“There are no risk-free paths now,” Powell said. “It’s not incredibly obvious what to do.”
The Fed is facing both a challenging economic environment and threats to its traditional independence from day-to-day politics. At the same time that hiring has weakened, inflation remains stubbornly elevated. It rose 2.9 per cent in August from a year ago, according to the consumer price index, up from 2.7 per cent in July and noticeably above the Fed’s 2 per cent target.
It’s unusual to have weaker hiring and elevated inflation, because typically a slowing economy causes consumers to pull back on spending, cooling price hikes. Powell suggested last month that sluggish growth could keep inflation in check even if tariffs lift prices further.
Stephen Miran pushed for a steeper cut.Credit: Bloomberg
Separately, Trump’s attempted firing of Cook is the first time a president has tried to remove a Fed governor in the central bank’s 112-year history, and has been seen by many legal scholars as an unprecedented attack on the Fed’s independence. His administration has accused Cook of mortgage fraud, but the accusation has come in the context of Trump’s extensive criticism of Powell and the Fed for not cutting rates much faster and steeper.
An appeals court late Monday upheld an earlier ruling that the firing violated Cook’s due process rights. A lower court had also previously ruled that Trump did not provide sufficient justification to remove Cook. Also late on Monday, the Senate voted to approve Miran’s nomination, and he was quickly sworn in on Tuesday morning.
On Tuesday, Trump said Fed officials “have to make their own choice” on rates but added that “they should listen to smart people like me.” Trump has said the Fed should reduce rates by three full percentage points.
Loading
When asked what the signs would be that the Fed is no longer functioning independent of political pressure, Powell said, “I don’t believe we’ll ever get to that place. We’re doing our work exactly as we always have now.”
In their projections for the economy and monetary policy, most Fed officials forecast the central bank’s key rate in a range of 3.5 per cent to 3.75 per cent by year end. Miran, however, forecast a rate of 2.75 per cent to 3.0 per cent.
The Fed’s move to cut rates puts it in a different spot from many other central banks overseas. Last week, the European Central Bank left its benchmark rate unchanged, as inflation has largely cooled and the economy has seen limited damage, so far, from US tariffs. On Friday, the Bank of England is also expected to keep its rate on hold as inflation, at 3.8 per cent, remains higher than in the United States.
AP
The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.
