WASHINGTON (AP) — This week’s Federal Reserve meeting stands out not only for its monetary policy implications but also for the surrounding uncertainty about who will participate and how political dynamics may influence perceptions of independence. While the interest rate decision remains central, questions about attendance and external pressures add complexity to the proceedings. n nIt remains unclear whether Governor Lisa Cook will be present, as legal challenges initiated by President Donald Trump to remove her from office could be decided as late as Monday. Meanwhile, Stephen Miran, a senior White House economic official nominated to fill a vacant board seat, may join the meeting if confirmed in time. n nThe U.S. economy presents mixed signals: employment growth has weakened significantly, with only 22,000 jobs added in August and a loss of 13,000 in June. A revised Labor Department report also indicated fewer jobs were created over the previous year than initially thought. At the same time, inflation remains above the Fed’s 2% target, with core consumer prices rising 3.1% year-over-year in August. n nThis dual challenge forces policymakers to balance their congressional mandate of achieving both price stability and maximum employment. Chair Jerome Powell and others have signaled growing concern over labor market deterioration, leading markets to expect a 0.25 percentage point reduction in the benchmark rate, bringing it to approximately 4.1%. n nHowever, persistent inflation may limit the pace and extent of future cuts. The Fed will release updated economic projections Wednesday, which economists predict will reflect expectations for one or two additional reductions this year and several more in 2025. n nEllen Meade, a Duke University economics professor and former Fed economist, noted the current environment is far more complex than during the pandemic-era stimulus or the rapid rate hikes of 2021–2022. “It would be a tough time,” she said, “even without the political backdrop.” n nTrump has intensified pressure on the central bank, demanding steep rate reductions, criticizing Powell with terms like “numbskull” and “moron,” and attempting to remove Cook. While Loretta Mester, former Cleveland Fed president, believes such attacks won’t alter policy decisions, she warned they risk eroding public trust in the institution. n nDavid Andolfatto, a University of Miami economist and ex-St. Louis Fed official, described the president’s behavior as historically unusual in its personal and public nature. “What’s unusual about this is the level of open disrespect and just childishness,” he said. “This is just beyond the pale.” n nThe voting panel usually consists of 12 officials—seven board governors and five rotating regional bank presidents. If Cook is excluded or Miran not seated, 11 members will vote. Still, consensus for a quarter-point cut appears likely, though divisions may emerge. n nMiran and Governor Michelle Bowman could advocate for a half-point reduction, while regional leaders like Beth Hammack of Cleveland and Jeffrey Schmid of Kansas City may resist any easing due to ongoing inflation concerns. Dissent from both sides would mark the first such split since 2019. n nAndolfatto observed that such internal disagreement reflects the difficulty of navigating simultaneous inflationary pressures and labor market fragility—a scenario central banks typically seek to avoid. n
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The Fed faces economic uncertainty and political pressure as it decides whether to cut rates
WASHINGTON (AP) — In a sign of how unusual this week’s Federal Reserve meeting is, the decision it will make on interest rates — usually the main event — is just one of the key unknowns to be resolved when officials gather Tuesday and Wednesday. n nFor now, it’s not even clear who will be there. The meeting will likely include Lisa Cook, an embattled governor, unless an appeals court or the Supreme Court rules in favor of an effort by President Donald Trump to remove her from office. And it will probably include Stephen Miran, a top White House economic aide whom Trump has nominated to fill an empty seat on the Fed’s board. But those questions may not be resolved until late Monday. n nMeanwhile, the U.S. economy is mired in uncertainty. Hiring has slowed sharply, while inflation remains stubbornly high. n nSo a key question for the Fed is: Do they worry more about people who are out of work and struggling to find jobs, or do they focus more on the struggles many Americans face in keeping up with rising costs for groceries and other items? The Fed’s mandate from Congress requires it to seek both stable prices and full employment. n nFor now, Fed Chair Jerome Powell and other Fed policymakers have signaled the Fed is more concerned about weaker hiring, a key reason investors expect the central bank will reduce its benchmark interest rate by a quarter point on Wednesday to about 4.1%. n nStill, stubbornly high inflation may force them to proceed slowly and limit how many reductions they make. The central bank will also release its quarterly economic projections Wednesday, and economists project they will show that policymakers expect one or two additional cuts this year, plus several more next year. n nEllen Meade, an economics professor at Duke University and former senior economist at the Fed, said it’s a stark contrast to the early pandemic, when it was clear the Fed had to rapidly reduce rates to boost the economy. And when inflation surged in 2021 and 2022, it was also a straightforward call for the Fed, which moved quickly to raise borrowing costs to combat higher prices. n nBut now, “it’s a tough time,” Meade said. “It would be a tough time, even if the politics and the whole thing weren’t going on the way they are, it would be a tough time. Some people would want to cut, some people would not want to cut.” n nAmid all the economic uncertainty, Trump is applying unprecedented political pressure on the Fed, demanding sharply lower rates, seeking to fire Cook, and insulting Powell, whom he has called a “numbskull,” “fool,” and “moron.” n nLoretta Mester, a former president of the Federal Reserve Bank of Cleveland and finance professor at the University of Pennsylvania’s Wharton School, said that Fed officials won’t let the criticisms sway their decisions on policy. Still, the attacks are unfortunate, she said, because they threaten to undermine the Fed’s credibility with the public. n n“Added to their list of the difficulty of making policy because of how the economy is performing, they also have to contend with the fact that there may be some of the public that’s skeptical about how they’ve gone about making their decisions,” she said. n nDavid Andolfatto, an economics professor at the University of Miami and former top economist at the Federal Reserve Bank of St. Louis, said that presidents have pressured Fed chairs before, but never as personally or publicly. n n“What’s unusual about this is the level of open disrespect and just childishness,” Andolfatto said. “I mean, this is just beyond the pale.” n nThere are typically 12 officials who vote on the Fed’s policies at each meeting — the seven members of the Fed’s board of governors, as well as five of the 12 regional bank presidents, who vote on a rotating basis. n nIf a court rules that Cook can be fired, or Miran isn’t approved in time, then just 11 officials will vote on Wednesday. Either way, there ought to be enough votes to approve a quarter-point cut, but there could be an unusual amount of division. n nMiran, if he is on the board, and Governor Michelle Bowman may dissent in opposition to a quarter-point reduction in favor of a steeper half-point cut. n nThere could be additional dissenting votes in the other direction, potentially from regional bank presidents who might oppose any cuts at all. Beth Hammack, president of the Fed’s Cleveland branch, and Jeffrey Schmid, president of the Federal Reserve Bank of Kansas City, have both expressed concern that inflation has topped the Fed’s 2% target for more than four years and is still elevated. If either votes against a cut, it would be the first time there were dissents in both directions from a Fed decision since 2019. n n“This degree of division is unusual, but the circumstances are unusual, too,” Andolfatto said. “This is a situation central banks really don’t like: The combination of inflationary pressure and labor market weakness.” n nHiring has slowed in recent months, with employers shedding 13,000 jobs in June and adding just 22,000 in August, the government reported earlier this month. And last week a preliminary report from the Labor Department showed that companies added far fewer jobs in the year ending in March than previously estimated. n nAt the same time, inflation picked up a bit last month and remains above the Fed’s 2% target. According to the consumer price index, core prices — excluding food and energy — rose 3.1% in August compared with a year earlier.. n nWith inflation still elevated, the Fed may have to proceed slowly with any further cuts, which would likely further frustrate the Trump White House. n n“When you get to turning points, people can reasonably disagree about when to go,” Meade said.