Dem
47
GOP
53
At its meeting yesterday, the Federal Reserve's Open Market Committee cut interest rates by 0.25%, the first cut this year. It did this in response to a weakening labor market and slower growth. The vote was unanimous except for Donald Trump's newest appointee, Stephen Miran, who voted for a 0.5% cut. Most economists were expecting this cut. However, cutting interest rates could set off another round of inflation. In August it was up to 2.9%, above the Fed's target of 2%. This cut will probably drive it above 3%. If you are a high school student, that is 50% more than the Fed wants (keep reading and this remark will become clearer later on).
In his statement, Fed Chairman Jerome Powell noted that the labor market is unusual now. There are fewer jobs but also fewer people looking for jobs on account of all the deportations going on. The Fed has never had to deal with this before. Nevertheless, Powell said that more cuts are likely before the end of the year. If that happens, it could stoke more inflation.
Donald Trump may be slightly mollified now and may stop trying to fire Powell, as least for the moment. On the other hand, if Powell keeps cutting rates and inflation surges, that could hurt the Republicans next year. What Trump should do—but won't do—is leave Powell alone to make the best judgment he can based strictly on economic data, not politics or Trump's wish for low interest rates because that helps his real estate businesses. (V)