The Federal Reserve and its President, Jerome Powell, are under increasing pressure from President TrumpDonald John TrumpTrump cites tax cuts on judges as having the biggest impact of his presidency. Trump quotes tax cuts on judges as having the biggest impact of his Ocasio-Cortez presidency returns to Trump after he quoted her in a tweet refusing dismissal MORE and Wall Street to reduce interest rates.
As the US economy continues to grow and experience a low unemployment rate, Trump's growing commercial battles and recent signs of slowness in key economic data have worried investors. And Trump is putting more pressure on his hand-picked president, asking for help from the Fed as he tries to end a trade war with China – and win another presidential term in 2020.
Powell and senior Fed officials have hinted that rates should come down earlier this month, and Trump may soon get his wish. The Fed will announce its plans Wednesday at the end of a two-day meeting of its policymakers. And while the Fed is not likely to cut rates this month, it should at least project a future cut.
But this is unlikely to calm Fed observers. Powell is going to walk the tightrope with Trump and the markets are eagerly anticipating the timing of a rate cut and the degree of aggressiveness of this reduction.
The question of how to change interest rates is just one of many challenges the Fed faces in the face of intense political pressure and uncertain economic forecasts.
"The Fed faces all the uncertainty in the marketplace because of the commercial battles, but also at an unprecedented level of political risk," said Karen Shaw Petrou, Managing Partner at Federal Financial Analytics.
The report of Wednesday's Fed meeting will also provide crucial insights into how the bank views the risks associated with Trump's trade wars and other economic warning signs.
The Fed would not want a potential rate cut to be "seen as a concession by the president and a bailout of the market," Petrou said. "This is not a comfortable place for the central bank."
Trump threatens any decision. The president exerted unprecedented public pressure on Powell for nearly a year, as the central bank tried to expand the recovery after the 2008 recession while preparing for the next downturn.
While the central bank is independent of the White House, the Fed operates under Trump's shadow since Powell was confirmed to the presidency in February 2018, defying and infuriating the president along the way.
In an interview with ABC News on Friday, Trump again criticized the Fed and said it had "sufficiently waited" for the bank to lower interest rates. "
"I do not agree with him at all," said Trump about Powell, saying the growth of the economy and the stock market would have been faster "if we had a different person to the Federal Reserve that would not have increased interest rates as much. "
Despite Trump's warnings to keep rates unchanged, the Fed raised rates to prevent galloping inflation seven times during his presidency, including four times under Powell.
But the Fed pulled back after a winter sale that rocked Wall Street and an economic slump, ruling out any rate hike in the foreseeable future.
Inflation also remained below the Fed's 2% target range, as measured by the personal consumption expenditure index minus food and energy prices.
The Fed's management of inflation has been criticized.
"They very clearly misunderstood the inflationary pressures they perceived last year," said Daniel Alpert, managing partner of Westwood Capital Investment Company. "This leaves us with a level of inflation that is really very low and does not justify the rises of 2018."
Fed officials are now worried about the weakness of inflation and have suggested taking action after months of bragging.
In a speech earlier this month, Powell said the Fed "would act appropriately to support the expansion," which Wall Street perceived as an indication of future rate cuts.
Trump's threat to impose an additional $ 300 billion on Chinese products also adds to the complexity of the economic situation in which the central bank must operate.
Trump's tariffs threaten to raise prices for hundreds of essential household products, while retaliation by Beijing could cause severe suffering for the struggling agricultural sector. According to economists, tariffs on Chinese products and the resulting costs could seriously slow down the US economy and potentially trigger a recession.
However, Tim Duy, professor of economics at the University of Oregon, said in a research note released Monday that rising consumer and manufacturing spending in May "suggests that the economy is not about to sink into a recession and will give ammunition to the waiting ". see the crowd, "he added.
Duy said he's still waiting for the Fed "to open the door to a July rate cut" after the economy created only 76,000 jobs in May. , while inflation remained low.
"They still need more data to justify a rate cut," wrote Duy. "Another jobs report in line with the May report would go a long way in supporting this reduction in July."
Do not wait until the moment of a rate cut will only intensify the pressure on Powell.
Powell publicly rejected the president's criticisms and promised that the central bank would remain independent.
At a Fed policy conference held earlier this month, Powell tried to reassure the markets that the bank was "closely watching" the consequences of Trump's tariffs.
The Fed also fears that the current decline in interest rates will prevent it from responding effectively to the next downturn or crisis. With a base rate of 2.25 to 2.5%, the Fed has little room for maneuver if the economy is to be spurred by cheaper savings.
"They do not have a lot of tools in the kit," said Petrou, pointing out that the Fed was in a difficult situation.
"We are trying to find a way to do better, while facing a political attack."