The EU Federal Reserve Meeting (FED) most politically charged in years concludes this Wednesday with extensive expectations of an interest rate cut of a quarter percentage quarter, which could generate dissent among some political leaders, which consider it too small and late, and others that consider it completely unnecessary.
As crucial as that decision will be an updated list of projections that show where the political leaders and monetary policy foresee, eight months after the extensive review of the US economic policy by President Donald Trump and the incessant pressure on the central bank to reduce the indebtedness costs.
An almost certain critic of the result will be Trump himself, who wants a much greater rate cut than would normally be justified in an economy that still remains healthy. This will also happen when the influence of the president in the Central Bank begins to take shape.
Governor Stephen Miran, who was on the president of the Trump Economic Advisors Council, lent oath as a member of the Fed Board of Directors, composed of seven members, on Tuesday, just when the meeting was going to start. The Administration also announced that it would request the United States Supreme Court to allow its attempt to dismiss Governor Lisa Cook.
Trump tried to press the president of the Fed, Jerome Powell, to resign in order to achieve lower interest rates. Last month, the attention focused on Cook and announced his dismissal for accusations of misrepresentation of information in a mortgage application.
Cook filed a lawsuit to keep his position, and so far, the courts indicate that he is likely to prevail and can keep his position while the matter is litigue. She has denied any irregularity and has not been accused of any crime.
With this context and the concern that the Federal Reserve was inevitably dragged from its environment relatively isolated to Washington’s polarized climate, political leaders will analyze the latest economic data, update their perspectives on Trump’s impact on the economy and publish a new statement of monetary policy and economic projections at 2:00 p.m. EDT (18:00 GMT). Powell plans to offer a press conference at 14:30 EDT.
Lee also: US Appeals Court rejects Trump’s attempt to dismiss Lisa Cook of the Federal Reserve
‘Changing the risk balance’
A cutting quarter was the predominant expectation for weeks, after the marked weakness of labor market readings as summer progressed.
But after a July meeting that has already generated two dissent from the governors designated by Trump, Christopher Waller and Michelle Bowman, who advocated a type cutting at the time, this week’s meeting could generate even more disagreements. The majority of analysts expect from the beginning a dissident position of looking in favor of a greater cut, with the possible adhesion of Waller and Bowman. However, at least one of the presidents of the banks of the reserve with the right to vote – the president of the Fed of Kansas City, Jeffrey Schmid – had not retracted from his restrictive position as the meeting approached.
Meanwhile, the projections published together with the decision on the rates will be the first to include estimates until the end of 2028, effectively covering the entire Trump mandate. While officials tend to include trend rates and other variables for such distant projections, the perspectives for this year and the next will show how recent data have transformed the perspectives of political leaders on inflation, unemployment and trajectory of interest rates from their previous projections of June.
June projections showed concern about the increase in inflation derived from taxes to imports of the Trump administration, but since then they showed a slower employment growth than previously estimated. In a speech delivered in August at the Fed Research Conference in Wyoming, Powell said it was a “reasonable base scenario” that new taxes on Trump imports would only have a temporary impact on inflation, and that “the changing balance of risks could justify an adjustment of our political position” with a type cut.
The data since then tended to reaffirm the risks for the labor market, although the economy continues to grow.
Investors anticipate that the Fed will reduce the types by a quarter percentage point at their meetings in September, October and December, with a slower reduction rhythm next year.
The authorities maintained the type in a range of between 4.25 and 4.50% since December, after cutting it a complete percentage point in three meetings in the late 2024.
However, to justify three cuts, political leaders “will have to consider the downward risk for the labor market”, at a time when inflation could still accelerate during the rest of the year, according to Ryan Sweet, chief economist of Oxford Economics for the US.
“Inflation remains a problem for Fed and there are indications that the impact of tariffs will intensify this fall,” said Sweet.
In its last set of June projections, the average monetary policy projected that the Fed inflation measurement, the Personal Consumption Expenditure Price Index (GCP), would be placed in 3% in the fourth quarter of the year, significantly above the 2% target of the Central Bank.
With Reuters information
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