logo
Economist Warns Fed Could Hike Interest Rates Despite Trump Calls for Cut

Economist Warns Fed Could Hike Interest Rates Despite Trump Calls for Cut

Newsweek5 days ago
Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources.
Newsweek AI is in beta. Translations may contain inaccuracies—please refer to the original content.
An economist believes the Federal Reserve may choose to raise interest rates to address stubborn inflation, despite many forecasting a cut and pressure for this from President Donald Trump.
"The unemployment rate is low but the rate of inflation is somewhat elevated," William Silber wrote in a recent article for The Wall Street Journal. "That suggests, if anything, the target interest rate should be higher to push down inflation."
Why It Matters
Since the beginning of his second term, Trump and many in his administration have been pushing for a major rate cut to stimulate economic growth and reduce the U.S.'s debt payments. Much of this pressure has been directed at the central bank's chair, Jerome Powell, whom Trump has routinely criticized and called "too late Powell," a "stupid person" and a "Trump Hater."
The president has floated the possibility of replacing Powell with someone whose views on monetary policy more closely align with his own, though both he and the administration maintain that there are no imminent plans to do so.
What To Know
The Federal Open Market Committee (FOMC), the body tasked with setting monetary policy, has not cut interest rates since December. The Fed has held the target range at 4.25 to 4.50 percent, remaining in a "wait and see" mode absent greater clarity on the trajectory of inflation and the effects of Trump's tariffs on the economy.
In a statement following the most recent FOMC meeting in June, the Fed said, "The unemployment rate remains low, and labor market conditions remain solid."
Unemployment dropped to 4.1 percent in June, according to Labor Department data, down from 4.2 percent in May and the forecast increase of 4.3 percent.
However, the Fed's "dual mandate" is to promote both maximum employment and stable prices, and it acknowledged in the same statement that inflation remains elevated. Per the most recent Consumer Price Index, the annual inflation rate increased to 2.7 percent in June from 2.4 percent in May.
According to Silber, this persistently high inflation creates a mystery of why no Fed officials have suggested raising borrowing costs—which slows spending and investment—to bring inflation closer to the central bank's long-term 2 percent target.
Silber told Newsweek that given the "full employment" the U.S. is enjoying, he did not see "any reason" for the Fed to cut rates until inflation fell below this target.
"Right now inflation is above 2 percent—never mind that it has declined. … That's history," he added. "The target rate should be higher by at least 25 basis points."
Federal Reserve Chair Jerome Powell arrives for the Integrated Review of the Capital Framework for Large Banks Conference at the Federal Reserve in Washington, D.C., on July 22.
Federal Reserve Chair Jerome Powell arrives for the Integrated Review of the Capital Framework for Large Banks Conference at the Federal Reserve in Washington, D.C., on July 22.Michael Pearce, the deputy chief U.S. economist at Oxford Economics, told Newsweek that the chances of the Fed raising rates at its next meeting or this year are "slim to none."
Christopher Waller and Michelle Bowman, both Trump appointees to the Fed's Board of Governors, have already voiced their support for a rate cut. Waller told Bloomberg TV earlier this month that the labor market may be weaker than people believe, his justification for more stimulative monetary policy. Bowman, meanwhile, said last month that the inflationary effects of tariffs "may take longer, be more delayed, and have a smaller effect than initially expected."
Trump has called on the Fed to cut rates by several points, which he believes could save the federal government up to $900 billion in annual debt payments.
Economists who previously spoke with Newsweek anticipated the Fed cutting rates by the end of the year at the latest, though some said tariffs and the potential effects of the One Big Beautiful Bill Act could push the Fed to maintain its "wait and see" stance.
What People Are Saying
William Silber wrote in The Wall Street Journal: "No one on the FOMC knows precisely the appropriate interest rate needed for price stability and maximum employment. And neither does any Nobel Prize-winning economist. The so-called neutral rate of interest is observed in hindsight—by whether the economy is expanding fast enough to keep unemployment low but not too fast to provoke higher inflation. By that measure, the current target interest rate of 4.25 percent to 4.50 percent seems about right."
Michael Pearce, the deputy chief U.S. economist at Oxford Economics, told Newsweek: "We have an economy where unemployment looks about right, and core inflation is running a little hot—somewhere between a half and a full point above 2 percent. Most policy rules would suggest we want rates slightly restrictive—and moving down closer to neutral as the inflation risk fades.
"There is always uncertainty about the Goldilocks level of interest rates—not too hot to stoke inflation, not too cold to drive up unemployment. I disagree that neutral rates are that high—my best guess is neutral is somewhere in the low threes."
What Happens Next
The FOMC is scheduled to meet on Tuesday and Wednesday and announce its interest rate decision.
According to the minutes of its June meeting, "a couple" of policymakers were open to cutting rates at the upcoming meeting, while others argued that the Fed could hold off until the end of 2025, based on both "elevated short-term inflation expectations" and belief that the economy can "remain resilient."
Orange background

Try Our AI Features

Explore what Daily8 AI can do for you:

Comments

No comments yet...

