Fed Officials Unlikely to Satisfy Trump's Demands for Aggressive Rate Cuts

President Trump has urged the Federal Reserve to slash borrowing costs, but the central bank is unlikely to take such aggressive steps, even once it begins to lower interest rates. The uncertainty over the timing and magnitude of rate moves stems from the fact that the Fed is facing two competing risks: maintaining low and stable inflation and fostering a healthy labor market. President Trump's policies risk exacerbating price pressures while also slowing the economy, making the Fed's decisions less straightforward than in recent years.

Key Takeaways:

• The Federal Reserve is unlikely to satisfy President Trump's demands for aggressive rate cuts, with the current interest rate range of 4.25% to 4.5% unlikely to be lowered by the amount Trump has demanded.
• Jerome H. Powell, the chair of the Federal Reserve, emphasized that the Fed's aim is to shift policy toward a more "neutral" setting, meaning adopting an interest rate that neither stimulates the economy nor slows it down.
• The Fed's decision to hold interest rates steady for a fifth-straight meeting was not unanimous, with two members of the Board of Governors dissenting in support of a quarter-point cut.
• The Fed's projections released in June pin the neutral rate at 3 percent, but many economists argue that against the current backdrop, it may be higher than that.
• Economists at Deutsche Bank see the neutral rate around the same level and believe that the economic conditions will not align for the Fed to cut until the end of the year.
• Michael Feroli, JPMorgan's chief U.S. economist, estimates that the short-term neutral rate is around 3.5 percent and forecasts the Fed cutting by a quarter-point in December and then another three times early next year.

Statistics:

• The current interest rate range is 4.25% to 4.5 percent.
• The Fed's projections released in June pin the neutral rate at 3 percent.
• The unemployment rate has remained steady in the second half of the year.
• Economists at Deutsche Bank see the neutral rate around 3.5 percent.
• Michael Feroli, JPMorgan's chief U.S. economist, estimates that the short-term neutral rate is around 3.5 percent.

Sources:

• "The New York Times" article dated no specific date.
• June Fed projections.
• Mr. Powell's speech on Wednesday at the news conference after the Fed's July meeting.
• Sophia Drossos' statement as an economist at Point72.
• Jonathan Pingle's statement as chief U.S. economist at UBS.
• Peter Hooper's statement as vice-chair of research at Deutsche Bank.
• Michael Feroli's statement as JPMorgan's chief U.S. economist.
• Ed Al-Hussainy's statement as a global interest-rate strategist at Columbia Threadneedle Investments.