Earlier this week, the Federal Reserve took a brave step. They lowered interest rates for the first time this year in an attempt to spur hiring. Meanwhile, inflation is soaring and employment growth has significantly decelerated. Even economists who once would have rejected the idea are starting to use the word “stagflation” to describe these conditions. Stephen Miran, perhaps the top economic advisor to the WH, joined the Fed board. Known for his independence, he famously cast the sole dissenting vote to urge a deeper half-point rate cut.
Put in slightly more positive terms, Federal Reserve Chair Jerome Powell called attention to the “headwinds” that the economy continues to face. He acknowledged that “uncertainty around the path of inflation remains high” and noted that “two-sided risk means there is no-risk free path.” Powell pointed out that “the downside risks to employment have risen,” reflecting the delicate balance the Fed must strike in its policy decisions.
For this unprecedented maneuver, the decision to cut rates was a key moment. None of this has stopped President Donald Trump from being very public about his desire for a more aggressive monetary policy, further ratcheting up the pressure campaign. While the Fed’s action aligns with Trump’s long-sought goals, the size of the reduction fell short of his expectations for a larger cut. The Fed consists of 12 policymakers who participate in interest-rate decisions, and Miran’s dissent highlights the differing views within the board.
The Federal Reserve’s capriciousness is only exacerbated by the fierce legal wrangling over its structure. Thanks to a federal judge’s grant of a preliminary injunction, Lisa Cook will now get to serve as a governor on the Fed’s board. This decision follows Cook’s filing of a lawsuit against Trump, who attempted to remove her from her position. In her lawsuit, Cook contends that the president’s actions constitute an unlawful removal of Cook as an employee of the independent federal agency. During this time, Trump has sought to fire a second Fed board member and run through the Senate gauntlet to win confirmation for a replacement.
Meanwhile, economic indicators show the most sudden drop in hiring on record and skyrocketing inflation. In response, the Fed has been working with stakeholders to chart a course through these stormy seas. Powell reaffirmed that the Fed remains “strongly committed to maintaining independence,” even as the central bank faces political pressures.
