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Why the Fed kept interest rates steady for now, despite pressure from Trump

The Federal Reserve says it's holding its benchmark interest rate steady, despite ongoing pressure from President Trump to reduce it. But Fed Chairman Jay Powell expressed openness to the idea of cutting rates if economic indicators warrant. He also recently said he intends to serve his full four-year term, despite Trump's criticism of him. Judy Woodruff talks to The Wall Street Journal's Greg Ip.

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  • Judy Woodruff:

    Federal Reserve Chairman Jay Powell's comments about a potential interest rate cut marked a shift in the Fed's assessment of where the economy is heading.

    But they also came after President Trump fired yet another shot at the Fed chairman he selected. The president was asked yesterday about news reports that he had explored the idea of demoting Powell this past winter. He neither denied nor confirmed it.

  • President Donald Trump:

    So, we'll see what happens. They're going to be making an announcement pretty soon, so we'll see what happens. But I want to be given a level playing field. And, so far, I haven't been.

  • Judy Woodruff:

    Jay Powell, in turn was asked today about possible threats from the president.

  • Question:

    Could you clarify what you would do if the president tweets or calls you to say he would like to demote you as Fed chair?

  • Jerome Powell:

    I think the law is clear that I have a four-year term, and I fully intend to serve it.

  • Judy Woodruff:

    Greg Ip of The Wall Street Journal has been following and writing about all this and the Fed's actions. And he joins me now.

    Welcome back to the "NewsHour," Greg Ip.

    First of all, how unusual is it for the president to be talking about demoting the chairman of the Federal Reserve?

  • Greg Ip:

    It's very unusual. Really, since the 1950s at least, I can't think of any president who has so consistently and ferociously berated the Fed chairman in public.

    And it's especially unusual because President Trump appointed this Fed chairman a little over a year ago. It's even more unusual and unprecedented for the president to talk about or explore firing the Fed chairman.

    Now, all that said, this all should be kept in proportion. I believe our best information is that some people around Trump did, in fact, explore the legal possibilities of removing Jay Powell as the Fed chairman sometime in the past winter, and concluded that it was very difficult.

    In fact, best reading on the law is that the Fed chairman can be only removed for cause. He can't be removed because the president doesn't happen to like his monetary policy. And sometime after those explorations, Trump had a conversation Jay Powell where he basically said, I guess I'm stuck with you.

    He answered the question yesterday because he was asked, but I don't actually believe there's any movement afoot right now in the White House to remove Jay Powell.

  • Judy Woodruff:

    Well, there's no movement on that front, we know the president has been talking about he wants the Fed to lower rates. Certainly, people who work for the president have been saying that.

    What does it say about the Fed's independence that this kind of discussion is going on so close to the time when the Fed — when the board has to make the decision about what to do about interest rates?

  • Greg Ip:

    Well, the president and his advisers clearly think and hope that, by publicly calling on the chairman to cut interest rates, it will have some effect on the chairman's thinking, that of his colleagues.

    Now, the Fed chairmen have always tried to make their decisions free of political influence. This is certainly not the first time a Fed chairman has had to fend off calls for lower interest rates because somebody in the political class thought it would be better.

    So, in that sense, even though the degree of pressure is very large, I don't think that Powell is facing an especially new situation. And he's been — we believe he's been very clear to his colleagues, saying, look, our job is to do the best thing for the American people, full employment, stable inflation. We mustn't cut rates because the president wants it, but we must also not avoid cutting rates just to show that we're independent for its own sake, if we think that's what the economy calls for.

  • Judy Woodruff:

    So let's talk, Greg Ip, quickly, about what the Fed did today. They said, OK, we do see some clouds on the horizon, some things that make us think we want to cut rates in the future, but we're keeping them where they are right now.

    Why didn't they go ahead and act?

  • Greg Ip:

    Well, because, if you actually look at the data on the economy, it is not a picture of an economy in deep trouble.

    We have probably slowed from a 3 percent growth rate to around a 2 percent growth rate. There's no strong signs, other than a few sort of signs in the bond market, that a recession is afoot. We had very good news, for example, on retail sales in the month of May.

    Bottom line, you do not see the obvious signs of an economy rolling over. And so the Fed is very reluctant to change interest rates, unless they actually have decent evidence on hand that it's called for.

    That said, they also have to take into account the risks that they are going to be wrong about their outlook. And there are risks out there. The global economy has slowed down. We have seen the manufacturing sector here and abroad soften a lot.

    And there's been an eruption anew in the last few weeks of trade tensions. Talks broke down between the U.S. and China. That led to the threats of more tariffs there. The president briefly threatened to impose very high tariffs on Mexico.

    And so there is a lot of murkiness over the outlook. So, Powell basically said, we see there might be a case for lowering the rates. Indeed, many of his colleagues think that rates will be lowered by year-end.

    But it's their nature to act only when they have evidence on hand. And they would like a few more weeks to see whether, in fact, the evidence confirms the economy is slowing enough to require lower interest rates.

  • Judy Woodruff:

    So, we will see whether they are taking a risk or not. But we can imagine they're going to be watching all this very closely, as we know you are.

    Greg Ip, thank you very much.

  • Greg Ip:

    Thank you.

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