Related Articles

Hensoldt Second Quarter 2025 Earnings: EPS Misses Expectations
Hensoldt Second Quarter 2025 Earnings: EPS Misses Expectations

Yahoo

time4 minutes ago

  • Yahoo

Hensoldt Second Quarter 2025 Earnings: EPS Misses Expectations

Hensoldt (ETR:HAG) Second Quarter 2025 Results Key Financial Results Revenue: €549.0m (up 5.6% from 2Q 2024). Net loss: €12.0m (loss widened by 20% from 2Q 2024). €0.10 loss per share (further deteriorated from €0.081 loss in 2Q 2024). Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit. All figures shown in the chart above are for the trailing 12 month (TTM) period Hensoldt Earnings Insights Looking ahead, revenue is forecast to grow 15% p.a. on average during the next 3 years, compared to a 20% growth forecast for the Aerospace & Defense industry in Germany. Performance of the German Aerospace & Defense industry. The company's shares are down 5.5% from a week ago. Risk Analysis It's necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Hensoldt (at least 1 which is a bit concerning), and understanding them should be part of your investment process. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Unilever First Half 2025 Earnings: EPS: €1.43 (vs €1.48 in 1H 2024)
Unilever First Half 2025 Earnings: EPS: €1.43 (vs €1.48 in 1H 2024)

Yahoo

time4 minutes ago

  • Yahoo

Unilever First Half 2025 Earnings: EPS: €1.43 (vs €1.48 in 1H 2024)

Unilever (LON:ULVR) First Half 2025 Results Key Financial Results Revenue: €30.1b (down 3.2% from 1H 2024). Net income: €3.51b (down 5.1% from 1H 2024). Profit margin: 12% (in line with 1H 2024). EPS: €1.43 (down from €1.48 in 1H 2024). Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit. All figures shown in the chart above are for the trailing 12 month (TTM) period Unilever Earnings Insights Looking ahead, revenue is forecast to grow 2.8% p.a. on average during the next 3 years, compared to a 2.9% growth forecast for the Personal Products industry in the United Kingdom. Performance of the British Personal Products industry. The company's shares are up 1.5% from a week ago. Risk Analysis You should always think about risks. Case in point, we've spotted 2 warning signs for Unilever you should be aware of. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Sign in to access your portfolio

Did the Fed just royally screw up?
Did the Fed just royally screw up?

CNN

time14 minutes ago

  • CNN

Did the Fed just royally screw up?

Federal agencies Job market EconomyFacebookTweetLink Follow It took only a few days for the Federal Reserve's latest decision on interest rates to age like milk. The central bank on Wednesday said it was holding borrowing costs steady yet again, extending a wait-and-see pattern that began in January. That same day, Fed Chair Jerome Powell told reporters that a 'solid' labor market means central bankers still have the luxury of waiting to see how President Donald Trump's tariffs affect prices before resuming rate cuts that could help boost jobs but could also reignite inflation. Just two days later, it turned out that the job market is on shakier ground than Powell had suggested. It may take a bit more time to know if that's really the case. But the Fed may walk away with egg on its face. The Fed did not respond to a request for comment. On Friday, the Labor Department reported that employers added just 73,000 jobs in July, well below the threshold of monthly job growth necessary to keep up with population growth. Meanwhile, the unemployment rate ticked up to 4.2% from 4.1%. And the monthly report was even worse than it seems: The Labor Department also massively revised downward the job gains for the prior two months. It's now clear that job growth has been anemic, based on the newly revised data: The average pace of monthly job growth from May through July was the weakest than any other three-month period since 2009, outside of the pandemic recession in 2020. 'Powell is going to regret holding rates steady this week,' Jamie Cox, managing partner at Harris Financial Group, said in commentary issued Friday. But not everyone at the Fed shared Powell's view on the labor market. The Fed's latest decision generated pushback from within like it hasn't seen in decades. Fed Governor Christopher Waller and Fed Vice Chair for Supervision Michelle Bowman cast dissenting votes, marking the first time that more than one Fed governor has done so since 1993. In statements issued Friday, both officials pointed to signs of weakness in labor market as a major reason why they dissented, while downplaying the potential effects of Trump's tariffs on prices. The Fed is tasked by Congress to address both high inflation and a weakening labor market. 'The labor market has become less dynamic and shows increasing signs of fragility,' Bowman wrote, adding that just few industries have propelled job growth this year, which remained the case in July, according to the latest data. Still, it may be too soon to conclude that the Fed has royally screwed up. 'It was a disappointing report to be sure, but when I look at the data, we try not to make too much out of any one individual report,' Cleveland Fed President Beth Hammack told Bloomberg on Friday after the July jobs report was released. 'I feel confident with the decision we made earlier this week.' Last year, after the unemployment rate climbed quickly in a short period of time and there were similar calls that the central bank was too late to lower rates, the Fed stepped in with a bold, half-point rate cut to stave off any further weakening. By the end of last year, it turned out that the labor market wasn't falling off a cliff: In December, employers added a massive 323,000 jobs as the unemployment rate edged down from the prior month to 4.1%.

DOWNLOAD THE APP

Get Started Now: Download the App

Ready to dive into a world of global content with local flavor? Download Daily8 app today from your preferred app store and start exploring.
app-storeplay-store