By Steven K. Beckner
(MaceNews) – With President Trump escalating efforts to get the Federal Reserve to slash interest rates, Fed officials have given very few indications this week that they will be ready to oblige when they meet later this month.
While some officials have indicated a willingness to cut the key federal funds rate again at some point, few have expressed any urgency to do so, as a Jan. 27-28 meeting of the Fed’s rate-setting Federal Open Market Committee looms.
With the unsurprising exception of Governor Stephen Miran, Fed officials have strongly indicated over the past few days that they want to pause monetary easing past that meeting.
Their comments came as the Trump administration launched a Justice Department criminal investigation of Chair Jerome Powell over cost overruns in the extensive renovation of the Fed’s Washington, D.C. headquarters in an apparent effort to intensify already unprecedented pressure on the nominally “independent” central bank to lower rate.
Reacting Sunday night to grand jury subpoenas which could lead to indictments, Powell alleged, “The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President.”
A number of Fed officials have rallied around Powell, whose term as chair expires in May. Trump is said to be close to announcing who he will nominate to succeed him.
Despite Trump’s pressure, there continues to be no apparent consensus on the need for further monetary easing as early as Jan. 28. Some think that pressure could even cause the FOMC to delay rate cuts to prove its independence.
Miran again called for further easing Wednesday, citing the Trump administration’s deregulation campaign as justification, but his was a lone voice.
Influential New York Federal Reserve Bank President John Williams strongly signaled support for a rate cut ahead of the December FOMC meeting, but the FOMC vice chairman refrained from doing so Monday ahead of the January meeting, contenting himself instead with saying he intends to be “data dependent.”
Philadelphia Fed President Anna Paulson, a 2026 FOMC voter, allowed for more funds rate reductions Wednesday, but not until “later in the year” and not until her “cautious optimism” about inflation bears out.
Minneapolis Fed President Neel Kashkari, another voter, warned Wednesday that cutting rates too much could backfire, hurting households and the economy. In any case, he said, the economic data are still not “clean” enough to enable the FOMC to make proper judgments on risks to the two sides of the Fed’s “dual mandate” of “maximum employment” and “price stability.”
Chicago Fed President Austan Goolsbee was also withholding judgment Wednesday, saying he wants to see further evidence that inflation is coming down.
St. Louis Fed President Alberto Musalem, who also backed the December rate cut, said Tuesday he sees “little reason for near term further easing of policy.”
Richmond Fed President Thomas Barkin reiterated his view that the FOMC will need to feel its way along before deciding how to move on rates, now that the funds rate is “within the range of its estimates of neutral.”
The FOMC cut the federal funds rate by 25 basis points for a third straight meeting on Dec. 10, bringing the policy rate down to a target range of 3.5% to 3.75% (a median 3.6%).
Including the 100 basis points of cuts in the fourth quarter of 2024, the FOMC has cut the funds rate by a total 175 basis points. The funds rate remains 60 basis points above the FOMC’s own 3.0% median estimate of the “longer run,” “neutral” rate.
In their December Summary of Economic Projections, the 19 FOMC participants anticipated a single 25 basis point rate cut in 2026, which would leave the funds rate at a median 3.4%, with some projecting more easing, some less.
Much as Trump would like more easing, divisions among FOMC members cloud the outlook for future rate moves. As divided as the FOMC was in December, there seems to be even less backing for additional rate cuts approaching the late January meeting.
Miran, who is on leave from his job as Trump’s Council of Economic Advisers chair, argued Wednesday that the Fed is courting recession by ignoring the “deflationary” influence of deregulation and keeping policy unnecessarily restrictive.
“I believe that the sweeping deregulation underway in the United States will significantly boost competition, productivity, and potential growth, allowing faster economic growth without putting upward pressure on inflation,” he said. “This would support continued easing of restrictive monetary policy, but ignoring these effects would result in monetary policy that is needlessly contractionary…..”
“If deregulation boosts potential output above actual, the correct response is to cut rates,” Miran said in a speech to the Delphi Economic Forum in Athens, Greece.
“In recent quarters, policy has been tighter than it should have been to reflect significant deregulation lifting potential growth and reducing inflation,” he went on. “Going forward, I expect that the ambitious deregulation underway in the United States will boost growth without boosting inflation and be one factor supporting a further easing of monetary policy.”
