At a time when economic data is blocking the rate cut process, Powell's political issues will become increasingly challenging.
With the arrival of a new week in 2024,Fed Chair Powell's political conundrum is becoming increasingly challenging.
At the beginning of the year, the market was almost certain that the Fed would start cutting interest rates in March. But those expectations have now completely reversed, following several upside surprises in inflation and signs that the economy remains resilient.
The latest signal came last Friday, when the US Department of Labor said that the PPI index exceeded expectations. The debate has now shifted to whether the Fed will start cutting rates in June or push the issue until later in the summer.
Postponing the rate hike schedule won't necessarily change Powell's fundamental mission to avoid a recession and rising inflation, but it does put the Fed chair in direct conflict with the U.S. in 2024.
Atlanta Fed President Bostic said last ThursdayHe doesn't expect the Fed to cut rates until the third quarter, which includes two major political congresses and ends about five weeks before the ** day.
Currently,High-ranking politicians from both parties have already expressed their willingness to shake Powell's mind
Most notably, it is the frontrunner of the Republican Party. Trump seems to see Powell as an adversaryHe recently said, "It seems to me that he's trying to lower interest rates, probably to get someone elected." ”
Mark Spindel, chief investment officer at Potomac River Capital and historian of the Federal Reserve, noted that for a long timeDealing with political forces has always been part of the Fed's role。"That's Powell's job, the credibility of the Fed, that's the real key. ”
Powell's challenge will be to deal with the various forces of the election season, including the difficult Trump, who initially appointed Powell to his current position in 2017 and has since been criticizing him.
Spindel noted, ".Trump's approach is to destroy the Fed's credibility。Powell recently said on "60 Minutes" that "our decisions don't take politics into account." ”
So far, the argument for postponing a rate cut in 2024 has been fueled by a steady stream of economic data.
At the start of the year, the U.S. economy grew by 2160,000 jobs. This shows the resilience of the labor market, which is just the first sign that the Fed's rate cut timeline is not urgent.
This was followed by higher-than-expected inflation data on January 11, suggesting that the Fed still has work to do, thus supporting the case for a delay in rate hikes.
This pattern continues in the first seven weeks of 2024. A number of indications show thatThe economy remains strong, while inflation data is heating up again, further cementing the Fed's likely cautious stance on rate cuts in 2024.
The inflation data, in particular, raises questions about how hard is it to get prices to the "last mile" of the Fed's 2% target.
New comments from the Fed also highlight this uncertainty。Barr, the Fed's vice chair for supervision, said last Wednesday that "the January Consumer Product Index Inflation Report reminds us that the road back to 2% inflation could be bumpy." ”
2024 FOMC member Bostic said last Thursday that he was "not yet at ease" about the unstoppable decline in inflation and that "even if the January CPI report turns out to be a surprise, that scenario may be true for some time."
Chicago Fed President Goolsbee's reaction was more modest. He calmed the market's concerns last Wednesday. He said a higher-than-expected consumer index does not mean the Fed can't cut rates in 2024.
The Fed** released an earlier dot plot showing that three rate cuts are expected this year, but did not say when they will begin. **We will update this assessment at our next policy meeting in March.
Powell and his Fed colleagues are bracing for political pressureStress will only increase over time。Trump is expected to lead the operation.
In a recent interview with US media, the candidate for the likely Republican nomination called Powell "very politicized" and said that he thought Powell "might do something that would help the Democratic Party."
However, Powell is unlikely to face pressure from Biden, the current owner of the White House, who has struggled to avoid public comments on monetary policy during his tenure.
But Biden's allies may not think so. If the Fed succeeds in achieving a so-called soft landing, that would be a good thing for Democrats, because they have so far struggled to sell their own economic policy, the so-called "Bidennomics".
Some progressives, such as Democrat Elizabeth Warren, have publicly urged Powell to cut interest rates, citing the cost of housing.
"It's going to be a painful year for the Fed, and they've been affected on every front," Sahm Consulting founder Claudia Sahm said on Tuesday. ”
Powell has repeatedly pledged to filter out the noise, citing his own bipartisan record at the Fed as evidence that he can do it.
As a Republican, Powell was first appointed by Obama to the Fed governor, then promoted by Trump to Fed chairman, and then asked by Biden to remain Fed chairman.
Both SAHM and Spindel**,Powell will act in a non-political way in the coming months, as navigating the economy is already a challenge. Spindel said:
"I think he's the right person for the position because I think he's very politically astute.