Trump has been calling for major interest rate cuts for months, but the Fed is cautious due to concerns about inflation.
Voting members of the central bank’s 19-member Federal Open Market Committee are expected to announce a third consecutive 25 basis point cut in the Federal Funds Rate – but the decision is not expected to be unanimous.
Minutes from the Fed’s October meeting showed that some members opposed rate cuts at the time and that little has changed since then to change their minds.
Complicating the decision is the lack of official federal data on employment due to the government shutdown. The Fed won’t receive the last three months’ data until January.
“It seems a bit risky now that inflation is not where it should be,” James Grant, editor of Grant’s Interest Rate Observer, told the Sun. “And it appears the president is achieving a degree of infiltration into the Federal Reserve Board that he desires.”
“It appears the Fed is following the orders of the White House,” Grant added.
Another rate cut could create an environment in which short-term rates could be much lower than long-term rates, over which the Fed has no direct control. That would be bad news for people looking for auto loans and mortgages, because those rates could rise.
But others say there is a case for a rate cut. New York Fed President John Williams has publicly supported lower rates, saying labor market weakness is a major concern.
“While there is some nervousness about the possibility that inflation will remain high due to rate increases, the news in the labor market is becoming increasingly worrying,” said ING economist James Knightley. said in a note.
Some supporters of further rate cuts say inflation concerns are a temporary concern as the economy adjusts to Trump’s tariffs.
Mr. Powell has been under relentless pressure from Mr. Trump for months to cut rates. The president has repeatedly referred to the chairman as “Jerome ‘Too Late’ Powell” in his social media posts on the subject.
Mr. Trump says he has already selected a replacement for Mr. Powell when his term as chairman ends in May. The president said in a new interview that support for immediate rate cuts is a… litmus test for its next Fed chairman.
Although the president has not yet named Powell’s successor, it is widely expected to be White House economic adviser Kevin Hassett. Mr Hassett is expected to push for faster rate cuts.
“No rate is too low for him,” Mr. Grant said of the president. “What he wants now are lower rates.”
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