Miran is not totally on an island. He has gotten some support in the past from Gov. Michelle Bowman and others, but for now most of his colleagues are taking a much more tentative approach.
Williams, who helped swing the vote for a Dec. 10 rate cut, was far more noncommittal in Monday evening remarks to the Council on Foreign Relations.
While not ruling out further easing, he suggested the economy is on track to do fine without it, at least for the time being. He called his “base case” for the economic outlook “quite favorable,” with “above-trend” GDP growth, “stabilizing” unemployment along with further moderation of inflation.
Williams said, “it is imperative that we restore inflation to the FOMC’s 2% longer-run goal on a sustained basis…without creating undue risks to the Federal Reserve’s maximum employment goal,” but said “the actions taken by the FOMC in the latter part of last year have brought these risks into better balance.”
By lowering the funds rate 75 basis points late last year, “the FOMC has moved the modestly restrictive stance of monetary policy closer to neutral,” he said, and “monetary policy is now well positioned to support the stabilization of the labor market and the return of inflation to the FOMC’s longer-run goal of 2%.”
Looking ahead on the inflation front, Williams forecast that tariffs “will have a largely one-off effect on prices that will be fully realized this year. As a result, I anticipate inflation will peak at around 2-3/4 to 3% sometime during the first half of this year, before starting to fall back” to “just under 2-1/2% for 2026 as a whole and to 2% next year.
While inflation moderates, the economy will grow “above trend” this year, with real GDP growth between 2-1/2 and 2-3/4% — “in part due to a first-quarter rebound from the effects of the government shutdown, but it’s also fueled by tailwinds from fiscal policy, favorable financial conditions, and increased investments in artificial intelligence.”
Given his forecast of above-trend GDP growth, Williams expects the unemployment rate to “stabilize this year and then gradually come down over the next few years.”
Despite this rosy scenario, Williams conceded, “there is always uncertainty when looking into the future, so I’ll remain data dependent as the year takes shape. As the December FOMC statement said: ‘In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.’”
Paulson expressed a willingness to cut rates further Wednesday, but only down the road and only if inflation moderates further as she hopes.
“I see inflation moderating, the labor market stabilizing and growth coming in around 2% this year,” she told the Chamber of Commerce for Greater Philadelphia. “If all of that happens, then some modest further adjustments to the funds rate would likely be appropriate later in the year.”
Paulson said she has “cautious optimism on inflation” but wants “greater clarity on what is pushing growth up and employment down and whether these trends will continue.” She said she will also be “paying close attention to both cyclical and structural influences on the economy, including AI and deregulation, and what they may mean for the health of the labor market, progress on inflation, and the restrictiveness of monetary policy.”
The former Chicago Fed director of research made clear she does not anticipate rate cuts in the near-term, saying, “I suspect that it will take some time to assess all of these factors and their implications for monetary policy.”
One reason why Paulson is “cautiously optimistic” on inflation and sees “a decent chance” that it will end the year “close to 2%” is that the funds rate is “still a little restrictive. So, the combination of past and current monetary policy restrictiveness will help to bring inflation all the way to two.”
Kashkari did not directly address the odds of a Jan. 28 rate cut Wednesday, but his emphasis on bringing down inflation and on waiting to get a clearer picture of economic trends seemed to indicate he is not leaning in that direction.
The incoming FOMC voter welcomed the downtick in the core CPI by saying inflaiton is “at least trending in the right direction,” but he said it is still “too high” and ndeeds to be brought down to the 2% target.
Kashkari told a Regional Economic Conditions Conference webinar he will be closely watching for signs of weakness in the labor market, but noting the December downtick in the unemployment rate, he said that for now it seems to be “moving sideways.” And he called the economy “resilient.”
The Fed could hurt families and in turn the labor market and the economy “if we get too aggressive” lowering rates, he warned, because too much easing could push up the prices which housholds have to pay.
Besides, Kashkari said, the economic outlook has been made “complex” and “confusing” because of the government shutdown. Although government data has started flowing again, he said it is still “not completely clean,” and “it’s going to take a few more months before the data is completely clean again.”
