While on Wall Street there is more talk about Jerome Powell’s successor at the head of the Federal Reserve than about the movement that will be made by the central bank during its meeting of the last century, there is an anomaly on the market. Casa Blanca does not hide that it wants to replace Powell, insulted, harassed and denigrated by Trump, with a faithful, complacent and docile man like Kevin Hasset, the director of the Economic Office serving the President of the States.
Meanwhile, the Fed is experiencing its greatest internal division in decades, even as Trump and his team redouble their push for further narrowing of interest types and insistently question the independence of the organization into which the Republican has placed some members and threatens to colonize it.
Last summer, the millionaire president named 42-year-old Stephen Miran his chief economist. At the two meetings held since September by the Fed’s Federal Open Market Committee (FOMC), the body that decides on types, Miran voted for more aggressive, medium-intensity strikes. At the other extreme is Kansas City Regional Fed President Jeff Schmid, who has opposed new types of budget cuts because he believes they could help entrench higher inflation instead of undermining the job market. Other members aligned themselves in these gangs of Halcones Yes palomas create the largest division of the American central bank in its recent history. Powell’s job seeking consensus is not easy.
As many as five of the 12 voting members publicly indicated that there was not enough argument to remove the tasks. Fed officials have been unusually divided on which decision will do the least harm to the economy.
The tenant of the Oval Despacho wants to grant the cheapest loans to revive the economy in the face of next year’s midterm elections, where polls predict a victory for the Democrats. Lower prices also mean cheaper mortgages, which helps the housing market and helps ease the crisis of life uncertainty that has permeated public debate in the United States for weeks.
So, despite the fact that a month ago there was some consensus among analysts that the Federal Reserve would take a break in December, investment estimates indicate that there is now almost a 90% chance that it will cut the types again at this quarterly meeting, according to the CME Group’s FedWacht indicator.
One of the points of interest this quarter will therefore be to see what visibility the Federal Reserve offers on its next movements. We will have to pay attention to the tone of Powell’s remarks and the new projections to try to interpret whether there will be new types. Even if analysts estimate that next year there will be at least more.
The market loses its third consecutive decline since September, causing the price of silver to fall between 3.5% and 3.75%, despite the fact that the Federal Reserve’s goals of price stability and job creation are subject to opposing forces.
“The labor market is showing slower employment growth, but this slowdown is not due to a drop in labor demand, but to a drop in labor supply due to migration restrictions,” assures Torsten Slock, senior economist at Apollo, who believes that the Fed “should not lower interest rates this week.”
The minutes of last October’s Fed meeting revealed deep internal division, but also suggested a pause due to a lack of visibility on the immediate future of the US economy. Economists said the federal government blocked data collection for 42 days between October and November, the longest in history, making it harder to predict which one should weigh more in making a decision: the return of inflation or the deterioration of the labor market.
Analysts have had little debate about the Fed’s decision this month, so interest will focus on the tone of Powell’s remarks and the trend of the organization’s economic projections.
“A 25 fundamental point drop in the interest list, widely expected, will not have a significant impact on the markets,” reflects Andrew Hollenhorst, chief economist at Citi. “It is likely that divisions will be evident within the commission, with at least one vote against the commission,” he adds.
What happened two weeks ago when analysts all but ruled out a cut and it’s now considered discounted? Two questions: greater concern about the labor market situation and the increase in prisons at Casa Blanca.
The last official CPI data for the United States was released a month and a half ago and corresponds to September, when prices rose 3%, sparking concerns over persistent inflation. Government authorities have delayed the release of new data, expected next week. Trump has approved several measures to try to reduce the cost of the basket in the face of growing concerns about the cost of living, an issue that undermines his political value. In addition, it has narrowed down items to a broad catalog of products in the American household basket, such as coffee, beef and fruits and vegetables, easing price pressure.
On the other hand, the latest official job creation figures reveal that in September there were 119,000 more workers than the previous month. A good dato, but with good reason, because it is the worst September since the pandemic. Furthermore, the unemployment rate increased by 4.4%. Even though it remains at historically low levels, its upward trend is starting to worry, alongside the increase in nude data collected by Challenger.
“This meeting appears to be a very appropriate decision within a deeply divided Federal Reserve (Fed), underlines Michael Krautzberger, CIO of public markets at Allianz Global Investors. “Limited visibility on the economic situation and a more resilient economy than expected have reinforced their caution,” he added.
Deborah Cunningham, senior analyst at Federated Hermes, assures that “investors listen to the comments of all the leaders of the Federal Reserve, but pay little attention.” “It would seem that the main one is the presidency,” he continues, “but the president of the New York Fed is not very long on the list: so when its current director, the veteran John Williams, said he would essentially favor a reduction of the types at the next monetary policy meeting, investors were dying in cash.
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