The Federal Reserve is expected to leave your short -term interest rate unchanged for the fifth meeting in a row on Wednesday, a step that is probably underlined The deep gap Between the way the chairman Jerome Powell and his chief critic President Donald Trump see the economy.
The Fed itself is increasingly being divided into its next steps, and many economists expect two members of the Fed Board of Directors – both appointed by Trump – to contradict the in favor of reducing interest rates on Wednesday. If so, this would be the first time that two governors have voted against the chairman since 1993.
Nevertheless, the gap between the views of the Fed interest committee, the chair of Powell, and the White House is unusually large. In several areas, Trump’s views are strong in contrast to the leadership of the Fed and probably formed years after the end of Powell’s term in May 2026.
For example, Trump says that the FED should lower interest rates as if the USA is a blue chip company that should pay less for loans than a risky start-up because it cuts off the US economy well.
Fed civil servants – and almost all economists – see it in a different way: A solid economy means that the rates should be relatively high to prevent overheating and an inflation boost.
“I would argue that our interest rates are higher because our economy is no longer doing well,” said Gennadiy Goldberg, head of the US installment strategy at TD Securities.
Trump argues that the Fed in general and Powell in particular US taxpayers costs hundreds of billions of dollars of interest payments by not reducing the credit costs. However, Fed civil servants do not believe that it is their job to reduce interest rates that the government pays for government bonds and bonds.
Most economists fear that if they did it, they have the risk of one of the most important jobs to fail the congress, inflation.
“Emphasis is used to reduce the pressure on the tax policy of the budget, and in this way it indicates higher inflation and major problems,” said William English, economist at the Yale School of Management and former high -ranking employee.
If the financial markets see that the FED focuses on keeping the credit costs low to help the government, instead of concentrating on its congressions of goals of stable prices and maximum employment-Wall Street investors will be concerned about future inflation, probably higher interest rates, to keep treasury bonds, so economists. Increase credit costs About the economy.
For his part, Trump says that there is “no inflation”, and therefore the FED should reduce its short -term rate, currently around 4.3%, which was increased in 2022 and 2023 to combat rising prices. The Fed rate often – but not always -Influenced long -term credit costs for mortgages, car loans and credit cards.
Inflation has sharp and as a result of Half a percentage point this year. But it has increased a little in the past two months And many of these political decision -makers, including Powell, still want to make sure that tariffs do not raise inflation much higher before taking a step.
Inflation accelerates too 2.7% in June Of 2.4% in May, the government said at the beginning of this month, above the 2% goal of the FED. The core prices that exclude the volatile categories of food and energy rose from 2.8% to 2.9%.
Last week Trump and several officials of the White House increased their attacks on Powell due to prices. She also criticized The bale costs of the Fed renovation of two of their buildings are raised and we ask questions about whether the president paid attention to it Fire Powell for cause and not for political differences.
Trump and Powell dealt with a Exceptional confrontation in front of the camera About the costs of the project during Trump’s visit to the construction site last Thursday. On Monday, Trump was held back to the Fed in his comments during a joint appearance in London with British Prime Minister Keir Starrer.
“I’m not going to say anything bad,” said Trump. “We do it so well, even without the rate.”
But he added: “A smart person would cut.”
Some economists assume that the FED will reduce its key figure in September in September as a quarter of the time in July, and say that the two -month delay will hardly make the economy a difference.
But beyond the time of the first cut, there is still a huge golf between what Trump wants and what the Fed will consider at all: Fed officials in June only fed two reductions this year and one year of life in 2026. You predict that your plating will still be 3.6% at the end of the next year. Trump urges her to cut it to only 1%.
“It won’t happen with something like the current persons in the committee,” said English.
The Wall Street investors also expect relatively few cuts: two this year and two in 2026, according to the futures prices that were followed by Cmes Fedwatch.
According to the Fed projections, only two officials supported three cuts this year in June, probably Trump’s appointments from his first term: governor Christopher Waller and Michelle Bowman.
Waller gave a speech in the past This month, the reduction in installments in July, but for a completely different reason, supports Trump: he fears that the economy will stall.
“The economy is still growing, but its dynamics have slowed” and the risks of “increasing unemployment” “increased,” said Waller.
Waller has also emphasized that the tariffs will only create a one -off price connection, but will not lead to continuous inflation.
However, most Fed officials see the labor market as relatively healthy – with unemployment with a low 4.1% – and can therefore take time to ensure that everything takes place.
“The continued general solid economic conditions enable the Fed to take the time to carefully evaluate the wide range of incoming data.” said Susan Collins, President of the Boston Federal Reserve. “In my opinion, an” actively patient “approach to monetary policy remains appropriate at this point.”
