Anticipated outcomes of the remarkable Federal Reserve gathering ahead
The Federal Reserve is set to announce an interest rate cut on Wednesday, marking the first such move since December. This decision comes amidst the ongoing pressure from the Trump administration and the impact of the President's expansive tariffs.
The latest Fed meeting is noteworthy due to the latest developments implicating the Fed's powerful board. President Donald Trump's nominee, Stephen Miran, has been confirmed as Federal Reserve governor. Miran, who was sworn in on Tuesday morning, will be able to cast a vote at this week's policy meeting. His confirmation was swiftly shepherded through, taking only about a month from when he was nominated to when he got sworn in.
However, Miran's appointment has elicited concerns from Democrats over his close ties with the President. Trump's top economic adviser, Miran, replaces Adriana Kugler, who recently resigned. Trump controls at least three governors aligned with him: Christopher Wallen, Michelle Bowman, and Miran. Jerome Powell's term ends in May 2026, potentially allowing Trump to further influence the Board.
For months, consumer inflation readings have mostly come in as expected, despite the chaotic rollout of Trump's tariffs. The Fed's latest projections suggest that 12-month inflation will continue to slowly increase for a couple more months, with monthly tariff effects dissipating by early 2026. St. Louis Fed President, Alberto Musalem, expects the effects of tariffs to work through the economy over the next two to three quarters and the impact on inflation to fade after that.
The interest rate cut is intended to support America's slowing labor market. Job growth during the summer was anemic, with employers adding an average of about 29,000 jobs in the three months ending in August. With a weakening labor market and persistent economic jitters, businesses now have less flexibility to raise prices compared to the years after the pandemic.
Interestingly, there are now more unemployed people seeking work than there are job openings. Despite these concerns, consumer spending remained in positive territory during the summer despite fears about the US economy. Mary Daly, San Francisco Fed President, wrote in a recent social media post that "tariff-related price increases will be a one-off."
In a separate development, the Trump administration is trying to oust Lisa Cook, citing allegations of mortgage fraud, which the Justice Department is actively investigating. Cook, whom Trump tried to fire in late August, will also cast a vote at this week's meeting.
The Consumer Price Index rose 2.9% in August from a year earlier, as reported by the Labor Department last week. With these economic indicators in mind, the Fed's decision on interest rates this week will be closely watched by the financial community.
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