Fed Chair Powell faces fresh challenges to Fed independence amid potential rate cuts

Washington – Now that the president of the federal reserve, Jerome Powell, said that the Central Bank could soon reduce its key interest rate, it faces a new challenge: how to do it without seeing the requests of the White House.

For months, Powell has largely ignored the constant hectorations of President Donald Trump according to which he reduces borrowing costs. On Friday, in a long -awaited speech, Powell suggested that the Fed could take a step as of its next meeting in September.

It will be a difficult 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. The two trends, if they occur, could make a premature cut.

Trump urged Powell to reduce prices, arguing that there is “no inflation” and saying that a drop would reduce government interests to his 37 billions of debt dollars.

Powell, on the other hand, suggested that a drop in rate is likely for very different reasons from those of Trump: he fears that the economy will weaken. Friday, its remarks during an economic symposium in the Grand Teton National Park in Wyoming also indicated that the Fed will move carefully and reduce the rates at a much slower rate than Trump.

Powell underlined the economic growth which “notably slowed down in the first half this year”, at an annual rate of 1.2%, against 2.5% last year. There was also a “marked slowdown” in the demand of workers, he added, which threatens to increase unemployment.

However, Powell said the prices have started to increase the price of goods and could continue to push the inflation higher, a possibility that federal officials will monitor closely and who will make them cautious about the reductions in additional rates.

The short -term interest rate of the Fed, which influences other borrowing costs for things such as mortgages and car loans, is currently 4.3%. Trump asked that it be reduced as low as 1% – an official level of support from Fed.

However, the FED goes ahead, it will probably do it while continuing to assert its longtime independence. A politically independent central bank is considered by most economists as essential to prevent inflation, because it can take measures – such as increase in interest rates to cool the economy and fight inflation – which are more difficult to do for elected officials.

There are 19 members of the FED interest rate adjustment committee, 12 of which vote on rate 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 attached to the independence of the Fed.

“I am focused on the laser … on what I can offer good results for the public, and I try to turn on all the other noise,” she said.

She remains concerned about the fact that the Fed must still fight against obstinate inflation, a view shared by several colleagues.

“Inflation is too high and it was trendy in the wrong direction,” said Hammack. “Right now, I see us moving away from our objectives on the side of inflation.”

Powell himself did not discuss the independence of the Fed during his speech in Wyoming, where he received a standing ovation by academics, economists and officials of the central bank gathered from the whole world. But Adam Posen, president of the Peterson Institute for International Economics, said it was probably a deliberate choice and expected, ironically, to demonstrate the independence of the Fed.

“Not to talk about independence was a way to try as best they could to point out that we continue with the company,” said Posen. “We always have a civilized internal discussion on the merits of the question. And even if the president pleases, we will make the right call.”

It is in this context that Trump intensified his own pressure campaign against another senior Fed official.

Trump said he would dismiss the nourished governor Lisa Cook if she did not withdraw from his post. Bill Pulte, a person appointed by Trump to lead the agency that regulates mortgage giants Fannie MAE and Freddie Mac, allegedly allegedly alleged that Cook had committed mortgage fraud when she bought two properties in 2021. She was not charged.

Cook said that she would not be “intimidated” to abandon her position. On Friday, she refused to comment on Trump’s threat.

If Cook is sort of deleted, it would give Trump the opportunity to put a loyalist on the Fed Board of Directors. Board members vote on all interest rate decisions. He has already appointed a White House economist, Stephen Miran, to replace former governor Adriana Kugler, who resigned on August 1.

Trump had already threatened to dismiss Powell, but did not do it. Trump appointed Powell at the end of 2017. His president of president 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 continued it in 2018 for having increased interest rates, but that did not prevent Powell.

“The president has a long history of application of pressure to President Powell,” said Strain. “And President Powell has a long history of resisting this pressure. It would be strange, I think, if when leaving, he gave in for the first time.”

However, Strain thinks that Powell overestimates the risk that the economy is weakening more and pushes unemployment above. If inflation is getting worse while hiring continues, it could force the Fed to potentially reverse the course and increase rates again next year.

“This would cause the Fed’s credibility more a shame about maintaining low and stable price inflation,” he said.