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President Trump weighs lawsuit over Fed\u2019s $2.5B renovation project<\/p>\n
President Donald Trump may sue the Federal Reserve over its $2.5B headquarters renovation project.<\/p>\n
A year ago, when Federal Reserve Chair Jerome Powell delivered his keynote address<\/a> at the central bank\u2019s annual conference in Jackson Hole, Wyoming, his message was\u00a0straightforward and market-friendly.<\/p>\n Inflation was easing, job growth was slowing and the unemployment rate was rising at a pace that traditionally signals recession.<\/p>\n After hiking its key interest rate to a 23-year high to fight a pandemic-induced inflation spike, the Fed was finally poised to lower it, Powell said. Stocks surged.\u00a0<\/p>\n At his Jackson Hole speech on Aug. 22, Powell faces a more formidable challenge as he looks to provide another signal about the Fed\u2019s September interest rate plans after yet another long pause aimed at ensuring consumer price increases have been tamed.<\/p>\n This time, however, the picture is far more muddled, and economists are split over whether Powell will telegraph a likely rate decrease next month or a continuation of the Fed\u2019s wait-and-see approach.\u00a0Minutes of the Fed\u2019s July 29-30 meeting released Wednesday, Aug. 20, showed most officials regarded high inflation, not a weak job market, as the largest risk.<\/p>\n A rate cut likely would reduce a wide range of borrowing costs for millions of Americans, including for certain mortgages, credit cards and auto loans, but also trim bank savings rates that have gotten more generous the past few years.<\/p>\n Powell is also expected to announce a policy shift that could keep interest rates higher over the longer term as officials put more emphasis on keeping inflation contained.<\/p>\n How is the job market in the US right now?<\/p>\n Job growth has weakened substantially but, at 4.2%, the unemployment rate has been stable at a historically low level. And inflation has climbed higher in recent months, at least in part because of President Donald Trump<\/a>\u2019s sweeping import tariffs.<\/p>\n Before cutting rates, Powell has said, officials want to ensure tariffs amount to a one-time bump to inflation and don\u2019t raise Americans\u2019 inflation expectations in ways that ripple through the economy.\u00a0<\/p>\n How does the Fed decide the interest rate?<\/p>\n The Fed lowers rates to support a flagging economy and job market. It raises rates or keeps them higher for longer to cool the economy and wrestle down inflation. Officials slashed a key rate by a percentage point late last year but have been on hold since December as they assesses the impact of the import fees on prices.<\/p>\n Powell in July also said officials are focused on the unemployment rate, rather than job growth, as they weigh a rate decrease because reduced immigration \u2013 due mostly to Trump\u2019s policies \u2013 have lowered the number of payroll gains needed to keep the jobless rate low. Simply put, there are fewer people looking for jobs, so it\u2019s not such a bad thing that there are fewer jobs available.\u00a0<\/p>\n While the unemployment rate meets the Fed\u2019s goal of \u201cmaximum employment,\u201d the Fed\u2019s preferred inflation measure, at just under 3%, is well above its 2% target, Powell noted. The implication: Officials are still in no hurry to lower rates.\u00a0<\/p>\n That was all before the historically bad July jobs report came out early this month.<\/p>\n What was the July jobs report?<\/p>\n Employers added just 73,000 jobs and employment gains for May and June were revised down by a massive 258,000. Unemployment rose from 4.1% to a still-low 4.2%. The revisions, which left job growth averaging a measly 35,000 the past three months, have futures markets giving 81% odds of a September rate cut.\u00a0\u00a0\u00a0\u00a0\u00a0<\/p>\n Does Powell stick to his cautious message and disappoint investors despite the feeble July employment report?<\/p>\n Or does he hint at a likely rate cut that may appear as though he\u2019s backtracking from his guidance about staying focused on inflation and unemployment rather than job gains?\u00a0<\/p>\n \u201cHe is in a difficult spot,\u201d said Jonathan Millar, senior U.S. economist at Barclays.<\/p>\n Another wrinkle: Trump has been badgering Powell and the Fed to cut rates, calling him a “moron,” and “numbskull,” among other derogatory epithets. Powell has said the Fed isn’t influenced by politics. Powell hasn’t been the only target of Trump’s ire at the central bank. The president on Aug. 20 demanded Fed governor Lisa Cook resign<\/a> following fraud accusations from his administration.<\/p>\n With the August inflation and jobs reports scheduled to be released before the Fed\u2019s mid-September meeting, providing officials a more complete picture, \u201cI don\u2019t think he\u2019s going to give\u00a0a really strong signal\u201d either way, said David Seif, chief economist for developed markets at Nomura.<\/p>\n Yet forecasters anticipate at least some clues. If Powell doesn\u2019t push back at market expectations for a September rate cut, investors will likely interpret it as tacit confirmation such a move is likely, Millar said.<\/p>\n Is inflation actually getting better?<\/p>\n