Powell may cut interest rates in September because the economy is slowing

Jerome Powell, the Federal Reserve chair, says rate cuts may come soon. The challenge is doing it without making the Fed look like it’s giving in to the White House.

For months, Powell brushed off President Donald Trump’s repeated demands to reduce rates. But on Friday, in a closely watched speech, he indicated the Fed could take that step as early as its meeting in September.

Any move would be delicate. Officials must balance stubborn inflation against the chance that growth and hiring pick up in the second half of the year. Either shift could make a cut look early.

Trump has pressed for steep cuts, contending there’s “no inflation” and that cheaper borrowing would lower interest payments on the government’s $37 trillion debt.

Powell’s case is different. He says the risk now is a cooling economy. Speaking at an economic symposium in Grand Teton National Park in Wyoming, he also made clear that any easing would be careful and slower than what Trump wants.

He cited that growth “has slowed notably in the first half of this year,” with output running at a 1.2% annual pace, down from 2.5% the year before. He also cited a “marked slowing” in the demand for workers, a trend that could push unemployment higher.

At the same time, Powell noted that tariffs have begun to lift the price of goods and could keep pushing inflation up. That risk will keep the Fed wary about how far and how fast to go with cuts.

Hammack reiterates Fed’s independent mission

The Fed’s key short-term rate, which helps set costs for mortgages, auto loans, and other credit, stands at 4.3%. Trump has urged a drop to 1%, a level unsupported by any Fed policymaker.

Whatever the path, the central bank is expected to keep stressing its independence. Economists widely see an arm’s-length Fed as vital to keeping prices in check because it can raise rates to cool the economy when elected leaders might not.

Nineteen officials serve on the Fed’s rate-setting committee, with 12 voting at each meeting. Beth Hammack, the Cleveland Fed president, reinforced that view Friday in an interview with the Associated Press.

“I’m laser focused … on ensuring that I can deliver good outcomes for the for the public, and I try to tune out all the other noise,” she said.

Hammack said inflation still needs to be fought, a view several colleagues share. “Inflation is too high and it’s been trending in the wrong direction,” she said. “Right now I see us moving away from our goals on the inflation side.”

Powell avoids independence talk, draws strategic praise

Powell did not mention independence in his Wyoming remarks, where he received a standing ovation from academics, economists, and central bank officials from around the world.

Adam Posen, president of the Peterson Institute for International Economics, said that omission likely served a purpose. “The not talking about independence was a way of trying as best they could to signal we’re getting on with the business,” Posen said. “We’re still having a civilized internal discussion about the merits of the issue. And even if it pleases the president, we’re going to make the right call.”

As that debate played out, Trump stepped up pressure on another senior Fed figure.

He warned he would dismiss Governor Lisa Cook if she refused to step down. Bill Pulte, Trump’s pick to head the regulator of Fannie Mae and Freddie Mac, alleged Wednesday that Cook engaged in mortgage fraud tied to her 2021 purchases of two properties. No charges have been filed.

Cook said she will not be “bullied” into stepping down. On Friday, she declined to address Trump’s threat.

If Cook were removed, Trump would have a chance to place a loyalist on the Fed’s governing board, whose members vote on every rate decision. He has already put forward White House economist Stephen Miran to fill the seat vacated by Adriana Kugler, who left on Aug. 1.

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