Do Jerome Powell’s recent comments suggest that Trump is influencing the Fed’s policy?
YES, says Andy Scott, an associate director at JCRA.
Since Powell assumed the role from Janet Yellen in February, the US labour market has continued to strengthen, and the economy has grown at the fastest pace in four years. As a result, Powell’s hawkish tone last month was fully justified.
So, even though the data remains robust and wage growth is set to accelerate further, it does make you wonder why he’s now drastically shifted his view by signalling a lower path for interest rates, which contrasts sharply to his speech in October.
Trump has been complaining about the Fed for a while now – he ‘s concerned that higher interest rates will dampen the stock market rise that he has taken credit for, and put the brakes on economic growth, which he continues to promise.
Given Trump’s increasingly vocal criticism of the Fed chair, it’s possible that Powell has been influenced by pressure from the White House; it’s certainly difficult to find an alternative reason for what could have prompted such a transformation in tone.
NO, says Lukman Otunuga, research analyst at FXTM.
It was highly coincidental that Jerome Powell softened his line on interest rates following Donald Trump’s repeated criticism of the Fed.
The Fed is an independent body free from political influence, so it doesn’t conclude that Trump influenced Powell’s dovish speech.
The global economic landscape is morphing for the worst due to escalating trade tensions, while concerns over the negative impact of tariffs remain on the minds of Fed policymakers.
With the effects of higher US interest rates already weighing on some parts of the US economy, it was only logical for Powell to adopt a less hawkish view.
With Powell also mentioning that past interest rate increases have a lagged effect, the impact of this year’s aggressive tightening has yet to be fully felt on the US economy.
Based on this notion, the Fed certainly has a valid excuse to pause on tightening to prevent a situation where consistent rate hikes threaten economic expansion in the States.