US Leiszins: Fed boss opens the door for key interest rates

US President Donald Trump has been insisting on a reduction in the key interest rate for months. Requesting demands to the head of the US Federal Reserve, Jerome Powell, remained unsuccessful. And if necessary, no deeds have followed his threats if necessary. Now with Lisa Cook, another board member of the Federal Reserve (FED) in Trump’s visor. In the meantime, Powell opened the door for a possible interest rate reduction in his speech at a central bank conference in Jackson Hole (US state of Wyoming)-but not on pressure from the US president, but based on important economic indicators.

Because in view of weaknesses on the labor market and more moderate inflation, US Federal Reserve boss now considers interest reductions to be appropriate. On the one hand, the job market has weakened significantly and thereby mounted down the downward risks, said Powell in one of his most likely speeches. At the same time, the inflation rate is largely under control. As usual, Powell did not call a specific time for any interest reduction. With an interest rate reduction, the FED could indirectly stimulate the labor market, but also heat inflation.

The Fed chairman referred to the weak labor market report for July, in which employment development in the two previous months was significantly weaker than initially determined. The situation would indicate increased risks for more layoffs and increasing unemployment, he said.

Powell also warned: “Higher tariffs have started to raise prices in some groups of goods.” However, the effects of the tariffs could only be temporary. US President Donald Trump had pushed tariffs on imports from dozens of countries in the past few months and hopes that more revenues.

Does Trump’s pressure on the FED?

Trump should generally like the news from Friday – but they should come too late according to their taste. He had put the Fed under great pressure. Because not only Powell landed on Trump’s radar. The Fed director Lisa Cook now also wants to get rid of the US President.

When asked by a journalist if he would fire her, he said: “Yes, I will fire her if she doesn’t go back.” Cook had recently headed the headlines due to allegations about irregularities when taking out real estate loans. The head of the state finance authority, Bill Pulte, had turned to US Justice Minister Pam Bondi and discussed the allegations in it – both are close to Trump. So far, no charges have been raised.

Most recently, Fed director Adriana Kugler had also stepped down, so Trump was able to nominate his business advisor Stephen Miran as a temporary solution. At the last interest rate decision in July there were also two deviators who did not speak out for maintaining the key interest – that is rare. It remains unclear whether the different voices on Trump’s pressure on the central bank or simply to the respective interpretations of economic indicators.

Stable key interest rate for months

At its last meeting, the FED had retained the key interest rate at a high level. This has been in the range of 4.25 to 4.5 percent for a good half a year – commercial banks can borrow money from the central bank for this interest rate. For consumers and companies, low key interest rate can be more lucrative if you want to take out loans at better conditions. In turn, more money in circulation can boost the economy – one of Trump’s arguments. Too low interest rates could ensure that inflation further fueled, which is why Powell has so far advocated a more restrictive course.

Trump, on the other hand, is convinced that Americans can no longer finance themselves because of Powell’s course. In response to the interest reductions that he had defended, the US President repeatedly demanded Powell’s resignation – although it is still unclear whether he can actually fire him. Legally, it is not finally checked whether a president may dismiss the central bank manager.

In addition, as Fed boss, Powell does not suggest, as is often the case by Trump, alone over the key interest rate, but the Central Bank Council. Powell’s term of office continues until May. As a central bank, the FED should actually act independently of political influence and ensure economic stability with its interest decision.