IMMEDIATE RELEASE 24 December 2024
WASHINGTON MERRY-GO-ROUND
Today’s Events in Historical Perspective
America’s Longest-Running Column Founded 1932
The Fed, Senate, and Business send a message
By Douglas Cohn and Eleanor Clift
WASHINGTON –The Dow tumbled eleven hundred points on one single day the week before Christmas when Chairman Jerome Powell announced the Fed’s quarter-point cut in interest rates would be followed by just two more cuts next year instead of the four he had forecast in September. It was a message sent.
Powell’s reasoning: Inflation has not come down enough and the Fed is hedging its bets. Asked if the incoming Trump administration’s proposed tariff policies affected the Fed’s decision, Powell avoided specifics but said it is “very premature to make any kind of conclusions. We do not know what will be tariffed, from what countries, for how long, in what size.” In other words, the Fed addressed a political question, something it rarely does.
Powell is taking some heat for the market’s tumble, but he delivered the message that he intended: Trump is not all powerful.
A Trump appointee with another year and a half left in his second term, Powell had earlier rebuffed the President-elect’s calls for him to resign, after which Trump backed off. Maybe Trump realized he needs Powell’s expertise.
Whatever the reason, Powell’s pushback is akin to what Senate Republicans did when they rebuffed Trump’s opening bid on his Cabinet nominations. He wanted them all confirmed as a group with recess appointments, a maneuver that has never before been used to that extent to bypass the Senate’s advice and consent power in the Constitution.
The incoming Senate majority leader, John Thune from South Dakota, respectfully declined Trump’s request. Trump could still get all his picks confirmed, but the Senate will preserve its right to confirm or deny as a co-equal branch of government.
The quarter-point cut that Powell announced was widely expected and fell short of what many believe is needed to boost the economy, especially the housing market. Powell has been cautious in his approach, always on the outlook for inflation, which was President Biden’s biggest vulnerability.
Trump campaigned on a promise to bring down inflation but since the election, he has changed his tune, telling NBC’s Kristin Welker that it will be “very hard” to bring down prices on groceries. “It's hard to bring things down once they're up. You know, it's very hard,” he said.
By dampening expectations that next year will be a banner year with rate cuts to stimulate the economy and the housing market, Powell sent a strong signal to Trump and his allies that the Fed is an independent body with mandated power to regulate monetary policy.
The Fed is prepared to act as a brake on Trump’s most controversial policies. Tariffs top the list. Most economists agree they will raise prices and are therefore inflationary. Whether Trump follows through with widespread tariffs against China and other nations remains to be seen, but the Fed is getting ready.
The same may be said about Trump’s promise to deport millions of immigrants in the country illegally. His border czar has orders from Trump to start on Day One of the administration. More than a million undocumented immigrants have deportation orders in hand, so the administration could begin with them with little pushback.
If the administration gets more aggressive and seeks to remove some of the millions who came into the country recently, that could disrupt U.S. labor markets that rely on these workers to pick crops, work in factories and take care of the country’s elderly in nursing homes for minimal wages.
Sure, these workers broke the law when they crossed the border illegally, but the employers who looked the other way and accepted false credentials are also implicated, as is our entire system that depends on low-cost labor. It is a fragile balance between the human cost and the political cost with huge implications for the U.S. economy. The illegals came for the jobs.
The Fed chairman is holding his ground in the inflation war, the Senate may draw the line on its prerogatives, and business interests are certain to do likewise in the Great Deportation fight.
See Eleanor Clift’s book Selecting a President, and Douglas Cohn’s latest books The President’s First Year: The Only School for Presidents Is the Presidency and World War 4: Nine Scenarios (endorsed by seven flag officers).
Twitter: @douglas_cohn
© 2024 U.S. News Syndicate, Inc.
Distributed by U.S. News Syndicate, Inc.
END WASHINGTON MERRY-GO-ROUND