Federal Reserve likely to stand pat on rates this week, deepening the gulf between Powell and Trump

WASHINGTON AP The Federal Reserve is expected to leave its short-term interest rate unchanged on Wednesday for the fifth straight meeting a move that will likely underscore the deep divide between how Chair Jerome Powell and his chief critic President Donald Trump see the economic system The Fed itself to be sure is increasingly divided over its next policies and countless economists expect that two members of the Fed s governing board both appointed by Trump could dissent on Wednesday in favor of cutting rates If so that would be the first time two governors vote against the chair since Even so the gap between the views of the Fed s interest-rate setting committee chaired by Powell and the White House is unusually large In several areas Trump s views sharply contrast with that of the Fed s leadership setting up likely clashes for years to come even after Powell s term as chair ends in May For example Trump says that because the U S market system is doing well the Fed should cut rates as if the U S is a blue-chip company that should pay less to borrow than a risky start-up But Fed executives and nearly all economists see it the other way A solid business activity means rates should be relatively high to prevent overheating and a burst of inflation I d argue that our interest rates are higher because our financial system s doing fairly well not in spite of it reported Gennadiy Goldberg head of U S rates strategy at TD Securities Trump argues that the Fed in general and Powell in particular are costing U S taxpayers hundreds of billions of dollars in interest payments by not reducing borrowing costs Yet Fed bureaucrats don t think it s their job to reduce rates the authorities pays on Treasury notes and bonds Bulk economists worry that if they did they would danger failing at one of the key jobs Congress gave them fighting inflation It s using monetary program to ease pressure on fiscal policymakers and that way points to higher inflation and bigger problems down the road declared William English an economist at the Yale School of Management and former senior Fed staffer If financial markets see that the Fed is focused on keeping borrowing costs low to help the establishment rather than focusing on its congressionally-mandated goals of stable prices and maximum employment Wall Street investors worried about future inflation will likely demand higher interest rates to hold Treasury bonds economists say pushing up borrowing costs across the financial system For his part Trump says there is no inflation and so the Fed should reduce its short-term rate now at about which was ramped up in and to fight rising prices The Fed s rate often but not invariably influences longer-term borrowing costs for mortgages car loans and credit cards Inflation has fallen sharply and as a impact Fed personnel have signaled they will cut rates by as much as a half-percentage point this year Yet it has picked up a bit in the last two months and plenty of of those policymakers including Powell still want to make sure that tariffs aren t going to lift inflation much higher before they make a move Inflation accelerated to in June from in May the ruling body explained earlier this month above the Fed s target Core prices which exclude the volatile food and capacity categories rose to from Last week Trump and several White House executives ramped up their attacks on Powell over rates They also criticized the ballooning costs of the Fed s renovation of two of its buildings raising questions over whether the president was looking to fire Powell for cause rather than initiative differences Trump and Powell engaged in an extraordinary on-camera confrontation over the cost of the project during Trump s visit to the building site last Thursday On Monday Trump was more restrained in his comments on the Fed during a joint appearance in London with British Prime Minister Keir Starmer I m not going to say anything bad Trump commented We re doing so well even without the rate cut But he added a smart person would cut Certain economists expect that the Fed will reduce its key rate by a quarter-point in September rather than July and say that the two-month delay will make little difference to the financial sector Yet beyond just the timing of the first cut there is still a huge gulf between what Trump wants and what the Fed will even consider doing Fed leaders in June penciled in just two reductions this year and one in They forecast that their key rate will still be at the end of next year Trump is pushing them to cut it to just That s not going to happen with anything like the current people on the committee English announced Wall Street investors also expect relatively sparse cuts Two this year and two in according to futures pricing tracked by CME s Fedwatch According to the Fed s projections just two functionaries in June supported three cuts this year likely Trump s appointments from his first term governors Christopher Waller and Michelle Bowman Waller gave a speech earlier this month supporting a rate reduction in July but for a very different reason than Trump He is worried the economic system is faltering The financial sector is still growing but its momentum has slowed significantly and the risks of rising unemployment have increased Waller disclosed Waller has also emphasized that tariffs will create just a one-time bump in prices but won t lead to ongoing inflation Yet the majority Fed bureaucrats see the job sphere as relatively healthy with unemployment at a low and that as a product they can take time to make sure that s how everything plays out Continued overall solid economic conditions enable the Fed to take the time to thoroughly assess the wide range of incoming details disclosed Susan Collins president of the Boston Federal Reserve Thus in my view an actively victim approach to monetary plan remains appropriate at this time Source