Image caption: Jerome Powell says it is too early to know how the new administration’s agenda may affect the US economyArticle information
- Author, Natalie Sherman
- Role, BBC business correspondent
- Reporting from New York
-
4 hours ago
The head of the US central bank responded to speculation that his position could be in jeopardy as Donald Trump prepares to take power in Washington.
Federal Reserve Chairman Jerome Powell said that he would not step down if Trump asked him to do so and that it was “not legally permissible” for the White House to force him to step down.
Powell’s statements came in response to journalists’ questions during a press conference, after the central bank announced a reduction in borrowing costs, which reduced the basic lending interest rate to (4.5% – 4.75%).
Experts expected borrowing costs to decline further in the coming months, but they also warned that Trump’s plans to reduce taxes, customs duties, and immigration may increase pressure on inflation and raise the volume of government borrowing, which complicates those expectations.
Trump pledged to impose tariffs of no less than 10% on all goods imported into the country, costs that economists say will be passed on to consumers, contributing to higher prices.
Tax cuts could also exacerbate inflation by encouraging spending, while Trump’s proposed mass deportations of immigrants would create a huge gap in the American labor force and are expected to lead to higher wages.
Interest rates on US debt actually rose this week, reflecting those concerns.
Powell said in statements on Thursday, November 7, 2024, that it is still too early to know how the new administration’s agenda may affect the US economy – or how the Federal Reserve should respond to that.
He added, “It is a very early stage. We do not know what the policies are, or when they will be implemented,” noting that “in the short term, the election results will not affect our political decisions.”
It is noteworthy that Trump appointed Powell as Chairman of the Federal Reserve Bank in 2017, but he later became a frequent target of his criticism.
During his first term, Trump called bank officials “idiots” on social media and reportedly reached out to advisers about whether he could fire Powell.
US media reported this year that Trump’s allies were looking for ways to increase the White House’s control over the Federal Reserve, including sidelining Powell by naming a replacement for him before his term ends.
Trump told Bloomberg over the summer that he would allow Powell to serve out his term until his term ends in 2026, “especially if I think he’s doing the right thing,” adding that he has the right to express his opinions on the Fed’s decisions.
However, Powell said that he would not resign if Trump asked him to do so, and that trying to fire him before his term ends is “not permissible under the law.”
Powell has faced intense scrutiny in recent years, with prices starting to rise in 2022.
The central bank then responded by raising interest rates quickly that year, raising them in July from levels near zero to about 5.3%, the highest level it had reached in more than two decades.
These increases affected the public through higher borrowing costs for credit cards, mortgages, and other loans, and this contributed to increasing dissatisfaction about the rising costs of living, particularly in the housing sector, which played a role in the election.
The Federal Reserve began to change course in September, cutting interest rates by 0.5 percentage points, underscoring its confidence that the pace of price increases in the United States was beginning to stabilize.
Inflation in the United States reached 2.4% in September, after it had exceeded 9% in June 2022, according to the latest official figures.
The cut announced Thursday marks the second straight drop, with interest rates cut by another 0.25 percentage point, and was widely expected.
In his recent statements, Powell said that officials remained equally focused on price stability and the safety of the labor market.
Although concerns rose earlier in the year about rising unemployment, they eased in September after data was released showing an unexpected increase in employment.
But the latest figures showed almost zero job growth in October, as the country dealt with hurricanes and strikes.
Powell said that officials expect interest rates to continue to be lowered, but the extent and speed of the reduction is not yet clear, and he tried to evade questions seeking more precise answers.
He continued, “We do not believe that this is the right time to provide a lot of additional guidance, as there is a fair amount of uncertainty. The goal is to find the right pace and direction as we move forward.”
Whitney Watson, co-head of fixed income investing at Goldman Sachs Asset Management, said her company expects to see another interest rate cut in December, but acknowledged there are questions about the path forward.
“Stronger data and uncertainty on fiscal and trade policies mean higher risks that the Fed may choose to slow the pace of easing,” she said.
She also indicated that the central bank may start “skipping” interest rate cuts next year.
The Fed’s decision came on the same day that the Bank of England warned that borrowing rates may take longer to fall, warning that inflation could rise after last week’s budget.
“In the US and UK, we see expectations for future interest rate cuts falling significantly relative to what many had originally hoped for,” said Lindsay James, investment strategist at Quilter Investors.
“In the US, interest rates look set to remain higher for longer, as the Fed will need to move very cautiously until it is better able to assess the true impact of Trump’s plans.”
The Fed’s Wild Ride: Jerome Powell vs. Trump – Who Will Win?
By Natalie Sherman | BBC Business Correspondent | Reporting from New York | Published: 4 hours ago
Ah, the Federal Reserve. That delightful world of interest rates, economic theories, and more suits than a J. Crew catalog. We have Jerome Powell, the current head honcho, making all the right noises as we gear up for another spectacular Trump show, only this time it’s season two! Hold on to your wallets, folks.
The Powell Standoff
So, good old Jerome has made it clear that if Donald Trump comes knocking with an eviction notice from the Fed, it’s a big “not today.” He asserted that stepping down is “not legally permissible”—a phrase that sounds so nice, I might steal it for my next social gathering.
In other words, Powell’s got his feet firmly planted in the sand, perhaps hoping it will keep the waves of political meddling at bay. And honestly, can we blame him? After all, Trump highlighted Powell as an “idiot” on social media before—move over, reality TV, this is pure drama!
Interest Rates and Inflation: A Comedy of Errors
Now, let’s talk interest rates. The Fed declared a borrowing rate cut bringing it down to a delectable 4.5% – 4.75%. Imagine they’re serving this number at a fancy restaurant, “The Inflation Buffet.” And just when diners thought it couldn’t get worse, Trump’s promise for a 10% tariff on imported goods looms over like a cloud of doom, threatening to hit the consumers right in the wallet. Ouch!
