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Federal Reserve independence at risk from Trump's pressure campaign, J.P. Morgan warns
Federal Reserve independence at risk from Trump's pressure campaign, J.P. Morgan warns

Yahoo

time18 hours ago

  • Business
  • Yahoo

Federal Reserve independence at risk from Trump's pressure campaign, J.P. Morgan warns

According to a J.P. Morgan research note, President Donald Trump's efforts to pressure the Federal Reserve into cutting interest rates could risk undermining the central bank's independence, raising the risk of inflation or politically-influenced monetary policy mistakes. Trump has repeatedly urged the central bank to cut interest rates by as much as three percentage points to boost the economy and lower the cost of servicing America's more than $36 trillion national debt. He has suggested on several occasions that he may attempt to fire Federal Reserve Chair Jerome Powell, only to backtrack and repeat his calls for lower rates. This week, Trump acknowledged that he discussed potentially firing Powell in a meeting with House Republicans, but told reporters that he doesn't think he will move forward with that plan. Michael Feroli, chief U.S. economist at J.P. Morgan, wrote in a note Wednesday that with respect to Powell's potential removal the "immediate crisis may have passed, though we doubt we are entirely done with this saga." Atlanta Fed Chief Bostic Downplays Trump-powell Tension While Expressing Caution About Rate Cuts Feroli noted that federal law prohibits removing a member of the Federal Reserve Board except "for cause" which is typically considered to cover instances of malfeasance or dereliction of duty, as opposed to policy disagreements about interest rate levels. Read On The Fox Business App "The cause which is being discussed is the cost overruns on the renovation of the Fed's main building in Washington, DC. It is hard to know where this could go as there doesn't appear to be much historical precedent for determining the boundaries of a 'for cause' removal of the director of an independent agency," Feroli wrote. A recent Supreme Court ruling in the case Trump v. Wilcox allowed the president to remove a member of the National Labor Relations Board who had "for cause" protections. The ruling, however, referenced the Fed as a separate case and distinguished it as a "uniquely structured, quasi-private entity," which could protect the central bank's governors from an at-will termination. Powell Shares What It Would Take For Him To Leave The Fed, Book Reveals Efforts to remove Powell or demote him from his role as chair of the Fed's board could weaken the central bank's independence, which could shake financial markets' confidence in U.S. monetary policy if it becomes more susceptible to political influence. Feroli explained that economists "generally believe it is beneficial to remove monetary policy from the political cycle" because the "short time horizon of the electoral calendar could otherwise tempt politically oriented monetary policymakers to try to stimulate the economy even when it is inappropriate from a longer-run perspective." For example, lower interest rates can spur economic activity and increase inflationary pressures in the economy, so cutting rates when inflation is elevated or on the rise could fuel further price growth. Goldman Sachs Says Undermining Central Bank Independence Has Economic Repercussions Economic research from around the world has found that central banks are more successful in promoting stable prices and low inflation when they have greater political independence, while the U.S. track record during periods with clashes between the president and the central bank tends to result in higher inflation, Feroli explained. "International evidence indicates that central banks that have more political independence tend to foster lower, more stable inflation. Closer to home, the historical record suggests that political interference contributed to poor monetary policy in the late '60s and early '70s, with unfavorable consequences for inflation developments," he wrote in reference to efforts by the Johnson and Nixon administrations to pressure the Fed. In the current context, Feroli said that undermining the Fed's independence could increase the risk of higher inflation as well as increasing interest rates on the U.S. national debt to account for those risks, which would exacerbate America's fiscal article source: Federal Reserve independence at risk from Trump's pressure campaign, J.P. Morgan warns Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data

Odd Lots: Why the Damage to Fed Independence May Have Already Been Done
Odd Lots: Why the Damage to Fed Independence May Have Already Been Done

Bloomberg

timea day ago

  • Business
  • Bloomberg

Odd Lots: Why the Damage to Fed Independence May Have Already Been Done

There's a long history of US presidents putting pressure on the Federal Reserve to lower interest rates, but the techniques have often been subtle or quiet in some way. Under President Trump, attacks on the Fed have risen to a whole new level. And it's not just Trump that's called on Chair Jerome Powell to cut rates. Other members of his administration (along with allies in Congress) have been hammering him both on policy and also topics unrelated to monetary policy, such as the cost of renovating the Federal Reserve building in Washington. Investors are taking seriously the prospect that Trump will find a way or a reason to remove Powell before the end of his term next year. And regardless of when Powell is replaced, there's a widespread anticipation that the next Fed chair will be someone more closely resembling a Trump loyalist. So do we still have an independent Fed at this point? On this episode, we speak with University of Texas-Austin economics professor Carola Binder about why central bank independence is so cherished by economists, why mere criticism of the Fed could be inflationary, and whether Fed independence has been permanently damaged.