In the meantime, he said he is “mostly confident” that inflation is coming down and that the labor market is “moving sideways,” but said he wants to become more confident.
Musalem is also taking a patient approach. In a Tuesday webcast hosted by MNI, he said a further weakening of the labor market or confirmation of increased productivity could eventually allow for an “accommodative” monetary policy, but for now said that would be “inadvisable.”
For now, the St. Louis Fed chief said the funds rate is “right around neutral,” so there is “little reason for further near-term easing,”
Goolsbee has often said that rates can eventually come down, but suggested Wednesday he’s in no hurry. He said it was “nice” that consumer prices rose less than expected in December, but told NPR he’s waiting to see “is there evidence that we’re kind of putting this spike up in prices behind us.” Another thing he’s “looking for, is (whether) the consumer going to continue to be the driver of growth,”
The latest official comments come in the wake of last Friday’s mixed December employment report and Tuesday’s relatively encouraging inflation report. The Labor Department said the unemployment declined from 4.5% to 4.4% in December, but said non-farm payrolls rose a less-than-expected 50,000. What’s more, October and November payrolls were revised down.
The same agency reported that the consumer price index rose 0.3% in December or 2.7% from a year earlier. The core CPI rose a milder 0.2% last month or 2.6% year-over-year – slowest pace since March 2021.
Fed officials haven rallied around the embattled Powell in defense of Fed independence.
As anxiety about potential criminal charges against him roiled Wall Street, Williams warned that compromising central bank independence “often leads to very unfortunate economic outcomes with economic disability and high inflation.” He said it is his “sincere hope” that whoever succeeds Powell will hew to the Fed’s statutory mandate to pursue both price stability and maximum employment and not veer from those goals due to political pressure.
Kashkari said he and his FOMC colleagues “all believe very strongly that the economy is best served by having an independent central bank” that makes monetary policy “based on the data and analysis and nothing else.”
Currently, the economic signals are “mixed, complicated, and we’re doing our best to make judgements and keep politics out of it,” he continued, adding that whoever Trump appoints to succeed Powell will have to “make the best arguments to the rest of the Committee.on what monetary policy is appropriate…..He’ll get one vote, and the best argument wins.”
Regardless of who the new Fed chairman is, Kashkari said he “feel(s) very confident that the Committe ewill continue to make best judgments..to achieve the dual mandate.”
In addition to resisting pressure to cut interest rates, Musalem said he cannot foresee the FOMC approving purchases of mortgage backed securities to support Trump’s efforts to drive down mortgage rates.
Similarly, Muslem called central bank independence a “valuable asset” and echoed Williams in saying he expects the next Fed chairman will “be very committed” to the dual mandate. “I don’t expect that commitment to change, regardless of who is the chair.”
Joining the fray, Goolsbee said “the independence of the Fed couldn’t be more important for the long run inflation rate in this country….Any place where you don’t have central bank independence, inflation comes roaring back. We’ve spent the last five years fighting to get the inflation rate down and that hasn’t been easy and if you’re attacking the independence of the Fed, that makes that problem worse.”
Former Fed Chairs Alan Greenspan, Ben Bernanke and Janet Yellen, among others, sprang to Powell’s defense and condemned the DOJ action. They were joined by top Wall Street figures, such as JP Morgan Chase CEO Jamie Dimon.
The National Association for Business Economics also got into the act Tuesday, declaring that “the Federal Reserve’s independence—and the public’s confidence in that independence—are essential to strong and durable economic performance. Independence underpins the Federal Reserve’s ability to fulfill the mandate set by Congress: achieving stable prices, maximum employment, and moderate long-term interest rates ….”
“(A)ny erosion, or perceived erosion, of this independence would carry meaningful economic costs,” the NABE statement continued. “It would undermine the United States’ standing as a global safe haven for investment and risk weakening the U.S. dollar’s role as the world’s leading reserve currency.
“A Federal Reserve guided by rigorous analysis of economic conditions and evidence-based policymaking is essential to delivering price stability and sustaining maximum employment.
The NABE statement went on. “Preserving central bank independence is therefore not only an institutional principle, but a cornerstone of U.S. economic credibility, stability, and long-term prosperity.”