|
Fed Under Pressure
As a rule, the Federal Reserve — through its chair — attempts to project stability. Statements are carefully worded. Interest rate changes are often conservative.
But Jerome Powell appeared to throw caution to the wind in a video statement on Sunday, when he revealed the Department of Justice is investigating whether tax dollars have been misused in the $2.5 billion renovation of two historic Fed buildings in Washington. The Fed chair said the investigation had nothing to do with the renovation and was about political pressure to influence monetary policy decisions.
President Donald Trump — whose longstanding war on high interest rates has recently included a call to cap credit card rates at 10% — has consistently pressured Powell to lower the federal funds rate, though the president denied knowledge of the investigation when asked by NBC News. Decisions about monetary policy, however, are made by a committee of Federal Reserve governors and presidents. They don’t always vote the same way. “It’s a very involved decision-making process,” says Eugenio Alemán, chief economist at Raymond James Financial. “The chairman has the responsibility of bringing everybody together and making a decision as an institution. But unanimity is not a requirement.”
Economic information is subject to interpretation by Federal Open Market Committee members, and the signs aren’t always clear. With growth projected for 2026 and 2027, says Alemán, “if they continue to lower interest rates, the economy will probably grow more than what they are expecting, and that could push inflation higher. They have to be very, very careful on how they move during this year.”
Trump will have an opportunity to further influence Fed decision-making when he appoints a Fed chair in May, though he could be denied an additional appointment if Powell opts to remain on the board until his term ends in early 2028.
Maintaining the Fed’s independence is crucial. Alemán is originally from Argentina, he tells me, and he’s seen this for himself. In 2010, the South American country’s then-president dismissed the head of its central bank when he refused to use its reserves to pay down Argentina’s debt, which escalated inflation.
“I know what lack of independence in monetary policy does to a country and to a country's currency and to a country's financial stability,” Alemán explains. “For the economy, the less you see government officials on the TV arguing their case, the better it is.”
• Emily McCormick, vice president of editorial & research for Bank Director
| 
