The US Federal Reserve is expected to announce a pause in rate cuts on Wednesday, as policymakers look to continue tackling inflation under close and vocal scrutiny from US President Donald Trump.
The Fed cut its key lending rate by a full percentage point in the final four months of last year and indicated it would move more cautiously going forward amid an uptick in inflation away from its long-term target of 2 percent.
“I think they will do nothing, and I think they should do nothing,” Federal Reserve Bank of St Louis former president Jim Bullard said. “I think the committee’s in very good shape right now.”
Photo: AFP
The Fed’s challenge this week is how to pause and communicate a data-dependent approach to future cuts without drawing the ire of Trump, who has expressed his desire for rates to come down.
“The goal will be to make as least amount of news as possible as they pause, which is well televised,” KPMG chief economist Diane Swonk said.
Financial markets saw a probability of more than 99 percent that the Fed would vote on Wednesday to hold interest rates at their current level of between 4.25 percent and 4.50 percent, CME Group data showed.
Trump has frequently criticized the Fed, which has a dual mandate from the US Congress to act independently to tackle inflation and unemployment. After returning to the White House, he renewed his attacks on the US central bank.
“I’ll demand that interest rates drop immediately,” Trump said on Thursday, later adding that he would “put in a strong statement” if the Fed — led by Fed chair Jerome Powell — did not listen to his views.
“I think I know interest rates much better than they do,” he said. “And I think I know certainly much better than the one who’s primarily in charge of making that decision.”
Trump’s public criticism of the Fed and Powell — whom he first nominated to run the US central bank — is unusual, and runs counter to the policy pursued by recent presidents of avoiding public criticism of the institution and its policymakers while in office.
“The Fed will not front-run any policies by the new administration,” Swonk said of the bank’s upcoming rate decision. “They will wait and see how they play out and how they actually affect the economy.”
The Fed’s expected pause comes against the backdrop of a small uptick in inflation, with a relatively robust labor market and strong economic growth.
Last month, Fed policymakers dialed back the number of rate cuts they expect for this year to a median of just two, with some incorporating assumptions about Trump’s likely economic policies into their forecasts, Fed minutes of the meeting showed.
Many economists see Trump’s tariffs and immigration proposals as inflationary, potentially keeping the Fed on pause for longer if they come into effect.
But this is not a universally held view.
"I think the story that tariffs are inflationary is overplayed in financial markets," said Jim Bullard, who is the Dr. Samuel R. Allen Dean of the Mitch Daniels School of Business at Purdue University. "We have seen this movie before: We had the first Trump administration."
"The (economic) growth effects are actually the ones to worry about, and most of those are coming through the uncertainty channel and not through the actual effects of actual tariffs," he added.
"I do think that this will be more business-friendly administration, and they may be able to do some stuff on the deregulation side," he said. "So that's probably the thing could have the biggest impact."
With an approval rating of just two percent, Peruvian President Dina Boluarte might be the world’s most unpopular leader, according to pollsters. Protests greeted her rise to power 29 months ago, and have marked her entire term — joined by assorted scandals, investigations, controversies and a surge in gang violence. The 63-year-old is the target of a dozen probes, including for her alleged failure to declare gifts of luxury jewels and watches, a scandal inevitably dubbed “Rolexgate.” She is also under the microscope for a two-week undeclared absence for nose surgery — which she insists was medical, not cosmetic — and is
CAUTIOUS RECOVERY: While the manufacturing sector returned to growth amid the US-China trade truce, firms remain wary as uncertainty clouds the outlook, the CIER said The local manufacturing sector returned to expansion last month, as the official purchasing managers’ index (PMI) rose 2.1 points to 51.0, driven by a temporary easing in US-China trade tensions, the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) said yesterday. The PMI gauges the health of the manufacturing industry, with readings above 50 indicating expansion and those below 50 signaling contraction. “Firms are not as pessimistic as they were in April, but they remain far from optimistic,” CIER president Lien Hsien-ming (連賢明) said at a news conference. The full impact of US tariff decisions is unlikely to become clear until later this month
GROWING CONCERN: Some senior Trump administration officials opposed the UAE expansion over fears that another TSMC project could jeopardize its US investment Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) is evaluating building an advanced production facility in the United Arab Emirates (UAE) and has discussed the possibility with officials in US President Donald Trump’s administration, people familiar with the matter said, in a potentially major bet on the Middle East that would only come to fruition with Washington’s approval. The company has had multiple meetings in the past few months with US Special Envoy to the Middle East Steve Witkoff and officials from MGX, an influential investment vehicle overseen by the UAE president’s brother, the people said. The conversations are a continuation of talks that
CHIP DUTIES: TSMC said it voiced its concerns to Washington about tariffs, telling the US commerce department that it wants ‘fair treatment’ to protect its competitiveness Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) yesterday reiterated robust business prospects for this year as strong artificial intelligence (AI) chip demand from Nvidia Corp and other customers would absorb the impacts of US tariffs. “The impact of tariffs would be indirect, as the custom tax is the importers’ responsibility, not the exporters,” TSMC chairman and chief executive officer C.C. Wei (魏哲家) said at the chipmaker’s annual shareholders’ meeting in Hsinchu City. TSMC’s business could be affected if people become reluctant to buy electronics due to inflated prices, Wei said. In addition, the chipmaker has voiced its concern to the US Department of Commerce
RSS