Background on Jerome Powell and the Federal Reserve
Jerome Powell, the current Chair of the Federal Reserve (Fed), has been at the helm since February 2018. His term ends in May, and President Donald Trump has been critical of Powell’s performance. Trump has expressed his desire for Scott Bessent, the Treasury Secretary, to take over; however, Bessent has declined the position. There are reportedly five leading candidates for the role: Kevin Hassett, Kevin Warsh, Christopher Waller, Michelle Bowman, and Rick Rieder.
Unprecedented Government Shutdown Affecting Economic Data
An ongoing government shutdown in the United States has disrupted the collection of essential economic data, complicating the Federal Reserve’s decision-making process. The shutdown has led to the suspension of non-essential government operations, including the measurement of key economic indicators that inform Fed policy decisions.
Experts’ Predictions on the Upcoming Rate Cut
According to analysts from Oxford Economics, Natixis IM Solutions (NIM Solutions), and Barclays, the Federal Reserve will reduce the federal funds rate by 25 basis points on Wednesday. However, they do not expect the Fed to provide explicit guidance regarding the final monetary policy decision in December.
These experts emphasize that the Federal Reserve is increasingly relying on discretion due to downside risks in the labor market, which outweigh concerns about inflation exceeding the target.
Oxford Economics experts highlight that the Fed will remain vigilant about inflation and base its decision on labor market weakness.
Mabrouk Chetouane, a portfolio strategist at NIM Solutions, points out that the Federal Open Market Committee’s decision will be made under unusual circumstances due to the lack of current labor market data in the US.
Impact on the Economy and Potential Rate Adjustments
If the Federal Reserve accurately predicts another rate cut, it would apply two consecutive reductions following a nine-month pause initiated in September of the previous year. During this cycle, the Fed lowered rates from a historically high range between 5.25% and 5.5%, which was considered a restrictive stance to curb inflation.
Currently, the federal funds rate stands between 4% and 4.25%. A further reduction of 25 basis points would bring the rate close to a neutral level.
Trump’s Criticism of Powell and Speculation on His Successor
President Trump has openly criticized Powell, stating that there is a long list of potential candidates for the Fed Chair position. Trump aims to have Scott Bessent, the Treasury Secretary, assume the role; however, Bessent has declined. Trump mentioned during a business leaders’ dinner in Tokyo that there will be a new Fed Chair “within a few months,” as Powell’s term ends in May.
Potential Candidates for Fed Chair
Treasury Secretary Scott Bessent reportedly informed reporters that there are five leading candidates for the Fed Chair position: Kevin Hassett, an advisor to the White House; Kevin Warsh, a former Fed governor; Christopher Waller, the current Fed governor; Michelle Bowman, the Fed’s Vice President for Supervision; and Rick Rieder, an executive at BlackRock. Bessent plans to present the top candidates to Trump in December.
Key Questions and Answers
- Who is Jerome Powell, and why is he relevant? Jerome Powell has been the Chair of the Federal Reserve since February 2018. His term ends in May, and he has faced criticism from President Donald Trump.
- What is the current state of the US labor market? The ongoing government shutdown has disrupted the collection of essential economic data, making it difficult to assess the current state of the US labor market accurately.
- What are analysts predicting regarding the upcoming Federal Reserve rate cut? Analysts from Oxford Economics, Natixis IM Solutions (NIM Solutions), and Barclays predict that the Federal Reserve will reduce the federal funds rate by 25 basis points on Wednesday.
- What are the potential candidates for the Fed Chair position? The reported leading candidates for the Fed Chair position are Kevin Hassett, Kevin Warsh, Christopher Waller, Michelle Bowman, and Rick Rieder.
