Interest rate decrease possibility suggested by Federal Reserve Chair Powell for this month.
In a recent turn of events, the Federal Reserve, an independent government agency established by Congress, has maintained its focus on its dual mandate of controlling inflation and delivering maximum employment, despite public pressure from President Donald Trump to reduce interest rates.
Last month, President Trump took to social media to criticize Federal Reserve Chair Jerome Powell, urging a reduction in interest rates to 1%. The President's message included an image of an apparent hand-written letter to Powell, bearing his signature. However, the Federal Reserve did not consider an interest rate cut in July 2019 primarily due to public pressure from President Trump.
Goldman Sachs' analysis suggests that while some rate cuts were anticipated later in 2019, July was not expected to see a cut unless there was much weaker-than-expected employment data, which was not the case at that time. The Fed typically bases its decisions on economic data such as labor market health and inflation trends rather than public or political pressure.
Federal Reserve Chair Jerome Powell has remained steadfast in his commitment to this approach. He did not rule out a potential interest rate cut as soon as this month, stating that it depends on how the data evolve. In a recent meeting, a majority of Fed members felt it will be appropriate to begin reducing rates again in the remaining four meetings of the year.
The Fed last held a rate-setting meeting on July 29 and 30, 2019, and chose to keep its benchmark interest rate steady. This decision reflects the Fed's wait-and-see approach as it observes the potential effects of President Trump's tariff policy. The central bank will hold three more rate-setting meetings over the remainder of 2025.
European Central Bank President Christine Lagarde has expressed solidarity with Powell, stating that she and her colleagues would do the exact same thing as Jerome Powell if they were in his position. This endorsement underscores the Fed's commitment to its dual mandate, emphasizing the importance of data-driven decisions over political considerations.
In summary, while the Fed did cut rates multiple times later in 2019, there is no evidence that these decisions were driven by President Trump's public calls, and no cut was planned or executed in July 2019 specifically because of such pressure. The Fed continues to be "100% focused" on its dual mandate of controlling inflation and delivering maximum employment.
- The Fed's decision not to reduce interest rates in July 2019 was not mainly due to public pressure from President Trump, as some economic data such as labor market health and inflation trends were not weak enough to justify a cut, according to Goldman Sachs' analysis.
- Despite President Trump's urges for a lowering of interest rates and his criticism of Federal Reserve Chair Jerome Powell, the Fed typically bases its decisions on economic data rather than political or public pressure, as emphasized by the recent behavior of the Fed and European Central Bank.
- As the Fed holds three more rate-setting meetings over the remainder of 2019, the focus remains on its dual mandate of controlling inflation and delivering maximum employment, regardless of general news, political pressure, or business considerations, as demonstrated by the Federal Reserve's recent actions and the solidarity shown by European Central Bank President Christine Lagarde.
