Now that the chairman of the Federal Reserve Jerome Powell has indicated that the central bank could quickly lower its main interest, he faces a new challenge: how to do it without seeming to give the requirements of the White House.
For months, Powell has largely ignored the constant Hector of President Donald Trump that he will leave the loan costs. But on Friday, in a long -awaited speech, Powell suggested that the Fed could take such a step as soon as the next meeting in September.
It will be a loaded decision for the FED, which must weigh it against persistent inflation and an economy that could also improve in the second half of this year. Both trends can, if they occur, make a slice -look premature.
At Powell, Trump insisted on reducing rates, with the argument that there is “no inflation” and to say that a reduction would lower the interest payments of the government on its debts of $ 37 trillion.
Powell, on the other hand, has suggested that a rate reduction is probably for reasons that are very different from those of Trump: he is worried that the economy weakens. His comments on Friday at an economic symposium in Grand Teton National Park in Wyoming also indicated that the FED will move carefully and the rates will lower at a much slower pace than Trump wants.
Powell pointed to economic growth that “especially in the first half of this year was delayed” to an annual percentage of 1.2%, compared to 2.5% last year. There has also been a “marked delay” in the demand for employees, he added, who threatens to increase unemployment.
Nevertheless, Powell said that rates had begun to increase the price of goods and continue to push inflation higher, a possibility that fed officials will follow closely and that will make them careful about extra cuts.
The most important short -term interest rate of the FED, which influences other loan costs for things such as mortgages and car loans, is currently 4.3%. Trump has called on that it is cut as low as 1% – a level without fed official support.
However, the Fed is going ahead, it will probably do this while he continues to apply his long -term independence. A politically independent central bank is regarded by most economists as crucial for preventing inflation, because it can take steps – such as increasing interest rates to cool the economy and combat inflation – who are more difficult to do in chosen officials.
There are 19 members of the FED’s Rate Rate Setting Committee, of whom 12 votes about tariff decisions. One of them, Beth Hammack, president of the Cleveland branch of the Federal Reserve, said on Friday in an interview with the Associated Press that she is committed to the independence of the Fed.
“I am laser oriented … to ensure that I can deliver good results for the public, and I try to coordinate all the other sound,” she said.
She remains worried that the Fed still has to fight stubborn inflation, an opinion that is shared by different colleagues.
“Inflation is too high and it has been trending in the wrong direction,” said Hammack. “At the moment I see ourselves leaving our goals at the inflation.”
Powell himself did not discuss the independence of the Fed during his speech in Wyoming, where he received a standing ovation by the collected academics, economists and officials from the Central Bank from all over the world. But Adam Posen, president of the Peterson Institute for International Economics, said that this was probably a deliberate choice and ironically was intended to demonstrate Fed’s independence.
“Not talking about independence was a way to try as well as possible to indicate that we can get along with the company,” said Posen. “We still have a civilized internal discussion about the merits of the issue. And even if it pleases the president, we are going to make the right call.”
It was against that background that Trump intensified his own printing campaign against another Top Fed officer.
Trump said he would fire the Governor Lisa Cook if she did not resign from her position. Bill Pule, a Trump appointed to lead the agency that mortgage giants regulates Fannie Mae and Freddie Mac, claimed Wednesday that Cook committed mortgage fraud when she bought two properties in 2021. She was not charged.
Cook said she would not be “bullied” to give up her position. She refused on Friday to comment on Trump’s threat.
If Cook is somehow removed, that would give Trump the chance to place a loyalist on the FED board. Members of the board of directors vote on all interest rate decisions. He has already nominated a top -economist of the White House, Stephen Miran, to replace the former Governor Adriana Kugler, who resigned on 1 August.
Trump had previously threatened to dismiss Powell, but did not. Trump appointed Powell at the end of 2017. His term of office as chairman ends in about nine months.
Powell is no stranger to Trump’s attacks. Michael Strain, director of Economic Policy Studies at the American Enterprise Institute, noted that the president also went to him in 2018 to increase interest rates, but Powell did not stop.
“The president has a long history of exerting pressure on chairman Powell,” said Strain. “And chairman Powell has a long history of resisting that pressure. So it would be strange, I think, if he was allowed for the first time on the way to the door.”
Yet Strain thinks Powell thinks the risk overestimates that the economy will weaken further and push unemployment higher. If inflation is deteriorating while taking on, it can force the FED to turn the course and increase again next year.
“That would cause further damage to the credibility of the Fed about maintaining low and stable price inflation,” he said.
– Christopher Rugaber, AP Economics Writer
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