So a key question for the Fed is: Do they worry more about people who are out of work and struggling to find jobs, or do they focus more on the struggles many Americans face in keeping up with rising costs for groceries and other items? The Fed’s mandate from Congress requires it to seek both stable prices and full employment.
Still, stubbornly high inflation may force them to proceed slowly and limit how many reductions they make. The central bank will also release its quarterly economic projections Wednesday, and economists project they will show that policymakers expect one or two additional cuts this year, plus several more next year.
Ellen Meade, an economics professor at Duke University and former senior economist at the Fed, said it’s a stark contrast to the early pandemic, when it was clear the Fed had to rapidly reduce rates to boost the economy. And when inflation surged in 2021 and 2022, it was also a straightforward call for the Fed, which moved quickly to raise borrowing costs to combat higher prices.
But now, “it’s a tough time,” Meade said. “It would be a tough time, even if the politics and the whole thing weren’t going on the way they are, it would be a tough time. Some people would want to cut, some people would not want to cut.”
Loretta Mester, a former president of the Federal Reserve Bank of Cleveland and finance professor at the University of Pennsylvania’s Wharton School, said that Fed officials won’t let the criticisms sway their decisions on policy. Still, the attacks are unfortunate, she said, because they threaten to undermine the Fed’s credibility with the public.
“Added to their list of the difficulty of making policy because of how the economy is performing, they also have to contend with the fact that there may be some of the public that’s skeptical about how they’ve gone about making their decisions,” she said.
David Andolfatto, an economics professor at the University of Miami and former top economist at the Federal Reserve Bank of St. Louis, said that presidents have pressured Fed chairs before, but never as personally or publicly.
“What’s unusual about this is the level of open disrespect and just childishness,” Andolfatto said. “I mean, this is just beyond the pale.”
There are typically 12 officials who vote on the Fed’s policies at each meeting — the seven members of the Fed’s board of governors, as well as five of the 12 regional bank presidents, who vote on a rotating basis.
If a court rules that Cook can be fired, or Miran isn’t approved in time, then just 11 officials will vote on Wednesday. Either way, there ought to be enough votes to approve a quarter-point cut, but there could be an unusual amount of division.
Miran, if he is on the board, and Governor Michelle Bowman may dissent in opposition to a quarter-point reduction in favor of a steeper half-point cut.
There could be additional dissenting votes in the other direction, potentially from regional bank presidents who might oppose any cuts at all. Beth Hammack, president of the Fed’s Cleveland branch, and Jeffrey Schmid, president of the Federal Reserve Bank of Kansas City, have both expressed concern that inflation has topped the Fed’s 2% target for more than four years and is still elevated. If either votes against a cut, it would be the first time there were dissents in both directions from a Fed decision since 2019.
“This degree of division is unusual, but the circumstances are unusual, too,” Andolfatto said. “This is a situation central banks really don’t like: The combination of inflationary pressure and labor market weakness.”
With inflation still elevated, the Fed may have to proceed slowly with any further cuts, which would likely further frustrate the Trump White House.
“When you get to turning points, people can reasonably disagree about when to go,” Meade said.
