Fed Reserve maintains elevated interest rates in the United States
Federal Reserve Maintains Interest Rate Amidst Political Pressure
In a move that bucked political pressure, the Federal Reserve (Fed) decided to keep the key interest rate stable in June 2019, with the range between 4.25 and 4.5 percent. This decision was made despite President Trump's demands for a rate cut.
The Fed's decision was motivated by strong economic indicators. The economy was in a solid position, with strong job growth, rising inflation, and a balanced labor market. Fed Chair Jerome Powell emphasized the majority view that current inflation and employment data warranted a "moderately restrictive policy" rather than a rate cut.
However, two of the eleven present, Michelle Bowman and Christopher Waller, voted for a cut, which is uncommon at the Fed. This could be an early sign that the Fed will cut the key rate for the first time since December 2008 at the September meeting.
Market observers anticipate a potential rate cut as early as the September meeting. The Fed's cautious approach was influenced by evidence that tariffs’ effects might be limited and other disinflationary forces present, along with signs of a labor market beginning to soften.
The tariffs, borne by importers, retailers, and ultimately consumers, have raised some consumer prices. However, service inflation is easing, further complicating the decision. The Fed seeks to manage inflation carefully and avoid the risks of premature rate cuts, which could harm the labor market.
The U.S. labor market has shown resilience, which does not warrant a lower interest rate, according to VP Bank's chief economist. The former could be an early sign that the Fed will cut the key rate for the first time since December 2008 at the September meeting.
The Fed is an independent body, and unlike what Trump suggests, Powell does not decide on the key rate alone - the Federal Reserve Board does. Trump has threatened to fire Powell, but the hurdles for this are high, and the question of whether a U.S. president can fire a Fed Chair is not fully resolved.
Trump has repeatedly verbally attacked Fed Chair Jerome Powell, calling him names like "fool," "idiot," and "dummy." Rumors suggest that Waller, who voted for a rate cut, is close to Trump, with the U.S. President reportedly considering him, along with Treasury Secretary Steven Mnuchin, as a potential successor to Powell. Powell's term ends in May next year.
The International Monetary Fund (IMF) expressed concern about partly increased import prices in the U.S., indicating that companies are starting to pass on higher costs to their prices due to tariffs. Uncertainty about economic prospects remains high. Economic growth slowed in the first half of the year, according to Fed data from Wednesday.
Despite the political pressure, the Fed remains committed to its mandate of maintaining price stability and maximum employment. The Fed will continue to monitor the economic situation closely and adjust its monetary policy accordingly.
- Despite the political pressure from President Trump, the Federal Reserve (Fed) maintained its interest rate in June 2019, highlighting their focus on business and finance rather than politics.
- The Fed's upcoming monetary policy decision in September could be influenced by the general-news events such as tariffs and their impact on inflation, which are key factors in the economy.
