The modification of the fees, which the markets discount but the Federal Reserve will not resolve until the last minute, this day with a luxury of details is discussed. What is the true goal of inflation pursued by the Central Bank?
The Fed, In his struggle for independence, he must give explanations. Trump versus Cook It has already reached Supreme Court. Governor Lisa Cook resists the president’s decision to fire her. He already obtained a favorable judicial ruling that preserves it in activity, but Trump appealed. And a legion of former holders of the Fed – Greenspan, Bernanke and Yellen, In addition to other notables – he armed himself as Amicus Curiae to remind the supreme magistrates of the importance of safeguarding the independence of the institution. The open interference of the policy – the asphyxiating pressure of the president for managing monetary policy – forces to explain everything. Obviously (and that was taken for granted), but also the debatible, and the arcane. Before justice and public opinion. An unpublished corollary: October rates, that markets discount, but the Fed will not resolve until the last minute, it is discussed today with detail. Very precise opinions are known with the name and surname. Because there will also be renewal of authorities. And the maximum headquarters will be vacant when it expires in May the mandate of Jerome Powell.
The central bank was never so far in Washington. He was never so willing to ventilate his intimacies. What is the true goal of inflation pursued by the Central Bank? Why do the years go by and do not make greater efforts for inflation to return to 2%? Is Trump right, after all, when he alleges that he always responds “too late”? How appropriate are your methods and points of view for the fulfillment of your mission? The president already infiltrated a “Trojan.” Its main economic advisor, Stephen look, He is one of the seven governors of the Board. Porphia will become more strenuous. To overcome, third parties will have to be convinced, and to convince you have to talk more.
It is easy to get lost, now not in the depth of silences, but in a tangle of voices and arguments that are also not part of a single conversation. It is not just the loss of rates that is torn. It is all the scaffolding of monetary policy. It is curious, the Fed complete every five years an exhaustive review of its application framework (strategy, instruments and communication practices). This involves internal deliberations, but also the contribution of academic experts and research (the Laubach Conference) and community contributions through the Fed Listenns program. That aggiornado conceptual framework – which reflected the lessons learned in the pandemic – was presented in August. The traditional approach to inflation goals was restored there – with a specific objective of 2% – after a five -year interregno where a scheme that pursued an average goal of 2% (which compensated for inflation deviations – on both sides of 2% – in time) prevailed.
Far from closing this agenda to resume it in 2030, the sting of political interference keeps the flame of discussion alive. When Raphael Bostic, of the Fed From Atlanta, last week, he declares himself in favor of defining the inflation goal as a range to avoid the false precision printing, and points out that this range could well be 1.75% – 2.25%, what he does is prolong that conversation. When pointing out that he does not see space to lower the rate more in the remainder of the year – which is the debate of the moment – there is the current rules. When Lorie Logan of the Fed of Dallas It is advisable to change the instrument – replace the Fed Funds rate for that of tripartites – does not participate in the circumstantial discussion. Much less alleges that the rates must go down or climb. It is the opposite when Trump’s envoy, the brand new governor Stephen look, The only dissident of the last meeting, displays a neat methodology based on the Taylor rule that leads to recommending rates between 2% and 2.5%. His is not to improve the analytical scheme. Its purpose is to boost a drastic low rates. Miren states that the neutral interest rate is close to 1.1%, and not 3% as the Fed estimates. Consequently, policy is restrictive in excess.
When the Fed reduced rates last year, in the final section of the Biden administration, its position was, curiously, the opposite. They look, As Trump, he has other emergencies. Answs the rates rush quickly. Atrump urges him to underpin his Maga Plan (Make America Great Again). On the other hand, if the arguments of looking at the letter are bought, the loss of fees is appropriate because the Trumponomics will make a more aging and small America. The important thing about understanding here is that they look is a lonely llanero within the Fed. An isolated aberration. He will not define his next steps. No, for now.
At the moment it is Powell who continues to cut the cod. The discipline of the Central Bank did not crack. There is unity in diversity, thanks, yes, to your firm but flexible leadership. When they speak 14 voices of the 19 that pour an opinion on the point map, and very different positions are revealed, it is convenient to listen to the great boss so as not to get dizzy. The risks today are double -edged, he says. There is no decision that does not entail danger. It is a challenging situation, with the risks of inflation on the rise and those of unemployment as well. In that context, the Fed, finishes, was not tied to any pre-determined path. That the point map suggests that there is quorum to proceed to two rate cuts before the end of the year? Yes. And two meetings remain so that both have a prize. But the measures will be taken to the meeting. Keeping the fees in July, with the Monday’s diary, was fine. Download them this month too. It will be seen that is adequate in October.
Could it be that the hawks won predicament? Neither. They raised, yes, their tone of voice. And heard them sharply. They already made their contribution giving the venia to the precautionary cut of two weeks ago. But, they are not convinced to repeat. We cite a Bostic, who worries that inflation has overflowed the goal for the last four and a half years. And who lowered the blind to new casualties until 2026. Alberto Musalem, of Saint Louis’s Fedsee very little margin to insist, for the same reasons. Austan Goolsbee, from the Chicago Fed, thinks the same. Inflation is too high, says Beth Hammack, from Cleveland’s Fed, who as Musalem, will vote in October and December. If Hammack is not the official who wants to raise the rate before the end of the year, it passes him. When he mentions that the detour of inflation with respect to the goal is greater than the unemployment gap – non -existent today with the economy in full occupation – rescues an obvious truth. Could it be that the drop in rates planned for October thus collides with a serious opposition? Yes. Can you overcome it? Probably. But the discussion will have to be sharpened.
Where are the defenders of another reduction? On the point map are a large majority. Twelve of the 19 crosses. Nine of them support two cuts. And they look, it is known, it is a machine gun. Governor Michelle Bowman was this week the voice of the bassist wing. The Fed must repeat the guadañazo and act decisively, he said. He is greatly worried that the Fed runs behind the labor market curve. But, Hammack points out, isn’t the economy in full employment, perhaps? Yes, but the labor market began to cool. From there, the decline in preventive rates. The dynamic can carry the labor market “to a precarious phase, and there is a danger that a shock pushes it to sudden and significant deterioration.” And an isolated fees retouching does not give assurances to clear that threat. Finally, the key factor must be considered. The Fed is more sensitive today to that potential work gap than to excess inflation. It proves it that projects a lower interest rates path (although it has not been tied to it, Powell Dixit) in parallel to an inflation that will reach the goal of 2% only in 2028. Another decrease of rates in October, therefore, remains the most likely scenario.
Nevertheless, The official message is that the cut – that future discounts, although now a little less – is not guaranteed. The data will have the last word. And the bonds, the penultimate. Since the Fed He resumed pruning, the long rates stopped falling, after a fleeting dive below 4%. The ten -year rate closed on Friday by 4.16% despite the balm of August inflation – measured by the consumer deflator – that did not bring surprises. But Trump in person did brought an avalanche of new tariffs. The dollar was appreciated in front of international currencies reflecting the doubts that the great parade of speakers aroused. The bag took the opportunity to take a break. It was his first week in red in a month. But another month is missing to mature the definition, perhaps with a partial closure of the government in the middle. Will we have an informative blackout? Can you know the September Employment Report this Friday? A “Shutdown” that lasts will take away the activity and spending. The loss of rates should be seen as a decision based on risk management, Powell said. The uncertainty that the political agenda fogonea with enthusiasm can lead to insist with the decline of fees – to extend the insurance policy – with the same logic, to avoid the greatest dangers.
Source: Ambito
