The president of the federal reserve, Jerome Powell, played on Wednesday that the central bank was planning to cook the economic weakness of President Trump’s prices by reducing the rates.
During a press conference, he used a version of the word “wait” 22 times to emphasize how the Fed is not in a hurry. “The waiting costs to see below are quite low, we think, so that is what we do,” said Powell.
Powell’s comments, delivered after the Fed agreed to extend its break on interest rates, exposed the way in which Trump’s unpredictable and mercurial commercial announcements opened a fracture in monetary policy between the United States and its peers from rich countries.
The reason for the divergence is simple. These other savings did not impose a strong tax increases on imported goods. Consequently, they see the effects of the softening of lower demand and labor markets, but without the effects of higher prices than fed political decision -makers could tackle later this year.
In addition, because the economy has just gone through a heartbreaking period of high inflation, Fed officials do not think that they can risk reducing preventive rates to support a slowdown in fear of fear that it does not add to the warmer price pressure in the short term.
The trucks are waiting to load shipping containers at the port of Los Angeles last month. – Damian Dovarganes / Associated Press
This is different from 2019, when the Fed reduced the rates three times to consolidate the economy of the deterioration of feeling after Trump’s First Trade War with China. “This is not a situation where we can be preventive because we do not actually know what will be the right answer to data until we see more data,” Powell said on Wednesday.
The result is that the Fed is in a different position from its peers in Europe, Canada and the United Kingdom, Powell suggested that the Fed would reduce – potentially quickly – only after seeing evidence that the economy was slowing heavily.
The Fed has reduced its short -term reference rate of 1 percentage point in the second half of 2024 as inflation decreases and the unemployment rate has derived. He has held the stable federal end rate at around 4.3%since December.
The European Central Bank, on the other hand, has reduced its reference rate seven times in the past year by 1.75 percentage points, to 2.25% last month. On Thursday, the Bank of England reduced its reference rate to 4.25% against 4.5%. It was the fourth bank cup since last summer.
In Europe, “their economy was not particularly strong to start, so they have even more track to worry about growth effects,” said Neil Dutta, responsible for economic research at the Macro Research Renaissance.
Just before the drop in the BCE rate last month, Trump strongly criticized Powell for being too slow to reduce rates. He said the Fed should follow the example of the ECB.
“Everyone cuts him but him,” Trump told journalists in the Oval Office on Thursday, referring to the drop in prices of the Bank of England. Trump suggested that he was not interested in meeting Powell. “It’s like talking to a wall,” said Trump.
Powell has repeatedly said that the Fed made its decisions according to its own assessment in the best way to balance its mandate to promote low inflation and healthy labor markets.
Trump’s frustration concerning the different courses by the Fed and the ECB suggests that “no one told him that the prices affect them differently from us, because they do not have to worry about the consequence of the inflation of the price. The Fed does it, ”said Dutta.
Some FED officials have highlighted the concerns that the rate of reduction in pre -Empère rates for economic weakness could amplify the price of short -term prices.
Just before the drop in the European Central Bank rate last month, President Trump suggested that the federal reserve should follow the example of Europe. – Liesa Johannssen / Bloomberg News
For Fed Cup, “we are just waiting for companies to drop people,” said Dutta. He said that he feared that the risks of inflation induced by the prices made the Fed too complacent on the risks for the labor market.
JPMorgan Chase economists expect the Fed to be cut in September. Goldman Sachs thinks that the Fed will reduce rates three times this year from July. They see the ECB continue to reduce the rates of increases by a quarter of a point until September, which would leave its target rate to 1.5%.
Inflation was 2.2% in April for the euro zone. It was 2.3% in the United States in March. The ECB and the Fed target inflation of 2%.
Jan Hatzius, chief economist of Goldman, said that it was possible that the ECB will reduce even more than the bank’s forecasts because the American prices on China could lead to a greater overabundance of exports from China to Europe. This could reduce the inflation of the European nucleus, which excludes the volatile prices of food and energy, by 0.5 percentage points.
“This is a fairly large number because it is in a way the difference between being moderately greater than 2% and being moderately less than 2%,” he said. If inflation in Europe ends up operating below 2%, “then you could persuade many Bellician members of the committee … to deliver more cuts.”