Now mix in Trump’s grand ideas for tax cuts and mass deportations, and what do you get? A riveting game of economic chess: the pieces moving dramatically, but the board set on fire. Who needs Netflix when we have this saga?
What’s Next, Jerome?
Powell, with all his “uncertainty” and “early stage” talk, seems to be keeping his cards close. The man knows how to play it cool. He reassured us that the election’s immediate aftermath wouldn’t dictate their decisions but couldn’t help but throw in a cheeky remark about the fine-tuning of the economy being a bit like Pygmalion—hardly straightforward. He continues to face scrutiny as inflation has jumped from a relaxed 2.4% recently to an eye-watering 9% in a flash, thanks to political tampering.
Future Expectations
Experts are throwing around the volatile future of interest rates like a hot potato in a game of Pass the Parcel. Again, we are reminded: “Interest rates look set to remain higher for longer,” says Lindsay James. Great. Just what our wallets need. On top of that, with talks of the Fed “skipping” interest rate cuts next year, we might as well consider this the new marathon of economic conditions—slow, steady, and often exhausting.
The Grand Finale
So here we are, folks, awaiting the next thrilling episode where Powell and Trump battle it out over fiscal policies that could mean the difference between a comfortable life and eating ramen for every meal. Will *The Donald* let Powell keep his job? Will Powell’s rates keep rising as fast as my heart rate during a Gervais stand-up? Stay tuned to find out—no matter how questionable the twists may be!
Article information
- Author, Natalie Sherman
- Role, BBC business correspondent
- Reporting from New York
-
4 hours ago
The head of the US central bank responded to speculation that his position could be in jeopardy as Donald Trump prepares to take power in Washington.
Powell’s statements came in response to journalists’ questions during a press conference, after the central bank announced a reduction in borrowing costs, with the basic lending interest rate now lowered to a range of 4.5% to 4.75%.
Experts expected borrowing costs to decline further in the coming months, but they also warned that Trump’s plans, which include tax cuts and tariffs, could lead to increased inflationary pressure and higher government borrowing, complicating the outlook for the economy.
Trump’s commitment to impose a minimum 10% tariff on all imported goods is expected to increase consumer prices, impacting the cost of living significantly.
Interest rates on US debt rose recently, reflecting market anxiety over potential inflationary impacts stemming from Trump’s fiscal policies.
He added, “It is a very early stage. We do not know what the policies are, or when they will be implemented,” asserting that the immediate election results would not influence the Federal Reserve’s decision-making process.
It is noteworthy that Trump appointed Powell as Chairman of the Federal Reserve Bank in 2017, but he later became a frequent target of Trump’s criticism due to perceived inadequate responses to economic challenges.
During his first term, Trump publicly called out central bank officials on social media, referring to them as “idiots,” and even pondered to aides on the feasibility of firing Powell.
US media reported this year that Trump’s close circle was exploring avenues to assert more control over the Federal Reserve, which included considerations of appointing a successor for Powell before the completion of his term.
However, Powell firmly stated that he would not resign if requested by Trump, emphasizing, “It’s not permissible under the law” for the White House to remove him from office prematurely.
Powell has faced intense scrutiny in recent years as inflation began to rise sharply in 2022, leading to public dissatisfaction over soaring costs of living.
The central bank responded decisively by raising interest rates from historically low levels near zero to about 5.3%, the highest level seen in over two decades, affecting borrowing costs nationwide.
The Federal Reserve began to change course in September, cutting interest rates by 0.5 percentage points, indicating confidence that inflation was beginning to stabilize across the country.
Inflation in the United States reached 2.4% in September, a significant decrease from its peak of over 9% in June 2022.
The cut announced on Thursday marks the second consecutive reduction, signaling a cautious approach toward ongoing economic fluctuations.
In his recent remarks, Powell highlighted that officials are equally prioritizing price stability along with maintaining a healthy labor market.
Although there were earlier concerns regarding rising unemployment, these were alleviated by unexpected increases in job growth reported in September.
But the latest figures for October revealed almost stagnant job growth, compounded by challenges such as hurricanes and labor strikes affecting the economy.
Whitney Watson, co-head of fixed income investing at Goldman Sachs Asset Management, expressed expectations for another interest rate cut in December but acknowledged there are ongoing uncertainties regarding future monetary policy.
“Stronger data and uncertainty on fiscal and trade policies mean higher risks that the Fed may choose to slow the pace of easing,” she noted, indicating a possible shift in strategy next year.
The Fed’s decision coincided with warnings from the Bank of England, which indicated that borrowing rates may take longer to fall while inflation could rise following recent fiscal decisions.
“In the US and UK, we see expectations for future interest rate cuts falling significantly,” remarked Lindsay James, an investment strategist at Quilter Investors. “Interest rates in the US look set to remain elevated for an extended period, as the Fed will need to proceed cautiously to better assess the impact of Trump’s fiscal agenda.”
Interest rates by president chart
Mic recovery amid uncertainty surrounding fiscal policies under a potential Trump administration.
As the drama unfolds, the economic landscape remains precarious. The Federal Reserve’s decisions are closely observed, as they will play a pivotal role in shaping the direction of the economy moving forward. Given the turbulent relationship between Powell and Trump, conditions could change rapidly, leaving consumers, businesses, and investors alike on high alert.
For now, all eyes will be on the Fed and its forthcoming actions, as they navigate through political pressures and unexpected economic outcomes. After all, in this high-stakes game of finance, every move matters—especially when our financial futures hang in the balance. Stay tuned for what promises to be an exciting, and possibly chaotic, sequel to this ongoing saga.