![\"Ansell](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2025\/08\/3d539b7aa6c677c3e4c7fc0ff4d75e5ad434f5db.jpeg\")
<\/p>\nThen he went on to say that with policy in restrictive territory, the outlook and shifting balance of risks might warrant adjusting the policy stance \u2013 i.e. a rate cut.<\/p>\n
The awkward position the Fed finds itself in is that on both sides of its mandate, there are novel Donald Trump-inspired uncertainties.<\/p>\n
<\/p>\n
Ansell says price rises will offset Donald Trump\u2019s tariffs on its products.Credit: AP<\/p>\n
The inflation rate, already materially above the Fed\u2019s 2 per cent target rate, is picking up gradually as Trump\u2019s tariffs start to impact.<\/p>\n
Because the bulk of the globally applicable baseline tariffs only just started to come into effect this month, and US businesses had built significant pre-tariff inventories earlier in the year, they will show up progressively in the inflation rate through the rest of this year and into next year.<\/p>\n
\u201cThe effects of tariffs on consumer prices are now clearly visible,\u201d Powell said.<\/p>\n
\u201cWe expect those effects to accumulate over coming months, with high uncertainty about timing and amounts. The question that matters for monetary policy is whether those price increases are likely to materially raise the risk of an ongoing inflation problem.<\/p>\n
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\u201cA reasonable base case is that the effects will be relatively short-lived \u2013 a one-time shift in the price level,\u201d he said.<\/p>\n
\u201cIt is also possible, however, that the upward pressure on prices from tariffs could spur a more lasting inflation dynamic, and that is a risk to be assessed and managed,\u201d he said, noting that a decline in real incomes from higher prices could see workers demanding higher wages or that the price rises could lead to a lift in inflation expectations that dragged actual inflation up.<\/p>\n
If the impact of the tariffs on inflation is uncertain, so is the impact of Trump\u2019s immigration policies on the unemployment rate.<\/p>\n
Last month\u2019s contentious jobs report \u2013 the one that got the Bureau of Labor Statistics sacked by Trump<\/a> \u2013 showed US employment growth is stalling, even though the unemployment rate remains at an historically low level of 4.2 per cent.<\/p>\n Markets heard what they wanted to hear. Credit: AP<\/p>\n Complicating assessment of the labour market, however, is that even as the growth in jobs has flat-lined, the supply of labour has also softened \u2013 the pool of job-seekers has been shrunk because of Trump\u2019s harsh immigration policies.<\/p>\n \u201cOverall, while the labour market appears to be in balance, it is a curious kind of balance that results in a slowing in both the supply and demand for workers. This unusual situation suggests that downside risks to employment are rising and, if those risks materialise, they can do so quickly in the form of sharply higher layoffs and rising unemployment,\u201d Powell said.<\/p>\n So, both sides of the Fed\u2019s mandate are under pressure, but the data that the data-dependent Fed relies on is, at this point, inconclusive.<\/p>\n It remains very possible that both the inflation and unemployment rates could rise together.<\/p>\n Trump, having spent years attacking Powell, is ramping up his campaign to \u201cMAGA-fy\u201d th Fed.<\/p>\n The US economy is growing at about half the rate it did last year. Stagnation \u2013 low growth with relatively high inflation \u2013 remains a realistic possibility.<\/p>\n That would confront the Fed with a very difficult choice of which side of its mandate to prioritise.<\/p>\n Powell said it would not allow a one-time increase in prices to become an ongoing inflation problem, but when the risks to its dual mandate are evenly balanced, what does it do?<\/p>\n History would suggest it would prioritise the fight against inflation.<\/p>\n The Fed\u2019s predicament is worsened by Trump\u2019s continuing assaults on its independence.<\/p>\n If it is to retain the credibility that is essential to bond investors\u2019 trust that it will act in accordance with its view of the economy\u2019s best long-term interests, rather than short-term political pressures, it can\u2019t be seen to be succumbing to Trump\u2019s campaign for radically lower interest rates \u2013 he wants them 3 percentage points lower \u2013 in order to lower the interest costs on America\u2019s exploding government debt levels and boost growth.<\/p>\n That could, while it retains its independence, make it more cautious than it might otherwise be, relying on data that reflects the recent economic past to justify a rate cut or hike.<\/p>\n Trump, having spent years attacking Powell, is ramping up his campaign to \u201cMAGA-fy\u201d the Fed.<\/p>\n He\u2019s explored the possibility of sacking Powell, but doesn\u2019t have that power. He tried to make a case that a blow-out in the cost of the Fed\u2019s Washington headquarters provided a \u201ccause\u201d to fire Powell, but that effort fizzled.<\/p>\n He has nominated Stephen Miran, the chairman of his council of economic advisers and a man who has said the president should be able to hire and fire Fed governors, to fill a vacant seat on the central bank\u2019s board.<\/p>\n Now, even as Powell delivered his address at Jackson Hole, Trump called for the resignation of a sitting Fed governor, Lisa Cook, and threatened to fire her after the Federal Housing Finance Agency director, Bill Pulte, alleged she had committed mortgage fraud.<\/p>\n Cook, whose term doesn\u2019t expire until 2038, has said she won\u2019t be \u201cbullied\u201d into resigning \u201cbecause of some questions raised in a tweet.\u201d<\/p>\n It is unclear, even if the allegation were proven, whether it would be serious enough to provide \u201ccause\u201d for her removal or whether Trump has the authority to fire a board member of a quasi-private institution.<\/p>\n Loading<\/p>\n Nevertheless, the attack on Cook<\/a> (using mortgage fraud allegations that Pulte has also deployed against other Trump adversaries like Democrat Adam Schiff and New York Attorney-General Letitia James) is, with the nomination of Miran<\/a>, a clear signal that Trump isn\u2019t going to abandon his efforts to gain influence over the Fed and its decision-making.<\/p>\n If Miran is confirmed by Congress, there will be three Trump-appointed people on the Fed\u2019s seven-member board of governors. If he could force Cook out, there\u2019d be a majority of Trump appointees.<\/p>\n The board doesn\u2019t make interest rate decisions \u2013 those are made by the 12 members of the Open Market Committee, which includes the seven board members, the president of the New York Fed and four of the other 11 regional Fed presidents \u2013 but a strong Trump representation within those meetings could be intimidating, particularly as it is the Fed\u2019s board that has the power to approve, or disapprove, the appointment of regional Fed presidents.<\/p>\n It doesn\u2019t appear to have occurred to Trump that, if he does to the Fed what he\u2019s done to the Department of Justice and the FBI and turns into another of his MAGA-fied instruments of his personal will, prejudices and vendettas, the Fed\u2019s loss of its independence and credibility could have very unpleasant consequences for US interest rates, the sharemarket and the economy.<\/p>\n Powell understands nuance and the delicacy of the Fed\u2019s position and decision-making. Trump doesn\u2019t do nuance.<\/p>\n![\"Markets](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2025\/08\/393b7a32db9084a0925e0ec11daed7acc41560b9.jpeg\")
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