Federal Reserve Board chairman Jerome Powell told it like it is. The economy is growing faster than the Fed had thought. Consumer spending is resilient. Business investment is rising, only in part due to AI, which is not showing up in lay-offs. Fiscal policy is supportive of higher growth. There is no evidence of a sharp downturn. In short, \u201cthe baseline is solid growth next year\u201d.<\/p>\n
Which would justify standing pat on interest rates, especially since there will be large data dump next week that should be of interest to a Fed that claims to be data-driven. And especially since the unemployment rate, although rising, remains at historically low levels; there has been no significant rise in average claims for unemployment insurance; and real wages are rising. <\/p>\n
Powell, fearing weakness in the labour market, announced a 0.25-point cut in the bank\u2019s benchmark interest rate, to a range of 3.5-3.75 per cent. Six of the 19 members of the policy committee indicated a preference for maintaining rates at existing levels; two formally dissented from the decision to lower rates, while Stephen Miran, Trump\u2019s temporary appointee, unsurprisingly called for a larger cut. <\/p>\n
\u2022 Trump nominates Fed critic for US central bank board<\/a><\/p>\n Powell\u2019s labour concerns outweigh his worry that a rate cut would increase an inflation rate that has been above the Fed\u2019s 2 per cent target since March 2021, and is predicted by Fed officials not to hit the target until 2028. Powell argues that \u201cif you get away from tariffs, inflation is in the low twos\u201d, and should peak in the first quarter of next year before resuming a downward trend to the bank\u2019s target. <\/p>\n To consumers, that is sheer pedantry. A one-time jump in prices due to tariffs means inflation will be taking off from a higher base, even if at a slower pace. A lot of pay packets will have to be stretched until 2028. And broad average inflation data does not reflect the trend in prices of the stuff on which most people rely for day-to-day living. <\/p>\n In his 2020 victory speech, Trump echoed Franklin D Roosevelt by promising that \u201cthe forgotten men and women of America\u201d (FDR confined himself to forgotten men) would be forgotten no more. Trump promised he would lower prices, and is claiming he has. \u201cPrices are coming down tremendously \u2026 we\u2019re crushing inflation.\u201d The price of some medicines is \u201cdown 1,500 per cent\u201d. The president grades his economic policies as \u201cA-plus-plus-plus-plus-plus\u201d. <\/p>\n Voters aren\u2019t buying it. The latest Fox News survey finds large majorities of voters reporting that costs have increased this past year for utilities, healthcare, housing and groceries. Add \u201cmust-haves\u201d like home insurance (premiums up 20 per cent in two years). <\/p>\n An average of all polls shows that 62 per cent of Americans disapprove of how Trump is handling inflation, and 56 per cent disapprove of his economic performance. The betting market has assigned a probability of 78 per cent to a Democratic takeover of the House of Representatives. With this sort of information in hand, Trump\u2019s advisers finally persuaded him to tone down his insistence that \u201caffordability\u201d is a Democratic hoax and attack high costs with \u201ca national affordability tour\u201d, now under way. It might not be enough. Issues in addition to high prices are troubling key Trump constituencies.<\/p>\n ICE agents are responding to a quota demanding 3,000 arrests a week by snatching illegal immigrants from workplaces. This has hit food processors from meat packers in Nebraska to poultry plants in Mississippi, not to mention farmers who rely on hard-working illegal migrants for 40 per cent of their workforce. <\/p>\n Last year, Trump received 48 per cent of the Latino vote, tipping key states in his favour. That was then. Last month, in state and local elections, Hispanics in some districts swung to Democrats by double-digit margins. Then last week came a spectacular win by Eileen Higgins, the Democratic candidate for mayor of Miami, a Hispanic-majority city in Trump\u2019s home state. Labelling herself La Gringa, Higgins whipped a Trump-backed candidate by about 20 points. That ended a 30-year losing streak for Democrats who now control the \u201cgateway to Latin America\u201d, while Zohran Mamdani\u2019s socialists control the financial centre of American capitalism in New York City. Both made affordability a major issue in their campaigns.<\/p>\n