday as markets prepared for global interest rates to fall, while stocks in Taiwan slipped after U.S. presidential candidate Donald Trump sounded lukewarm in his commitment to the island's defence.

The S&P 500 scaled record highs overnight and futures were steady in Asia. MSCI's broadest index of Asia-Pacific shares outside Japan was flat and Japan's Nikkei rose 0.1%.

In Taiwan, chipmaker TSMC fell 2%, wiping out almost $16 billion in market value, after Trump questioned U.S. support in an interview with Bloomberg Businessweek, saying Taiwan should pay for U.S. protection.

It was unclear exactly what Trump was planning, however his selection of trade hawk J.D. Vance as his running mate had already put markets on notice that China will figure heavily in his foreign policy thinking.

Chinese stocks were subdued for a second day running.

The Taiwan dollar slipped slightly to a two-week low. China's yuan steadied at 7.2676 per dollar.

"It is more and more clear to me that Trump should be bullish USD for at least a while," said Brent Donnelly, president at analytics firm Spectra Markets, as he's expected to impose tariffs and run a higher budget deficit.

"It's hard to imagine USDCNH ending 2024 below 7.25 on a Trump victory in November but it's not hard to imagine it closing above 7.50," he said, referring to the dollar-yuan pair.

Elsewhere in Asia, New Zealand shares hit their highest since March 2022 after data showed inflation slowing, though the rates market dipped and the currency rose on sticky domestically driven inflation.[.AX][NZD/]

Treasuries held gains that had pushed 10-year U.S. yields to four-month lows overnight after Federal Reserve Chair Jerome Powell said recent cooling in inflation readings "add somewhat to confidence" that consumer prices are coming under control.

Fed funds futures have fully priced a U.S. rate cut for September, followed by two more before the end of January 2025.

Ten-year yields were steady at 4.175% and two-year yields hovered at 4.445%. Bond markets in Australia, Japan and South Korea rallied. [JP/][.KS]

Lower yields helped propel gold sharply higher overnight and through chart resistance around $2,450 per ounce despite a broadly firm dollar. It touched a record $2,478 in Asia trade on Wednesday. [GOL/]

"Gold's ability to find support in any condition this year is worth highlighting," said Commonwealth Bank of Australia (OTC:CMWAY) commodity strategist Vivek Dhar.

"While we think gold prices face uncertainty in coming months, we think the uncertainty has a positive skew, raising the risk that gold rises above our forecast of $2,500/oz by the end of the year."

The Japanese yen was slightly weaker at 158.51 per dollar, though after a few rounds of suspected yen buying from Japanese authorities last week it remained well off a 38-year low of 161.96 touched earlier in July.

The euro was steady at $1.0925. Oil prices slipped slightly, weighed by signs of weakening demand from China.

Brent crude futures fell 13 cents to $83.60 a barrel and U.S. crude futures were also 13 cents lower at $80.63 a barrel. [O/R]

British inflation data is due later in the day where focus will fall on services inflation, which is expected to run at a still-hot 5.6% in June from a year earlier.

By David Shepardson and Karen Freifeld

(Reuters) - The U.S. Commerce Department plans to issue proposed rules on connected vehicles next month and expects to impose limits on some software made in China and other countries deemed adversaries, a senior official said Tuesday.

"We're looking at a few components and some software - not the whole car - but it would be some of the key driver components of the vehicle that manage the software and manage the data around that car that would have to be made in an allied country," said export controls chief Alan Estevez at a forum in Colorado.

In May, Commerce Secretary Gina Raimondo said her department planned to issue proposed rules on Chinese-connected vehicles this autumn and had said the Biden administration could take "extreme action" and ban Chinese-connected vehicles or impose restrictions on them after the Biden administration in February launched a probe into whether Chinese vehicle imports posed national security risks.

The comments of Estevez, who is the Commerce under secretary for industry and security, are the most definitive to date about the administration's plans on Chinese vehicles that sparked wide alarm.

Connected cars have onboard integrated network hardware that allows internet access, allowing them to share data with devices both inside and outside the vehicle.

Estevez said Tuesday the threat is serious.

"A car is a very scary thing. Your car knows a lot about you. Your car probably gets a software update, whether it's an electric vehicle or an autonomous combustion engine vehicle," he said.

"A modern car has a lot of software in it. It's taking lots of pictures. It has a drive system. It's connected to your phone. It knows who you call. It knows where you go. It knows a lot about you."

The Chinese foreign ministry has previously urged the United States "to respect the laws of the market economy and principles of fair competition." It argues Chinese cars are popular globally because they had emerged out of fierce market competition and are technologically innovative.

Raimondo said in May "you can imagine the most catastrophic outcome theoretically if you had a couple million cars on the road and the software were disabled."

There are relatively few imports of Chinese-made light duty vehicles in the United States. The Biden administration has proposed sharp hikes in tariffs on Chinese electric vehicles and other goods that they expect to be in place by Aug. 1.