Fed Faces Economic Uncertainty,Pressure09/15 06:20

   In a sign of how unusual this week's Federal Reserve meeting is, the 
decision it will make on interest rates -- usually the main event -- is just 
one of the key unknowns to be resolved when officials gather Tuesday and 
Wednesday.

   WASHINGTON (AP) -- In a sign of how unusual this week's Federal Reserve 
meeting is, the decision it will make on interest rates -- usually the main 
event -- is just one of the key unknowns to be resolved when officials gather 
Tuesday and Wednesday.

   For now, it's not even clear who will be there. The meeting will likely 
include Lisa Cook, an embattled governor, unless an appeals court or the 
Supreme Court rules in favor of an effort by President Donald Trump to remove 
her from office. And it will probably include Stephen Miran, a top White House 
economic aide whom Trump has nominated to fill an empty seat on the Fed's 
board. But those questions may not be resolved until late Monday.

   Meanwhile, the U.S. economy is mired in uncertainty. Hiring has slowed 
sharply, while inflation remains stubbornly high.

   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.

   For now, Fed Chair Jerome Powell and other Fed policymakers have signaled 
the Fed is more concerned about weaker hiring, a key reason investors expect 
the central bank will reduce its benchmark interest rate by a quarter point on 
Wednesday to about 4.1%.

   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."

   Amid all the economic uncertainty, Trump is applying unprecedented political 
pressure on the Fed, demanding sharply lower rates, seeking to fire Cook, and 
insulting Powell, whom he has called a "numbskull," "fool," and "moron."

   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% targer 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."

   Hiring has slowed in recent months, with employers shedding 13,000 jobs in 
June and adding just 22,000 in August, the government reported earlier this 
month. And last week a preliminary report from the Labor Department showed that 
companies added far fewer jobs in the year ending in March than previously 
estimated.

   At the same time, inflation picked up a bit last month and remains above the 
Fed's 2% target. According to the consumer price index, core prices -- 
excluding food and energy -- rose 3.1% in August compared with a year earlier..

   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.