Friday , January 22 2021

The Fed may signal a change in policy for future interest cuts

Economists say when – or even if – the Fed easing credit this year will depend on a number of factors that are difficult to predict. Will Trump's trade wars be resolved before inflicting real damage to the economy? Will the labor market remain resilient even with slowing growth? Will inflation finally reach close to the Fed's target level?

Many analysts believe the Fed will wait until September as early as possible to announce its first decline in its short-term benchmark since 2008 and may not cut again in 2019. Some Fed observers do not expect cuts in interest rates this year, especially if the United States and China come to an attempt to resolve the trade war.

Complicating the timing of possible rate cuts is an escalation of public attacks on the Fed by Trump as he prepares for his re-election campaign in 2020. Trump's public criticism, a highly unusual action for a president, raised concern that it is undermining the Fed's independence as a central bank. The president said that under Powell's leadership, the Fed hurt the economy by tightening credit last year and failed to cut rates ever since.

On Tuesday, Trump was asked about a report that the White House in February had investigated whether the president had the authority to downgrade Powell as president, leaving him on the Fed's board.

"Let's see what he does," Trump said on Tuesday. "They're going to make an announcement very soon, so let's see what happens."

The president had already explored Powell's dismissal. But under the law, a member of the Fed's board, such as Powell, may be dismissed only for just cause.

The Fed is meeting at a time when the US-China trade war with its rising tariffs and counter-tariffs on each other's products has raised concern and uncertainty for companies and investors about whether and how much the economy will suffer. The US manufacturing sector is already showing signs of weakness.

In some encouraging news, Trump tweeted Tuesday that he had spoken by phone with Xi and that the two leaders are planning an "extended meeting" at a Group of 20 summit in Japan at the end of next week. Trump also said that before his meeting with Xi, negotiators on both sides will resume negotiations.

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