Full story: Fed chair says he will not resign even if pressured by Trump after interest rate cut
US Federal Reserve chair Jerome Powell said he would not resign if he received any pressure from Donald Trump’s new administration to step down as the central bank lowered interest rates by a quarter-point Tuesday afternoon.
Trump has been a persistent critic of the Fed and its independence, calling its officials “boneheads” in his last administration and arguing that he should have a role in setting interest rates.
Responding to a question as to whether he would resign if Trump asked him to leave his role, Powell responded with a blunt “no”. Powell also said the White House demoting Fed governors from their leadership roles is not “not permitted under the law”.
The Fed lowered interest rates by a quarter point on Thursday, knocking them down for the second time in a row as inflation continues to ease and a Trump presidency hangs over the central bank.
Rates now stand at 4.5% to 4.75%, down from a decades-high level of 5.25% to 5.5%. The Fed lowered interest rates for the first time since 2020 in September, by a half point.
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Fed cuts rates: What the experts say
Sonu Varghese, global macro strategist at Carson Group, says today’s decision to lower US interest rates by a quarter of one percentage point was not a shock:
No surprises from the Fed as they cut rates by 25 bps, in an effort to recalibrate policy as they see both inflation and employment risks being in balance
The Fed is going to closely follow the data going forward, and will likely move gradually rather than making big moves (like they did in September)
Powell does not seem inclined to predict where policy rates will be further out, nor make any predictions of what they expect for fiscal policy impact on the economy.
James Knightley, chief international economist at ING, predicts the Federal Reserve will manage one more rate cut before Christmas:
In terms of where we go from here, inflation is looking better behaved and the jobs market is cooling but not collapsing, so the Fed is in a position to continue loosening monetary policy closer to neutral gradually. We think they will cut by 25bp again in December, but the outlook thereafter is less clear and there is a strong chance of a pause at the January FOMC meeting.
Previously, the market was expecting the Fed funds rate to bottom somewhere in the 3-3.5% area by next summer. With Donald Trump winning the presidency, his key policy thrusts are extended and expanded, including tax cuts, tariffs, and immigration controls. This may keep the growth story more supported in the near term, but there is likely to be more concern at the Fed about the inflation implications from trade protectionism and labour supply constraints. As such, the market has moved to price a slower, more gradual easing cycle with a slightly higher terminal rate of 3.5-3.75%. We agree with this right now.
Salman Ahmed, global head of macro & strategic asset allocation at Fidelity International, says it’s too soon for the Fed to respond to “Trumpflation”:
“As expected, the Federal Open Market Committee (FOMC) cut rates by 25bps today and tweaked the language to add a degree of caution when it comes to the future path of monetary policy. Chair Powell indicated that for now elections will have no impact on the outlook but looking at the proposed policy agenda, 2025 may be a different story.
“Even for December, data conditionality was raised a notch as Powell backed away from any guidance on pace and size. All in all, we think December is a close call and terminal rates are likely to bottom at higher level than priced given scope for reflationary fiscal driven policy next year. Indeed, if the reflation impulse and tariff policy driven inflation comes back, hikes may have to come to the table.”
