Now that Federal Reserve Chair Jerome Powell has signaled that the central bank could soon cut its key interest rate, he faces a new challenge: how to do it without seeming to cave to the White House’s demands.<\/b>
\nNow that Federal Reserve Chair Jerome Powell has signaled that the central bank could soon cut its key interest rate, he faces a new challenge: how to do it without seeming to cave to the White House\u2019s demands.
For months, Powell has largely ignored President Donald Trump\u2019s constant hectoring that he reduce borrowing costs. Yet on Friday, in a highly-anticipated speech, Powell suggested that the Fed could take such a step as soon as its next meeting in September.
It will be a fraught 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, if they occur, could make a cut look premature.
Trump has urged Powell to slash rates, arguing there is \u201cno inflation\u201d and saying that a cut would lower the government\u2019s interest payments on its $37 trillion in debt.
Powell, on the other hand, has suggested that a rate cut is likely for reasons quite different than Trump\u2019s: He is worried that the economy is weakening. His remarks on Friday at an economic symposium in Grand Teton National Park in Wyoming also indicated that the Fed will move carefully and cut rates at a much slower pace than Trump wants.
Powell pointed to economic growth that \u201chas slowed notably in the first half of this year,\u201d to an annual rate of 1.2%, down from 2.5% last year. There has also been a \u201cmarked slowing\u201d in the demand for workers, he added, which threatens to raise unemployment.
Still, Powell said that tariffs have started to lift the price of goods and could continue to push inflation higher, a possibility Fed officials will closely monitor and that will make them cautious about additional rate cuts.
The Fed\u2019s key short-term interest rate, which influences other borrowing costs for things like mortgages and auto loans, is currently 4.3%. Trump has called for it to be cut as low as 1% \u2014 a level no Fed official supports.
However the Fed moves forward, it will likely do so while continuing to assert its longstanding independence. A politically independent central bank is considered by most economists as critical to preventing inflation, because it can take steps \u2014 such as raising interest rates to cool the economy and combat inflation \u2014 that are harder for elected officials to do.
There are 19 members of the Fed\u2019s interest-rate setting committee, 12 of whom vote on rate decisions. One of them, Beth Hammack, president of the Federal Reserve\u2019s Cleveland branch, said Friday that she is committed to the Fed\u2019s independence.
\u201cI\u2019m laser focused \u2026 on ensuring that I can deliver good outcomes for the for the public, and I try to tune out all the other noise,\u201d she said.
She remains concerned that the Fed still needs to fight stubborn inflation, a view shared by several colleagues.
\u201cInflation is too high and it\u2019s been trending in the wrong direction,\u201d Hammack said. \u201cRight now I see us moving away from our goals on the inflation side.\u201d
Powell himself did not discuss the Fed\u2019s independence during his speech in Wyoming, where he received a standing ovation by the assembled academics, economists, and central bank officials from around the world. But Adam Posen, president of the Peterson Institute for International Economics, said that was likely a deliberate choice and intended, ironically, to demonstrate the Fed\u2019s independence.
\u201cThe not talking about independence was a way of trying as best they could to signal we\u2019re getting on with the business,\u201d Posen said. \u201cWe\u2019re still having a civilized internal discussion about the merits of the issue. And even if it pleases the president, we\u2019re going to make the right call.\u201d<\/p>\n