It was the most politically charged meeting in living memory, the Federal Reserve followed the script and agreed to a 0.25 percentage point cut, the first since December and the first since Donald Trump, a president who has broken all the rules of decorum with his pressure on Jerome Powell, including insults and threats of dismissal, to bend to his wishes to lower rates and thus mitigate the blow of Washington's aggressive trade policy, has been in the White House. Rates thus remain in the 4%-4.25% range.
For this reason, the focus of the news, which pointed with the greatest force in the history of the regulatory body, was not on the possibility or not of the cut, but on the forecasts of what will come next (the central bank foresees two more cuts of 0.25 points until the end of the year, in line with the forecasts of the futures markets) and on Powell's words in his subsequent appearance before the press, in which he will perhaps surely be questioned about the independence of the agency, called into question by Trump.
Also, in the behavior of four of the seven governors of the US central bank's board: Stephen Miran, Trump's economic guru appointed in August by the president to apply pressure from within given that external pushes have not yielded the desired results; Lisa Cook, in the White House's crosshairs, whose dismissal is blocked in the courts; and two Trump appointees, Michelle Bowman and Chris Waller, who at the last Fed meeting dissented from Powell—in an unprecedented gesture for three decades—and voted for a 0.25% cut, compared to the central bank president's"wait and see" stance in a vote that left the price of money as it was for the fifth consecutive time.
Well, on his second day in the office, when the average worker is still figuring out where the coffee machine is, Miran, whose appointment was approved in extremis by the Senate on Sunday, got off to a strong start and voted for a 50-basis-point cut, in line with Trump's wishes, who has even said he would welcome a 300-basis-point cut. As for Cook, whose participation in the meeting was left to an appeals court, which ruled in his favor the day before, Bowman and Waller, who has been floated as a candidate to replace Powell when his term expires in May, all three voted alongside the rest of the governors for a 25-point cut.
On a purely economic level, the Fed's announcement also comes at an extraordinarily delicate time. With inflation on the rise (it grew 0.4% to 2.9% in August) and the labor market showing worrying signs of cooling, Powell finds himself in a difficult position. To contain inflation, it's best to raise rates. To improve employment, it's best to cut them. So, in a volatile economic climate, where the effects of Trump's tariffs are still unclear, and with some economists warning of the risk of the United States entering a recession, the Fed must carefully consider its next steps.
Adding to the uncertainty, the Fed is also facing other conflicting indicators: Manufactured consumer confidence has fallen to its lowest level since May, although August retail sales have turned out to be better than expected, suggesting the US economy remains strong.
In this context, the Fed's dual objective of containing prices and boosting employment is now being joined, with greater urgency than usual, by a third: the pursuit of a neutral interest rate that neither boosts nor slows the economy. How the unflappable Powell will be able to achieve this goal amid the pressure and noise to which Trump subjects him almost daily with insults and nicknames (he is now only referred to as"the too late one") is one of those difficult questions that resonate loudly in Washington these days.
