Jerome Powell appeared on Friday to open the door to the first rate cut of the Central Bank of the second mandate of President Donald Trump, since the president of the Federal Reserve indicated that the current monetary policy may be restricting economic activity.
In a very close speech in the annual Fed symposium in Jackson Hole, Wyoming, Powell said the labor market was now in a “curious type of balance” resulting from reducing contracting and decreasing the availability of workers in the midst of Trump’s immigration repression and demographic changes.
But in general, “the downward risks for employment are increasing,” Powell said. “And if those risks materialize, they can do it quickly in the form of very high dismissals and an increase in unemployment.”
As a result, a change in the current Fed policy position, in the form of reducing its reference interest rate, may be justified, he said. By making it less expensive for consumers and companies to receive loans, the Fed seeks to boost general economic activity.
The shares increased comments since investors anticipated that the Fed was now more likely to reduce its key loan rate at its next meeting in September.
“Today’s speech could not be clearer that Powell is ready to reduce rates on September 17 and the market now has a total price for him and for the second at the end of the year,” wrote Peter Bockvar, an independent economist and strategist in a note after Powell’s speech.
Trump has spent months by pressing a tariff cut, arguing that they had not yet caused significant inflation. Powell also approached that, on Friday, saying that the impact of tariffs on consumer prices “is now clearly visible” and expect continuous effects “in the coming months.” But he said there was “a high uncertainty about time and quantities.”
The speech occurs when the Central Bank faces internal divisions on the future direction of monetary policy, while responding to a changing economic panorama and unprecedented external pressure as Fed’s key officials face attacks by the Trump administration.
Some members of the Fed believe that any inflation caused by the tariffs of President Donald Trump will result in short duration and that the rates must be reduced to counteract the signs of a deteriorated labor market, according to the minutes of the most recent Fed meeting. Reducing the cost of loans for companies and consumers tends to stimulate economic activity and, therefore, hiring.
Other members of the Fed said it was too early to know how long the price increases of tariffs will persist and that despite some signs of weakening, the labor market is not in imminent danger. These officials would prefer to keep the interest rates closest to current levels.
Economic analysts say that conflicting economic data have prepared the scenario for different opinions. While layoffs and unemployment rate remain relatively low, hiring rates have also stagnated. Meanwhile, recent inflation reports show mixed effects on the prices of goods affected by tariffs, but that price growth for many consumption services remains high.
“The central inflation is still stubborn and the labor market, while showing some cooling signs, is not screaming for emergency intervention,” wrote Kevin Ford, a Financial Group convera strategist, in a note to customers. “This disconnection is what makes Powell’s speech a high -risk event.”
Trump continues to hit Powell on social networks, asking him to decrease rates to boost the economy and, in particular, to boost the purchase of homes. But since the Fed reference interest rate does not affect the mortgage rates, many experts believe that the local market will continue to drift from side regardless of what the Fed does. It is likely that a significant economic recession would be needed to materially reduce the mortgage rate to 30 years, experts say.
This week, the Trump administration officials opened a new front against the Fed staff, accusing Lisa Cook, who occupies a governor post at the Central Bank, to commit mortgage fraud. The position is being led by Bill Ablicte, head of the Federal Housing Finance Agency, who published images that suggested that Cook claimed two different houses such as his main residence, but did not provide more evidence. Subsequently, Trump asked him to resign. Antart continued his attack on Friday, publishing another image that, according to him, suggested discrepancies in cook mortgage documents, although they could not be verified. Subsequently, Trump published again that Cook must resign or he would fire it.
Cook, who was nominated by President Joe Biden, said in a statement that he would take any question about his financial history “seriously as a member of the Federal Reserve” and was “collecting the precise information to answer any legitimate question and provide the facts.”
Trump is already ready to increase his influence on the Fed directly after nominating his economic advisor, Stephen Miran, to replace the governor of the Fed, Adriana Kugler, who recently announced his resignation.
