The US central bank is widely expected to hold off slashing interest rates again at its upcoming meeting, as officials gather under the cloud of an intensifying pressure campaign by US President Donald Trump.
Policymakers at the independent US Federal Reserve have kept the benchmark lending rate steady since the start of the year as they monitor how Trump’s sweeping tariffs are impacting the world’s biggest economy.
With Trump’s on-again, off-again tariff approach — and the levies’ lagged effects on inflation — Fed officials want to see economic data from this summer to gauge how prices are being affected.
Photo: AFP
When mulling changes to interest rates, the central bank — which meets tomorrow and Wednesday — seeks a balance between reining in inflation and the health of the jobs market.
However, the bank’s data-dependent approach has enraged the Republican president, who has repeatedly criticized Fed Chair Jerome Powell for not slashing rates further, calling him a “numbskull” and “moron.”
Most recently, Trump signaled he could use the Fed’s US$2.5 billion renovation project as an avenue to oust Powell, before backing off and saying that would be unlikely.
Trump visited the Fed construction site on Thursday last week, making a tense appearance with Powell in which the Fed chair disputed Trump’s characterization of the total cost of the refurbishment in front of the cameras.
Economists expect the Fed to look past the political pressure at its policy meeting.
“We’re just now beginning to see the evidence of tariffs’ impact on inflation,” Oxford Economics chief US economist Ryan Sweet said.
“We’re going to see it [too] in July and August, and we think that’s going to give the Fed reason to remain on the sidelines,” he said.
The Fed’s benchmark lending rate stands at a range between 4.25 percent and 4.50 percent.
Trump argues that lower rates would save the government money on interest payments, and floated the idea of firing Powell. The comments roiled financial markets.
“Powell can see that the administration floated this trial balloon” of ousting him before walking it back on the market’s reaction, Sweet said.
“It showed that markets value an independent central bank,” he added, anticipating Powell would instead be more influenced by labor market concerns.
Powell’s term as Fed chair ends in May next year.
Analysts expect to see a couple of members break ranks if the Fed’s rate-setting committee decides for a fifth straight meeting to keep interest rates unchanged.
Fed Governor Christopher Waller and Vice Chair for Supervision Michelle Bowman have both signaled openness to rate cuts early this month, meaning their disagreement with a decision to hold rates steady would not surprise markets.
However, too many dissents could be “eyebrow-raising,” and lead some to question if Powell is losing control of the board, Nationwide chief economist Kathy Bostjancic said, but added: “I don’t anticipate that to be the case.”
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