The determination of Jerome Powell to ensure that any leap in prices resulting from the prices of Donald Trump does not spread in the economy earned him the nickname “Mr. too late ”of the president. For the president of the Federal Reserve, it is better than being M. TORT.
Only a few months ago, Powell directed his colleagues and the economy towards a so-called gentle landing, a scenario where inflation and interest rates slide more while unemployment remains low. Trump's radical prices have changed the prospects, increasing the expectations of lower economic growth and higher inflation this year.
This prompted Fed officials to transfer its strategy to those who could be described as plotting late saving for the economy – maintain stable rates long enough to maintain contained inflation, but be ready to lower them just in time to prevent the labor market from crashing.
“They prefer to be late that bad ones,” said Aditya Bhave, a senior American economist at Bofa Securities. “They will wait and see how things take place on the two terms.”
Fed officials should leave unchanged prices at their next meeting for their two -day political meeting from May 6 to 7 in Washington.
In recent weeks, Powell and his colleagues havewarnedThe fact that the inflationary impact of the president's import rights could be more persistent than expected, and stressed that the work of the Fed is to ensure that any price collection is limited. This means maintaining a close posture on interest rates to keep expectations concerning prices under control and outfitThe rates are stableIn the absence of a substantial increase in unemployment.
“Our obligation is to maintain the long -term inflation expectations well anchored and to ensure that an ad hoc increase in the price level does not become a problem of inflation in progress,” Powell told Club Economic in Chicago on April 16.
These remarks caused rapid white house review, with TrumpcarefreePowell to reduce interest rates now to trigger an economic slowdown.
The expectation is accompanied by risks: once the unemployment rate begins to increase, it generally increases quickly and the economy is heading to the recession. But the drop in interest rates too early could allow prices to reproduce, which civil servants do not want to do after the rise in post-pandemic inflation.
By finishing a late rescue, say that some fed observers could be the ultimate test of Powell's political leadership, economic information and the calendar.
“This is a new test for him,” said Claudia Sahm, chief economist at New Century Advisors. “You have both sides of the mandate that comes out of the track in a way they will have to make a choice.”
Personal mission
Securing a smooth landing after a burst of post-pandemic inflation has become a personal mission for Powell. He called the peak of the Fed rhythm cycle in December 2023, after having cooled but did not crush the expansion. Inflation at that time was lower than a percentage point above the target target of the Fed, against a level of four decades of 7.2% in 2022.
When it came time to reduce rates in September, PowellconvincedHis colleagues from the federal market of market open to join him in an aggressive reduction of half a point to keep the labor market strong. They ended up reducing the rates of a percentage point on three meetings before held this year, inflation seemed to settle above their objective.
Trump had recovered the White House at that time, and at the Fed’s March meeting, it was clear that the threat of prices would maintain high prices – signal expectations for higher inflation and slower growth.
Trump's pricing plans arrived at a sensitive period, the five previous readings on basic inflation coming surprisingly hot. The favorite gauge of the Fed underlying inflation was 2.8% in February, and economists expect it to have 2.6% in March-still well above the central bank target.
“They have not restored price stability”, and may have attracted too aggressively, said Lindsey Piegza, chief economist at Stifel Financial Corp. “I am concerned about the stability of inflation with or without prices. We are in danger.”
These fears extend beyond nourished observers. Consumer inflation crowded In April, according to a report earlier on Friday of the University of Michigan, and the economists interviewed by Bloomberg said that the trade war is likely for an American recession currency flip.
A slowdown would undoubtedly cause even greater hostility from the White House. Trump has alreadyobviouslyPowell, although laterremotethreat when he swirled the financial markets.
But a central bank that fails to control inflation again after being above the target for four years could, in fact, lose credibility.
“We were so close to nailing gentle landing,” said Diane Swonk, chief economist of KPMG. “The biggest error that the Fed could make would be to instill additional inflation as the economy is weakening.”
This story was initially presented on Fortune.com
