Washington, Sep 15 (AP) The forthcoming Federal Reserve meeting is shaping up to be quite extraordinary, as interest rate decisions are only part of the uncertainties facing officials on Tuesday and Wednesday.
Notably, the roster of attendees remains in flux. Governor Lisa Cook might attend unless an appeals court or the Supreme Court supports former President Donald Trump's initiative to eliminate her. Similarly, Stephen Miran, a nominee by Trump for a vacant seat on the Fed's board, may also be present, but these matters might not be settled until late Monday.
The U.S. economy is struggling amid uncertainty, marked by a significant slowdown in hiring alongside persistent inflation. The fundamental dilemma for the Fed involves prioritizing between aiding unemployed individuals and addressing widespread concerns over escalating costs for essentials.
The Fed's dual mandate involves ensuring price stability and maximizing employment. Recently, Fed Chair Jerome Powell and fellow policymakers have indicated a greater focus on stabilizing weak hiring figures. Consequently, investors anticipate a marginal reduction in the benchmark interest rate by a quarter point to approximately 4.1% on Wednesday.
Nevertheless, stubborn inflation might necessitate a slower approach, limiting rate reduction movements. The Fed is also set to unveil its quarterly economic projections on Wednesday, likely forecasting one or two additional rate cuts this year and several more in the following year.
Ellen Meade, economics professor at Duke University and former Fed senior economist, remarked that current times starkly contrast with the early pandemic phase when rate reductions significantly boosted the economy, and the swift rate hikes countered inflation in 2021 and 2022.
"It's a challenging period," Meade commented. "The situation would be tough even without political influences. Some would advocate cuts, while others wouldn't." Amidst economic instability, Trump exerts considerable political pressure on the Fed, advocating drastic rate cuts, seeking Cook's dismissal, and belittling Powell.
Loretta Mester, former Cleveland Fed President and Wharton finance professor, assured that such critiques won't sway Fed policy decisions, although these attacks risk undermining public trust in the institution. "In addition to grappling with economic performance, they also face potential public skepticism regarding their decision-making process," she remarked.
David Andolfatto, University of Miami economics professor and past top economist at the St. Louis Fed, emphasized that presidential pressure on Fed chairs isn't new, but noted the unprecedented disrespect and immaturity in Trump's approach. "This is beyond the pale," Andolfatto said.
The Fed policy voting process generally involves 12 officials: seven board governors and five regional bank presidents who rotate the voting responsibilities. Should a court authorize Cook's dismissal or Miran's nomination falter, only 11 officials will vote on Wednesday. Regardless, sufficient votes likely exist for a quarter-point cut approval, albeit with potential division.
Miran, if nominated, and Governor Michelle Bowman may advocate for a bolder half-point cut, contrasting with certain regional bank presidents opposing any reductions at all. Beth Hammack of the Cleveland Fed and Jeffrey Schmid of Kansas City's Reserve Bank have voiced concerns, given that inflation surpasses the Fed's 2% target since over four years ago. Their dissent against a cut could mark a first for bi-directional opposition in Fed decisions since 2019.
"This level of division is uncommon, but the circumstances are equally unusual," Andolfatto observed. "Central banks dislike contending with simultaneous inflationary pressures and labor market softness.
Recent months witnessed a hiring slowdown, with employers cutting 13,000 jobs in June and adding 22,000 in August, according to recent government reports. A recent Labor Department preliminary report indicates companies added far fewer jobs over the preceding year than previously estimated.
Meanwhile, inflation remains above the Fed's 2% target, as core prices rose 3.1% in August compared to the previous year, per the consumer price index. With heightened inflation, the Fed may be constrained in further rate cuts, potentially further vexing the Trump administration.
"Disagreements at economic turning points are reasonable," noted Meade.
(AP) GRS GRS
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