Powell Reveals Possibility of Interest Rate Cuts – Fed Stretched Thin Amid Political Pressure and Recession Risks

The Fed is at a critical juncture as Chairman Jerome Powell signals that interest rates may be lowered as soon as the upcoming September meeting. However, the biggest challenge is to accomplish this without the Fed being seen as yielding to political pressure from the White House. For months, Powell has steadfastly ignored the continuous calls for interest rate cuts from President Donald Trump. However, in a closely monitored speech on Friday at the economic symposium in Grand Teton National Park (Wyoming), Powell stated that the risk of the U.S. economy slowing down was becoming evident, forcing the Fed to potentially take action. Risks of Slowing Growth and Cooling Labor Market Powell emphasized that the U.S. economic growth "has slowed significantly in the first half of this year," with an annual growth rate of only 1.2%, down sharply from last year's 2.5%. He also warned of a weakening in labor demand – a trend that could push the unemployment rate higher. "The current risk is no longer an overheating economy, but rather a cooling economy," Powell said, emphasizing that any interest rate cuts will be made cautiously and slowly, completely different from Trump's call for deep and rapid cuts. Inflation and Political Pressure – The Balancing Act of the Fed Despite the slowing growth, Powell also acknowledged that the new tariffs are pushing prices up, creating inflationary pressure. This is a factor that the Fed must carefully consider, avoiding excessive loosening and causing the risk of prices rising again. Currently, the Fed's baseline interest rate is at 4.3%, directly impacting the costs of borrowing for homes, cars, and consumer credit. Mr. Trump has repeatedly called for a reduction to 1% – a level that no Fed official supports. The White House believes that low interest rates will help reduce interest payment costs on the government's massive $37 trillion public debt. Protecting Independence – Surviving with the Fed While Powell did not mention the "independence" of the Fed in his speech, many other officials remain steadfast in defending this principle. Beth Hammack, President of the Cleveland Fed, affirmed: "Inflation is still too high and going in the wrong direction. I focus on delivering the best results for the public and try to tune out the political noise," she said in an interview with AP. Experts believe that Powell's avoidance of directly addressing the issue of independence may be a wise strategy. Adam Posen, President of the Peterson Institute, stated: "He wants to send the message that the Fed is functioning as it should – discussing internally and making the right decisions, regardless of whether that may please the President." Tensions Escalate – Trump Targets Fed Officials At the same time, Mr. Trump increased pressure on Fed Governor Lisa Cook, threatening to fire her if she did not voluntarily step down. Trump and his allies accused Cook of being involved in mortgage fraud related to real estate transactions in 2021, although no criminal charges have been filed yet. Cook stated that she would "not be bullied" and declined to comment further on this threat. If Cook is removed, Trump will have the opportunity to appoint a loyalist to the Fed Board of Governors – the body that votes on all interest rate decisions. He has already nominated Stephen Miran, a White House economic advisor, to replace the vacant seat left by Adriana Kugler as of August 1. Prospects – Fed at the Crossroads The upcoming developments will be extremely sensitive: if the Fed cuts interest rates too early, they may be accused of political concession; but if they delay, the risk of economic recession will increase. Powell and his colleagues are walking a tightrope – balancing price stability, sustainable growth, and maintaining the independent credibility of the world's most powerful central bank.