So far, the Federal Reserve has resisted the aggressive pressure campaign of President Donald Trump to expel inflation concerns and try Increase the economy of the United States with lower interest rates.
It is expected to continue on Wednesday, since the Central Bank is expected to leave interest rates without changes. If so, Trump is likely to be disturbed, who is already remodeling the global economy with his tariffs.
The Fed Rate Fixing Committee began its two -day meeting on Tuesday. Market projections and analysts expect not to reduce their key rate.
“We hope that President Powell reiterates his opinion that the Fed can afford to remain waiting to evaluate the tariff impact while the United States economy and labor market remain strong,” said the analysts of the Financial Group Nomura in a note published on Friday. “The published data has lately indicated the nascent signs of the price -induced price pressures. In addition, the growth data has remained solid.”
The Central Bank, which has the task of using its influential interest rates to balance inflation and unemployment, is weighing if time is correct to loosen cash flow in the economy at the risk of increasing prices.
Most data indicate that the economy is solid. With 4.1%, the unemployment rate is relatively low, although the average time that an unemployed person takes a job has increased to more than 10 weeks. The actions are at maximum of all time, largely thanks to bets on the artificial intelligence potential to transform the results of the companies.
The biggest wild card is inflation. During the first five months of Trump’s second term, inflation readings were relatively subjected. But in June, the economy began to show the first signs of greater price pressures as a result of tariffs, with price growth for goods such as clothing, appliances and toys that accelerate. Economic forecasts and commercial surveys suggest that tariffs probably continue to feed higher consumption prices.
That has complicated the image of the Fed. An ironic turn: Jerome Powell has said that the Fed could have already cut if Trump began its expanding and volatile tariff policy as inflation continued to cool.
Trump has been especially hard with Powell, increasing fears in Washington and Wall Street so he can try to say goodbye to the Fed chair. For now, Trump has apparently retired the idea, although some experts say it is not clear if he has the legal authority to do it anyway.
Even so, Trump and administration officials have continued to press Powell and the Fed, which raises concerns about the long -standing independence and immunity of the central bank to political interference. Trump has said that reduction rates would increase the economy by making it cheaper to ask for money and also reduce the amount that the United States government has to pay with its debts.
Powell has not shown signs that he moved to political pressure.
Who decides when to cut?
The key Fed rate is established by a group called Federal Open Market Committee. Powell is chief of the panel, but includes 11 other members, two of whom, as Powell, were appointed by Trump during his first term. Those two, Michelle Bowman and Christopher Waller, have openly requested reduction rates. They argue that the rhythm of prices growth has been largely content, that any increase in tariff costs will be of short duration and that there are signs of accelerated weakening in the labor market.
The committee meets eight times a year to discuss monetary policy, including whether to increase, reduce or maintain stable rates. The president of the Fed works as the public face of that committee and leads those meetings, so the head of the central bank can have some influence on the debate and the direction of the discussion.
Only a simple majority of the vote committee is needed in favor of a rate change. The forecasts have said that Bowman and Waller can disagree with this week’s probable decision to retain Pat. The FOMC has not registered more than one dissent in more than three decades, something that can reflect the ongoing uncertainty about the current state of the economy, but it could also suggest that political concerns have entered the discussion.
If the FOMC does not reduce rates this month, it is likely that before the end of the year. Until Tuesday, the markets linked the possibilities of a cut in September above 60%.
When is a cut, not a cut?
A cut in the key rate of the Fed may not immediately translate into reduced indebted costs for mortgages, cars or credit cards. The reason: the Fed points to the short -term interest rates, not in the loan costs distributed for several years. In other words, a decrease in the objective interest rate of the Fed does not immediately lead to a comparable decrease in consumer -oriented interest rates, even if the lenders use the Fed as a reference point.
Home loans are especially disconnected from the short -term loans of Fed. On the other hand, banks and other lenders establish mortgage rates using a variety of factors, and an important one is the performance of the 10 -year treasure bonds. Since the beginning of the Covid pandemic, the 10 -year rate has constantly increased to approximately 4.5%, helping to raise mortgage rates to approximately 6.5%.
The greatest promoter of interest rates are inflation expectations. If investors expect prices growth to be erected, purchasing power will begin to ask for higher interest rates. At this time, the Federal Reserve believes that inflation expectations are mainly under control, although Trump tariffs have introduced a persistent level of uncertainty.
The FOMC decision to maintain its key rate in a range of 4.25% to 4.5% this year has helped maintain an inflation lid, slowing the general demand in the economy. If Powell will be eliminated, analysts say, inflation expectations are likely to be “not noted” if it suddenly becomes easier for companies to increase prices assuming that the increases in demand. That would lead to faster inflation and, therefore, higher interest rates in the economy, even if the FOMC voted for a cut.
That includes the cost of loans for the federal government. Anything that creates great uncertainty among investors about the stability of the US economy can increase treasure yields. Less demand for treasure bonds means that the federal government has to pay greater performance to convince investors to buy them.
If Trump triggered Powell, investors warned that treasure yields would increase to 10 years. That would help overcome the highest housing mortgage rates. There is also concern that shooting Powell would trigger the volatility of the stock market. It has already increased earlier this month, since speculation about the future of Powell’s work reached a high point.
“Long short history is not a beautiful image,” Economics Capital Analysts said in a recent note to customers about how the market would respond if Trump tried to eliminate Powell.
Even so, even if Powell was marginalized, the next central banker, Vice President Philip Jefferson, who was appointed by then President Joe Biden, has not adopted exactly rates cuts recently. In May, he said that Fed’s policy was in “a very good place” and that the Central Bank could afford to be patient.
