Washington (United States) (AFP) – The US Federal Reserve is widely expected Wednesday to keep interest rates unchanged for a third straight meeting, likely the last one with chairman Jerome Powell at its helm. Powell, who has been a frequent target of President Donald Trump, is set to hold a press briefing at 2:30 pm (1830 GMT), and all eyes will now be on his future plans.
The Fed said officials reconvened at 9:00 am for the second day of their policy gathering, where they are expected to assess the risks of surging energy prices and snarled supply chains due to the US-Israeli war on Iran. Analysts expect another pause in adjustments, keeping interest rates between 3.50 percent and 3.75 percent, as effects of the conflict ripple through the world’s largest economy. With Powell’s tenure as Fed chairman ending May 15, pressure is also mounting for lawmakers to confirm Trump’s choice of his successor, Kevin Warsh. The Senate Banking Committee voted 13-11 to advance Warsh’s nomination on Wednesday morning, bringing him a step closer to confirmation by the full Senate.
– Political concerns –
But Democrats on the Senate panel pushed back against Warsh’s confirmation, with lawmaker Elizabeth Warren charging that this would further the president’s “attempt to seize control of the Fed.” Georgia Senator Raphael Warnock warned that Warsh’s nomination had been “tainted by the real and persistent threats” Trump made to Fed governors. “The independence of the Fed is foundational to our system,” he said.
Since returning to power last year, Trump has frequently slammed Powell for not cutting interest rates more quickly, a policy that would boost economic activity but could fuel inflation. He attempted to oust Fed governor Lisa Cook over mortgage fraud allegations too, in a case that now stands before the Supreme Court. Trump’s Justice Department also opened a criminal probe into Powell and the Fed over cost renovation overruns, a move the central banker called a tactic to erode the Fed’s independence. Last month, Powell vowed to stay at the Fed until the investigation was concluded with transparency. He can remain on the Fed’s board of governors until 2028, even after his chairman term expires.
Republican Senator Thom Tillis on the banking panel initially vowed to block Warsh’s nomination if the investigation were not concluded. But with the Justice Department saying Friday that it was dropping the probe, Tillis relented and backed Warsh during Wednesday’s vote. Analysts are divided on whether Powell would stay on as a Fed governor, a situation that would be unusual but not without precedent. EY-Parthenon chief economist Gregory Daco expects that Powell will remain, saying it “would help preserve institutional continuity, anchor the existing communication approach, and provide a stabilizing counterweight during the transition.”
– Future path –
While much attention will be on Powell’s plans, policymakers will be focused on the way forward for the US economy as it battles years of higher-than-expected inflation and recent weak jobs growth. The Fed has a dual mandate of maintaining stable prices and low unemployment. But higher energy prices from the Middle East war caused US inflation to spike in March.
While such supply shocks are often seen as temporary, central bankers have expressed concern that effects could be more lasting. Surging energy prices could also slow down economic activity by raising production costs, affecting employment. “We’ll look for any indication that Fed officials’ assessment of the risks to their outlook has changed since the mid-March meeting,” said economist Nancy Vanden Houten of Oxford Economics. The Fed had been on a path of rate cuts last year as the labor market cooled. Now, analysts say the path is less clear. On Wednesday, Daco added, the Fed could also “acknowledge that rate hikes could be appropriate if inflation remains above-target.”
© 2024 AFP
