Washington– Federal Reserve officials are expected to keep the short-term interest rate unchanged on Wednesday after that Three cuts last yearIgnoring the enormous pressures to reduce borrowing costs From the White House In favor of waiting to see how the economy develops.
The goal of the central bank’s interest rate cuts last year was to support the economy and prevent a sharp deterioration in the labor market, after employment. He slowed to a near crawl This follows comprehensive tariffs imposed by President Donald Trump last April. However, there are signs of this Unemployment has stabilized The economy could rebound. Meanwhile, inflation remains Stubbornly above The Fed’s target is 2%. All of these trends call for keeping interest rates at their current levels.
One of the key issues that Chairman Jerome Powell is likely to address in his press conference on Wednesday is how long the Fed will remain on hold. The interest rate setting committee remains divided between officials who oppose further cuts until inflation falls, and those who want to lower interest rates to further support employment.
In December, only 12 out of 19 participants participated in committee meetings Supported Cut rates again at least this year. Most economists expect the Fed to cut twice this year, likely at its June meeting or later.
Federal Reserve officials meet this week under unprecedented pressure from the Trump White House. Powell He said January 11th That the Fed received subpoenas from the Department of Justice as part of a criminal investigation into his testimony before Congress about a $2.5 billion building renovation. Powell said in an unusually frank video statement that the subpoenas were a pretext to punish the Fed for not cutting interest rates more quickly.
Last week, the Supreme Court took up Trump’s bid from last year Fed Governor Lisa Cook fired Due to allegations of mortgage fraud, which Denies. No president has fired a governor in the Fed’s 112-year history. Judges at Oral argument They seem inclined to let her stay in her job until the case is solved.
Meanwhile, Trump has indicated that he is close to appointing a new Fed chair, to replace Powell once his term ends in May. The announcement could come as soon as this week, although it has been postponed before.
Economists say the president’s efforts to pressure the Fed may have backfired, with Senate Republicans voicing support for Powell and threatening to block a Trump replacement.
“The last two weeks have been very positive for the Fed’s independence,” said Patricia Zobel, a former New York Fed official who is now head of macroeconomic research at Guggenheim Investments.
However, all the turmoil may have prompted Powell to hunker down as he approaches the end of his term as president. Vincent Reinhart, a former Fed economist and now chief economist at BNY Investments, noted that Powell has given only one speech touching on the economy since September.
Reinhart said he may allow other Fed officials to take on the task of explaining why the central bank is holding off on cutting interest rates in the coming months. He added that this also confirms that the president does not make decisions on prices alone.
“Chairman Powell’s contribution to the news regarding our understanding of the Fed’s next move has been as small as it has ever been during his tenure,” Reinhart said.
Only 12 of the 19 members of the Fed’s rate-setting committee have voting power, including all seven members of the Board of Governors, the head of the New York Fed, and a group of four rotating chairmen from regional Fed banks.
This year, Beth Hammack, president of the Federal Reserve Bank of Cleveland; Neel Kashkari, President of the Federal Reserve Bank of Minneapolis; Lori Logan, President of the Federal Reserve Bank of Dallas; Anna Paulson, President of the Federal Reserve Bank of Philadelphia, will vote on interest rate decisions. All have recently expressed some doubts about the need for further cuts any time soon.
In a speech earlier this month, Paulson said an improving economy should allow for further interest rate cuts later in the year.
She said: “I see that inflation is subsiding, that the labor market is stabilizing, and that growth will come at about 2% this year.” “If all of this happens, some modest additional adjustments” to the Fed’s key interest rate “will likely be appropriate later in the year.”
Economists expect larger-than-usual tax refunds over the next few months to help boost consumer spending. Faster growth could eventually boost employment rates, which have been noticeably weak even as the economy has expanded.
With companies barely adding jobs, consumers remain pessimistic about the economy. The Conference Board’s measure of consumer confidence It fell to its lowest level in 11 years The business research group said Tuesday.