Federal Reserve President Stresses He Has No Plans to Resign and Trump Can’t Fire Him | Economy

This Thursday, the Federal Reserve did not deviate from the script. Following Donald Trump’s landslide victory in the presidential election, the US central bank cut interest rates by 0.25 points, as expected. The Federal Open Market Committee leaves the price of money in the range of 4.5-4.75%. Federal Reserve President Jerome Powell signaled at a news conference that he would maintain the central bank’s independence in the face of Trump’s threats. He responded that he had no plans to resign even if asked to do so, and recalled that the law does not allow the president to dismiss him or the rest of the council before their mandate ends.

Trump poses a threat to central bank independence, which is protected by law. The President can’t just end it. Most Republicans and Democrats in Congress understand that this is beneficial, and Powell has made it clear that he is unimpressed by political pressure. The problem may arise later. Powell’s term (which was appointed by Trump himself in 2018 and then extended by Joe Biden) ends on May 15, 2026 as president and January 31, 2028 as advisor.

Powell has spoken in the past about the importance of central bank independence to combat inflation. Trump wants to give his opinion on whether rates should be lowered or raised. This Thursday, the President of the Federal Reserve was asked if he would be willing to resign if asked: “No,” he answered emphatically. And he reiterated that it is “not permitted by law” to fire central bank board members, although he declined to answer several more politically charged questions, including whether he feared interference from the new president.

The market still expects an additional quarter-point decline in December, but is beginning to reconsider the future path as the president-elect’s trade and fiscal policies could have inflationary implications and complicate a soft landing for the US economy. Could this change monetary policy? He prefers not to foresee events. “We don’t guess, we don’t speculate, we don’t speculate,” he said.

The highest inflation in four decades, achieved during Joe Biden’s administration, allowed Trump to capitalize on the discontent and frustration of the working class, which has been particularly affected by rising prices. The Republican takes office as inflation is contained and nearing the 2% price stability target, but the Federal Reserve dares not declare victory.

The main measures of the Trump program, paradoxically, have an inflationary effect. Tariffs obviously make American imports more expensive. An expansionary fiscal policy based on his promised tax cuts will boost demand. Add to this the supply constraints in the labor market due to the promised mass deportation of immigrants, and the picture becomes more complicated for Powell, as already shown by the rise in long-term interest rates, which the debt helped the Republican win.

Powell knew he was going to be asked about this, and he had an answer prepared, which he read in his pulpit papers. “In the short term, the elections will not affect our decisions,” he said. The market interpreted this to mean that, barring any surprises, there would likely be another quarter-point rate cut in December. The Federal Reserve will not act preemptively if decisions by Trump and Congress make its job more difficult. He directly stated that he does not rule out another reduction of 0.25 points in December.

“As you know, the economy is affected by a lot. And anyone who forecasts will tell you that the economy is quite difficult to predict beyond the short term, we do not know the timing and nature of political changes. Therefore, we do not know what the consequences will be for the economy, in particular whether and to what extent this policy will be important in achieving our objective variables – maximum employment and price stability,” the company explained.

While emphasizing that he did not want to get ahead of the facts, he acknowledged that new government policies or congressional decisions may have a bearing on achieving price stability and maximum employment. “Along with countless other factors, projections of these economic effects will be incorporated into our economic models and fed through this channel,” he added.

Public accounts

Although Trump’s tax cut agenda aside, Powell once again insists that the United States’ fiscal trajectory is “unsustainable.” “Debt is not unsustainable. This is the way to grow,” he warned, remembering that this is not the first time he has spoken out on this issue.

Powell’s claim that the economy is “strong” does not fit with the catastrophic and apocalyptic message the Republican candidate sold during the campaign. Powell acknowledged that while “the economy is doing well,” “people are still feeling the effects of high prices.” “In the world we go through shock global inflation, inflation has risen everywhere and will stay with you because the price level will not fall again. It takes years of real wage growth to make people feel better, and that’s what we’re trying to create. And I think we are on the right track. Inflation has dropped significantly. The economy remains strong. Salaries are rising, but at a stable level. “I just think that what needs to happen is happening, and for the most part it has happened, but it will take a while before people have confidence,” he explained. “We don’t tell people how to feel about the economy, we completely respect what they think,” he added.

The Federal Reserve has undertaken its most aggressive rate hikes since the 1980s to keep prices in check. Since inflation was relatively controlled and employment was declining, he believed that the inflation point had been reached. The cycle of rate cuts began in September with a reduction in the price of money by 0.5 points. Members then pointed to two more quarter-point cuts for the rest of the year, this Thursday and at the meeting that ends on December 18, but made clear they would be guided by developments in the data.

“We remain confident that with an appropriate recalibration of our monetary policy, the strength of the economy and labor market will be maintained and inflation will decline sustainably to 2%,” Federal Reserve Chairman Jerome Powell told reporters.

Powell believes the risks to achieving his employment and inflation targets are more or less balanced. He hopes the overhaul of monetary policy will help maintain the strength of the economy and labor market, and will contribute to further progress in the fight against inflation. “We know that reducing policy too quickly from tight to moderate can hamper progress against inflation. At the same time, doing so too slowly could unduly dampen economic activity and employment by considering additional adjustments to the target range for the federal funds rate,” he explained.

Powell said decisions will be made based on data and on a meeting-by-meeting basis. “If the economy remains strong and inflation does not reach a sustainable level of 2%, we will be able to reduce monetary tightening at a slower pace. If the labor market weakens unexpectedly or inflation falls faster than expected, we could act more quickly. “Monetary policy is well positioned to address the risks and uncertainties we face while delivering on both aspects of our dual mandate,” he concluded.