(AFP) – The US Federal Reserve held interest rates steady Wednesday at its first policy gathering this year, citing robust economic growth, as the central bank resists President Donald Trump’s mounting pressure for cuts. Trump has sharply escalated his targeting of the Fed since returning to the White House, seeking to oust a key official among its leadership in what chairman Jerome Powell said could be the “most important legal case” in the institution’s long history.
But on Wednesday, the Fed voted 10-2 to maintain rates at a range between 3.50 percent and 3.75 percent, an outcome that was widely expected as officials await more data on the world’s biggest economy. In a statement on its decision, policymakers flagged that economic activity has been “expanding at a solid pace,” while the unemployment rate showed some “signs of stabilization.” However, the rate-setting Federal Open Market Committee saw two dissents. Fed governors Stephen Miran and Christopher Waller — the latter is seen as a potential candidate to succeed Powell — both backed a quarter-percentage-point rate cut instead.
The Fed has made quarter-point cuts at its last three policy meetings, as officials worried about the cooling jobs market. Miran, who was recently appointed by Trump, pushed for larger reductions each time. But solid GDP growth, relatively low unemployment, and stubborn inflation have provided reasons to pause, putting officials again at odds with Trump, who has repeatedly urged for lower interest rates. Policymakers have warned that Trump’s actions could threaten the bank’s independence from politics.
Powell stressed at a press briefing Wednesday, however, that he did not believe the bank would lose its independence. The president has been seeking to oust Fed Governor Lisa Cook over mortgage fraud allegations, while his administration launched an investigation into Powell over the bank’s headquarters renovation. In a rare rebuke this month, Powell criticized the threat of criminal charges against him, saying this was about whether monetary policy would be “directed by political pressure or intimidation.” He did not elaborate when asked about the case on Wednesday.
– ‘A stalemate’ – Asked why he attended the hearing on Cook’s case at the Supreme Court this month, Powell told reporters: “I would say that that case is perhaps the most important legal case in the Fed’s 113-year history.” “As I thought about it, I thought it might be hard to explain why I didn’t attend,” he added. The Fed is “in no hurry to cut interest rates again,” said Navy Federal Credit Union chief economist Heather Long, adding that she sees policymakers being “in a stalemate right now.”
“Leaders like Miran and Waller who were worried about the labor market don’t have as many supporters now, and similarly, Fed leaders who were concerned about inflation also seem to have backed off,” she added in a note. But she expects a “shake-up” incoming with Powell’s term as Fed chairman ending in May, and Trump’s new appointee taking office. For now, Powell said the central bank will let economic data “light the way” on the future path of interest rates.
A weakening labor market could tip the balance in favor of a further rate reduction, while cooling inflation also allows for lower levels, he added. Financial markets generally expect the Fed to continue keeping rates unchanged until its June meeting, according to CME FedWatch. Looking ahead, all eyes are on how Trump’s nominee to succeed Powell shapes Fed policy. Asked about advice for his successor, Powell said: “Stay out of elected politics.”
One issue analysts are monitoring is whether the new chairman can corral the rest of the rate-setting committee into more cuts. Outside the Fed, it could be harder for the next chairman to convince investors that the bank will continue pursuing its mandate of low and stable inflation and maximum employment, independent of political influence, said Michael Strain of the conservative American Enterprise Institute.
– Beiyi SEOW
© 2024 AFP
