WASHINGTON (AP) — The Federal Reserve is almost certain to keep its stance. Key interest rates A few days after President Donald Trump’s policy meeting this week, there was no change. He said that he would make the demand soon. low rate.
Fed officials, led by Chair Jerome Powell, have cut rates for three consecutive meetings to around 4.3%, a two-decade high of 5.3%. Yet with several recent economic reports Healthy recruiting And Some progress on inflationpolicymakers have said the pace of rate cuts will be slower this year. Some have suggested that some reduction is absolutely necessary.
While the two-day meeting ending Wednesday may have been unusual, it nonetheless kicked off what is likely to be a tumultuous year for the Fed. Trump made it clear last Thursday that he expected to comment on interest rate policy, saying, “I know interest rates a lot better than they do.”
At the same time, Fed officials are also navigating a critical period for the economy: They want to keep borrowing costs high enough to push inflation back to their 2% target, giving them longer Without keeping up and plunged the economy into recession.
The last time he was in the White House, Trump threatened to fire Powell, whom he appointed in late 2017, but he has recently backtracked on such threats. Powell’s term as chair expires in May 2026, when Trump can name a replacement.
Until then, Trump’s comments on Thursday showed he expects the Fed to regularly second-guess the Fed in public, despite a decades-old tradition among previous presidents of keeping hands off the central bank. Former President Joe Biden reappointed Powell instead of replacing him to approve the central bank’s independence from politics.
Vincent Reinhart, chief economist at BNY Investments and a former top Fed economist, said Powell will not let Trump’s attacks influence his policy decisions.
“If you love your freedom, you have to live with criticism,” Reinhart said. “If that’s all talk, it’s not a particular concern for the Fed. I think Chair Powell understands that these are the rules of the game.
Meanwhile, Fed officials have clearly indicated they expect to hold off on rate hikes until at least January, to assess the job market and the economy.
“In January, we need to see what’s going to happen,” Fed Governor Christopher Waller said in an interview on CNBC earlier this month. He added that Fed officials “need to see a little more progress on inflation,” though he also said it was “very close” to their target.
Annual inflation was just 2.4 percent in November, according to the Fed. Preferred gaugeOnly marginally above its target, but it has been stuck there for almost six months. Still, there are indications that prices will cool later this year. Apartment construction is slowing the rise in rental costs, and car insurance inflation has slowed.
Some officials, including Beth Hammock, president of the Fed’s Cleveland branch, have argued that persistent inflation means the Fed should keep its key rate high. Hammack voted against the Fed’s quarter-point cut last month.
Jobs rebounded in December, reversing a downward shift in the fall that had the Fed nervous. Policymakers had agreed to cut the Fed’s key rate. Half a point in Septemberin part because they feared that the weakening job market at the time could lead to a recession. Still, the unemployment rate fell to 4.1 percent last month. A sharp slowdown in jobs will likely encourage the Fed to cut rates even faster.
Fed officials indicated in December that they expected to cut rates only twice this year. But the 19-member committee that makes interest rate decisions is clearly divided. Some officials, such as Waller and Austin Golsby, president of the Fed’s Chicago branch, expect inflation to remain cool and argue that Fed rates do not need to be so high.
Others, like Hammack and Jeffrey Schmid, president of the Kansas City branch, say that with inflation still above target and the economy healthy, there’s no need to cut borrowing costs, or at least not much.
A big unknown for the Fed this year is whether Trump will impose tariffs, how big they will be, and whether they will raise prices. Mass deportations of immigrants could force employers to pay more to fill jobs, which could also drive up inflation.
Most economists forecast that widespread tariffs would likely boost inflation by several tenths of a percentage point — not a huge amount, but likely enough to delay a rate cut for the Fed. enough for It could take months to formally implement tariffs and then assess their impact on the economy. Some economists believe that the impact will not be evident until next year.
Kevin Warsh, a former Fed governor and potential candidate to replace Powell, argued in a recent Wall Street Journal column that Trump’s promises to reduce regulation would reduce costs for businesses, and reduce inflation. Can proceed in the other direction.
