The Federal Reserve may have more at stake than economic growth as policymakers prepare to meet on rates this coming week.
“I think the Federal Reserve desperately wants to avoid that kind of outcome,” he added. “Obviously nobody wants a recession. But also in the context of Fed independence, they really don’t want to get blamed for going into a downturn because that would impair their ability.”
His reasoning: If the economy stumbles with Powell still at the helm, then Trump can point to him as the “perfect scapegoat” and ask Congress to give the White House more power over the Fed.
“That is a threat. Don’t forget, our Federal Reserve is not at all a part of our Constitution. It’s a creature of the U.S. Congress, created by the Federal Reserve Act 1913. All its powers devolve from Congress,” Siegel explained. “Congress has amended the Federal Reserve Act many times. It could do it again. It could give powers. It could take away powers.”
Meanwhile, Stephen Miran is set to join the Fed—without resigning as chair of the White House’s Council of Economic Advisers—after previously calling for changes that would erode its independence before he joined the Trump administration.
Despite the enormous pressure Trump has put on the Fed to lower rates, even trying to fire Governor Lisa Cook, central bankers have largely resisted his calls so far. But the sudden deterioration in the job market has made a rate cut a virtual certainty.
In a note on Friday, JPMorgan chief U.S. economist Michael Feroli said he expects two or three dissents for a larger cut and no dissents in favor of keeping rates unchanged.
At the Fed’s last meeting Fed governors Christopher Waller and Michelle Bowman dissented from other policymakers by calling for a quarter-point cut. It’s possible they could dissent again by voting for a half-point cut, Feroli said, with Miran expected to “dutifully dissent for a larger cut” as well.
On Thursday, Zandi said the bar is high for a half-point cut, but “there’s a possibility we could get over that.” He added that a JPMorgan forecast for six cuts by the end of 2026 is reasonable, assuming a neutral level for the fed funds rate is about 3%.
“It’s possible if the economy is weaker and recession risk higher and concerns about Fed independence greater that we get something a little lower than that, 2.5% to 3%,” Zandi said.