Why the Damage to Fed Independence May Have Already Been Done
Why the Damage to Fed Independence May Have Already Been Done

Bloomberg

timea day ago

  • Business
  • Bloomberg

Why the Damage to Fed Independence May Have Already Been Done

There's a long history of US presidents putting pressure on the Federal Reserve to lower interest rates, but the techniques have often been subtle or quiet in some way. Under President Trump, attacks on the Fed have risen to a whole new level. And it's not just Trump that's called on Chair Jerome Powell to cut rates. Other members of his administration (along with allies in Congress) have been hammering him both on policy and also topics unrelated to monetary policy, such as the cost of renovating the Federal Reserve building in Washington. Investors are taking seriously the prospect that Trump will find a way or a reason to remove Powell before the end of his term next year. And regardless of when Powell is replaced, there's a widespread anticipation that the next Fed chair will be someone more closely resembling a Trump loyalist. So do we still have an independent Fed at this point? On this episode, we speak with University of Texas-Austin economics professor Carola Binder about why central bank independence is so cherished by economists, why mere criticism of the Fed could be inflationary, and whether Fed independence has been permanently damaged.

Weak urban demand, global uncertainty open door for policy rate cut: Report
Weak urban demand, global uncertainty open door for policy rate cut: Report

Times of Oman

timea day ago

  • Business
  • Times of Oman

Weak urban demand, global uncertainty open door for policy rate cut: Report

New Delhi: Soft urban consumption and an uncertain external demand environment have created scope for the Reserve Bank of India (RBI) to ease policy rates, a report by ICICI Bank said, as the central bank navigates a data-dependent approach amid a neutral stance. "Monetary policy is forward looking and next year inflation prints are likely to move higher on the back of a low base, but weak urban and uncertain external demand (tariffs) has opened up room for easing," the report added. In light of easing inflation and subdued growth momentum, the Monetary Policy Committee (MPC) could find room to lower the policy rate by 25 basis points as early as August, according to a report by ICICI Bank. "Given that the stance is neutral, which implies a data-dependent approach, a downward revision in inflation opens up room for further easing when growth is showing somewhat a downside bias or at least no reason for any upward revision. Hence, we believe this opens up policy space for an additional 25bps rate cut, taking the terminal rate to 5.25 per cent," the report added. "When would the MPC cut the policy rate? We believe that August would be the appropriate time for the same, given the muted inflation scenario," the report further added. Backing its assertion, inflation prints are showing broad-based deceleration led by food. While inflation in Q1FY26 has come in 20bps below MPC's forecast, Q2 and Q3 forecasts are likely to undershoot MPC forecasts by a much wider margin. The undershoot is driven by food inflation, which at -1.1 per cent YoY is the weakest in over seven years. Within the food basket, the decline is driven by vegetable prices, which fell by 19 per cent YoY. While a high base explains the moderation in vegetable prices, the deceleration in other food segments, ranging from pulses (-11.8 per cent YoY) to cereals (3.7 per cent YoY) and spices (-3 per cent YoY), implies the same is quite broad-based. With this year's rainfall above normal as of now, cereal output should remain buoyant this year, as seen in sowing as of now (6 per cent higher than last year). The report stated that near-term inflation prints are likely to remain quite low. On the other hand, core inflation has been witnessing a gradual. As per the report, the impact of weak global economic momentum and uncertainty is visible in relatively muted exports as seen in June. While exports to the US are doing well, exports to other geographies are tepid. Various High Frequency Indicators (HFIs) show a mixed outlook on growth. For instance, after displaying strong growth at the beginning of the year, GST collections dropped to a 50-month low of 6.2 per cent YoY in June (collections for May).

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