Fed Chairman Hints at Coming Interest Rate Cut and Swears He's Not Doing It Because of Trump

Federal Reserve Chairman Jerome Powell broadly hinted at the Fed's annual conference at Jackson Hole, WY, that interest rates would soon be coming down.

Mr. Powell held back from explicitly endorsing a reduction in borrowing costs at the Fed’s next meeting in September. But his emphasis on the prospects of a weakening economic backdrop made clear that a cut is likely next month.
“The balance of risks appears to be shifting,” Mr. Powell said in his final speech as Fed chair at an annual conference hosted by the Reserve Bank of Kansas City in Jackson, Wyo. With borrowing costs weighing on the economy, the labor market softening and inflation risks contained, “the shifting balance of risks may warrant adjusting our policy stance,” said the chair.

Powell, who will cease to be the chairman of the Fed next year, although his 14-year term as a governor of the Fed ends in 2028, also made some other interesting observations.

Mr. Powell highlighted the recent slowdown in monthly jobs growth, but questioned whether it was a function of a pullback in demand from companies or a reduction in the supply of workers resulting from President Trump’s immigration crackdown. He said that left the labor market in a “curious kind of balance” that warranted caution.

President Trump Fires Biden Holdover After Massive Downward Revision of Jobs Report – RedState

July Inflation Numbers Undershoot Economists' Estimates – RedState

“This unusual situation suggests that downside risks to employment are rising,” he said. “And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment."

Powell said that inflation was still too high, but he shied away from blaming Trump's tariff policy. He said that a “reasonable base case is that the effects will be relatively short-lived — a one-time shift in the price level.”

All in all, the consensus is that the Fed will reduce rates in September but probably not by as much as the markets, or President Trump, would like. Other cuts will follow this as the Fed assesses the outcome.

At one point, Powell seemed to acknowledge the high level of tension between Trump and Powell over Trump's desire to juice the labor market and Powell's fears that Bidenflation may not yet be smothered.

The decision, though, will be “based solely on [Fed officials’] assessment of the data and its implications for the economic outlook and the balance of risks,” he said.
“We will never deviate from that approach,” he added.

My gut feeling tells me there is more going on here than rate cuts. The body language between Trump and Powell as they toured the hyper-expensive renovation of the Fed's version of the Taj Mahal was not good. Trump has called Powell a “numbskull” and a “total and complete moron.” Trump, allegedly, went as far as to write a letter dismissing Powell. Powell's leadership role is also in jeopardy. Not only does his term as chairman end next year, but he is also on the cusp of losing his ability to steer the seven-member board. Two of the members are in open revolt against Powell's position on interest rates. There is one vacancy to which Trump has nominated an ally; see Trump Taps Economic Advisors Council Chairman Stephen Miran for Federal Reserve Board Vacancy – RedState. Trump is also pressing for the resignation of Lisa Cook, who is enmired in a tax evasion and loan fraud investigation; see Cook Is Cooked. Real Estate Fraud Gets a Federal Reserve Governor a Federal Investigation. – RedState. When Cook finally gives it up and resigns, Trump will have a clear majority on the Fed's Board of Governors to help him harmonize economic and monetary policy.

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