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 market The Fed itself to be sure is increasingly divided over its next policies and a multitude of 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 commercial sector 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 administrators and nearly all economists see it the other way A solid business sector 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 market s doing fairly well not in spite of it mentioned 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 functionaries don t think it s their job to reduce rates the governing body pays on Treasury notes and bonds The greater part economists worry that if they did they would vulnerability failing at one of the key jobs Congress gave them fighting inflation It s using monetary approach to ease pressure on fiscal policymakers and that way points to higher inflation and bigger problems down the road reported 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 regime 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 market 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 effect Fed bureaucrats 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 cabinet declared earlier this month above the Fed s target Core prices which exclude the volatile food and vitality categories rose to from Last week Trump and several White House bureaucrats 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 approach 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 mentioned We re doing so well even without the rate cut But he added a smart person would cut Specific 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 market system 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 bureaucrats 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 declared 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 administrators 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 business activity is faltering The economic system 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 bulk Fed officers see the job domain as relatively healthy with unemployment at a low and that as a consequence 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 systematically assess the wide range of incoming statistics announced Susan Collins president of the Boston Federal Reserve Thus in my view an actively sufferer approach to monetary plan remains appropriate at this time Source