The United States Federal Reserve reduced its reference interest rate in a 0.25%the first cut so far this year, in the midst of an unusual economic combination: an inflation even above the goal and signs of weakening in the labor market. This movement occurred under strong political pressures of President Donald Trump to reduce credit, while the Fed seeks to balance its double price stability and maximum employment mandate.
Trump presses with lower rates. The American president has openly criticized the Fed to maintain the “too high” rates and has demanded much more aggressive cuts than they would normally be considered prudent. In a recent statement he affirmed that the Fed rate is “at least 3 percentage points greater than what should be” and that this excess costs the government hundreds of billions of dollars.
Trump’s political interference has gone beyond words. His administration undertook an unprecedented event in the more than 100 years of history of the institution: try to say goodbye to a governor of the Fed, Lisa Cook. Officially, she was accused of financial irregularities, but numerous observers pointed out that the real context was Trump’s frustration with the Fed for not lowering the rates with the speed and magnitude he wanted. This move, seen as an attack on the independence of the Fed, was blocked by a court that ruled that the dismissal would violate due cook process, thus slowing down the dismissal attempt.
At the same time, Trump has sought to leave his mark on the Board of the Fed by appointing officials aligned with his position in favor of the loss of fees. At the last moment, prior to the recent monetary policy meeting, the Senate confirmed to Stephen Miran, a Trump economic advisor, as the new governor of the Fed. It is not surprising that in his first meeting they look was the only official who voted asking for a half -point cut in the place of the approved point, aligning thus aligning with Trump’s preference for more aggressive stimuli.
The presidential pressure on the Fed reminds of historical episodes. In 1972, the then president Richard Nixon He successfully pressed the Fed Chief to maintain an ultra lax monetary policy for his re -election. That political interference is now indicated as a factor that contributed to a posterior inflation outbreak. The historical lesson illustrates the risk: forcing low rates for political reasons can disagree with price stability and undermine credibility.
Fed prioritizes employment over inflation. Despite the pressures, the president of the Fed, Jerome Powell, He has insisted that decisions are made based on economic data and not on political conveniences. At the most recent meeting, the Fed justified the cut of the rate mainly by cooling signals in the labor market, even when inflation remains above the official goal of 2%. In fact, annual inflation to August was 2.9% (according to the CPI), clearly above the 2% target. However, employment creation has slowed down and the unemployment rate has rebounded slightly since its historical minimums. It is an atypical situation: a labor stagnation coexisting with high inflation, something that some analysts call “mild stagflation” due to the combination of weak growth with prices resistant to lower.
Powell stressed that, in this context, he is more concerned with the “cracks” that are being formed in the labor market than a persistent inflation acceleration. “In this less dynamic and somewhat weaker labor market, the downward risks for employment seem to have increased,” Powell explained at a press conference after the decision of the Fed. Regarding inflation, the bank perceives that some extraordinary factors – as the highest costs for commercial tariffs imposed by Trump – have not moved fully to consumer prices. He also argues that in any case those increases, if they occur, will be once and once and not related to persistent inflation. This evaluation suggests that, although inflation is above the goal, it is not lacking for now, giving the fed a certain margin to support employment without immediate fear of an inflationary spiral.
Dilemma and balance of the Fed. The current situation places the Fed in the face of a difficult balance between its two fundamental objectives. On the one hand, keep inflation at bay; on the other, sustain employment. “It is a difficult situation, because we have risks that affect both the labor market and inflation,” Powell acknowledged, adding that when both objectives are threatened, “we must balance them, and that is exactly what we are trying to do.” The official Fed declaration reiterated its commitment to achieve maximum employment together with 2% inflation in the long term. In addition, he indicated that the decisions will be taken “meeting by meeting”, avoiding committing in advance with a fixed course, suggesting that the Fed intends to keep flexibility as the data evolves.
In addition to a weak economic situation, concern for the credibility and independence of the organism persists. Investors are confident that it will act based on real economic conditions and will not yield to short -term political conveniences. Saying too much to political pressure could lead to the opposite effect to the desired one.
In short, Powell’s Fed walks down a tightrope. Trump intensifies the pressure to obtain immediate stimuli that drive the economy – with electoral views and to lower the cost of government debt – while the Central Bank tries not to compromise its long -term stability mandate. Inflation, although raised with respect to the goal, has been moderating from postpandymia peaks and is located about 3%, an uncomfortable level, but not catastrophic. At the same time, the cooling of employment has become the new alarm that the Fed cannot ignore. How the Fed sails between both objectives in the coming months will depend largely the economic health of the United States – and the credibility of its monetary policy – in the coming years.
*Sergio Rodríguez Glowinski is an economist, director of Ingeco Argentina and Agene de Bolsa in the USA.
By Sergio Rodríguez Glowinski
