Political Advisor Warns of Exertion of Political Influence on the Federal Reserve
In a significant development, Jerome Powell, the Federal Reserve Chairman, has signalled a potential rate cut, as concerns over the employment data continue to mount.
The latest employment data for July has been reported, and it seems the job market may not be as robust as previously thought. The June employment data has been revised again, with a job loss of 13,000 reported for that summer month, instead of a job increase of 14,000. This turmoil around the US employment data has been a recurring theme, with extensive corrections to the data for May and June, and Trump firing the head of the Bureau of Labor Statistics just hours after a weaker-than-expected employment gain for July was reported.
The Federal Reserve, which has not yet touched the key rate this year, uses the employment data and inflation figures to set its interest rate policy. The pressure on Powell to act has increased with this latest employment report, with NordLB analyst Tobias Basse stating that the pressure has clearly increased.
Trump has been pushing for a lower interest rate, and there is resistance to this strategy from Trump's circle, including Kevin Hassett, a leading economic adviser to the US President. Hassett, who is considered one of the candidates to succeed Powell, whose term ends in May 2026, warns that political interference in the monetary policy of the Federal Reserve could lead to a guarantee for inflation and misery for consumers.
The independence of the Federal Reserve has recently been questioned due to Trump's repeated calls for immediate interest rate cuts and his frequent criticism of Powell. Trump's attempt to fire Fed Governor Lisa Cook has also contributed to questions about the independence of the central bank.
The main candidate discussed by the US government for a Federal Reserve Board position is Stephen Miran, nominated by former President Donald Trump to fill a vacant seat until January 31, 2026. However, a permanent successor is still being sought. Other figures such as Powell and controversies involving Fed Governor Lisa Cook have been notable but without direct mention of other successors for the chairmanship.
Powell has referred to increasing risks for the labor market, and the employment data has caused concern at the Federal Reserve. In response, Powell has opened the door to a rate cut, which could provide some relief to the job market and help stabilise the economy.
As the Federal Reserve considers its next move, it is clear that the employment data will play a crucial role in its decision-making process. The latest employment report has added to the pressure on Powell to act, and the central bank will need to carefully weigh the potential benefits and risks of a rate cut.
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