What makes this week’s Federal Reserve meeting unprecedented

Geoff Bennett:

The Federal Reserve is widely expected to cut its benchmark interest rate by a quarter-of-a-point when it meets tomorrow, the first time it has cut rates in about a year.

But the meeting has also been described by those who watch the Fed as the strangest and most unprecedented meeting in many years. And that's due to the changing membership of the board and because of the heavy political fire from President Trump as he seeks more control over the Fed.

His newest appointment to the Fed Board of Governors is Stephen Miran, who was sworn in just in time for the meeting today after being confirmed quickly last night by the Senate. And the board member the president is trying to fire, Lisa Cook, remains in her seat after a federal appeals court ruled against Mr. Trump last night.

For a closer look, we are joined now by David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution.

It's always great to have you here at the desk.

David Wessel, Brookings Institution:

Good to be here.

Geoff Bennett:

So, we are not inside that meeting, obviously, David. But let's talk about the dynamics.

There's really nothing to compare this to in recent decades, right, I mean, not even Nixon's pressure campaign on the Fed.

David Wessel:

No, absolutely not. This is really — I think we're wearing out the word unprecedented at this Trump administration.

But, as you say, there's a governor who was sworn in just less than an hour before the meeting began and a governor who is there only because an appeals court ruled in her favor at the last moment. So it is unusual. I'd love to be in — some of these FOMC meetings, the Federal Open Market Committee, probably boring. This is one I would like to have seen.

Like, Stephen Miran has said in an interview with The Wall Street Journal that I may not be the smartest guy in the room, but I think I'm the most annoying guy in the room. So I wonder whether he's keeping his mouth shut or speaking up.

Geoff Bennett:

And, as you mentioned, Lisa Cook's future isn't settled yet. The president has indicated he's going to appeal to the Supreme Court in his effort to remove her.

If he's successful, what would the ramifications be?

David Wessel:

Well, there are two ramifications. One would be, it would be an assault on the independence, the political insulation of the Federal Reserve. Removing a governor on these rather flimsy charges or allegations would be very unusual and unprecedented. So there's the long-run thing.

In the short run, he would have four appointees on the Federal Reserve Board, four out of seven. That would give him a majority. And a majority of the board could begin if it chose to fire some of the regional Fed bank presidents. So it's a big deal.

Geoff Bennett:

Regarding these allegations, Lisa Cook acknowledged in court filings that one of her properties was listed as a vacation residence, even as the administration claims that she claimed both primary — both her properties as primary homes to get better mortgage rates.

What do we actually know about these?

David Wessel:

We know lots of little things and we don't have the whole picture. At the time she did all this, interest rates were very low. Might not have been any advantage to say it was not your primary residence. As you say, she's provided, her team has provided obviously to the press these documents that say she told him it was a vacation home. It's a condo in Atlanta, which she doesn't appear from her financial disclosures to be renting out.

So we have a lot of shreds of information. We don't really have the whole story. Interestingly, what the appeals court said is, we don't care about the substance. We don't care whether this constitutes for cause under the law. The appeals court said she was denied due process, and that alone was why they decided to let her sit in today's meeting.

Geoff Bennett:

Looking ahead, if the Fed cuts rates tomorrow, as expected, what does that mean for everyday Americans?

David Wessel:

So, the Fed controls short-term interest rates and that means that lower rates on auto loans, lower yield on your money market mutual funds, lower interest rates on credit cards.

The mortgage rates, though, are set in the bond market, and the bond market has reacted. It's expecting further rate cuts this year. So the bond market, which is, A, expecting further rate cuts, and, B, seems to be rather pessimistic about the economy, has pushed down long-term rates.

And that means mortgage rates, a 30-year mortgage was 7 percent in January, and it's now about 6.3, 6.4 percent.

Geoff Bennett:

Is that why the last time, when the Fed cut rates, mortgage rates actually ticked up, but now they have already come down in advance of this meeting?

David Wessel:

Exactly.

So lots of things determine what goes on in the bond market, but what we see now is, the markets are anticipating that the Fed will cut interest rates twice more this year and then maybe even more in 2026. So that's why this is different. The last time, it wasn't seen as a series of cuts.

Geoff Bennett:

What are you going to be paying attention to when Jay Powell speaks?

David Wessel:

A couple of things.

One is, we will get the Fed's projections, Fed officials' projections, so we will see whether they expect to cut twice more in the year. Secondly, we — it'll be interesting to see if anybody dissents at this meeting. Will any of the Trump people dissent and say that the Fed should have cut rates by a half-a-percentage point?

And then we will see how Jay Powell handles the very delicate question of the president continues to attack. He's got — you got a new guy here. You have got an old person who's being saved. How does he navigate that in his last few months as Fed chair?

Geoff Bennett:

David Wessel, you always manage to clear things up for us, and we are deeply appreciative. Thank you.

David Wessel:

That's the goal.

(Laughter)