The latest – and perhaps last – Fed rate cut
As the market anticipated, the Fed’s Open Market Committee voted to lower the Fed funds rate by another 25 basis points. The market yawned. The Dow rose 1.05%, the S&P 500 rose 0.67% and the Nasdaq Composite rose 0.33%. However, the dollar fell in world markets. Lower interest rates reduce the dollar’s yield advantage in world markets. Global investors then move rotate out of dollars and into higher-yielding currencies.
The vote on the committee had three dissents. Two members voted for no change. Trump’s man on the board, Miran voted for his usual 50 basis point cut. Miran knows that if he doesn’t do Trump’s bidding that he won’t get his job back at the Council of Economic Advisors when his Fed term ends in January. The two votes to hold were both reserve bank presidents, Schmid of Kansas City (third dissent in a row) and surprisingly Goolsbee of Chicago. I thought Boston president Susan Collins – who has the best resume on the Committee – might vote to hold but she did not.
As usual, the president voiced his displeasure saying that the number was too small and he wanted one twice as large (see Miran). He said “We have to get a mindset that when the country is doing well, you don’t want to kill the growth. That’s what they’re doing. They kill the growth because they’re so afraid of inflation. But you can have tremendous growth without inflation. Everything goes up with the growth. But that’s not inflation.” Well at least this time he did not insist that the rate be lowered to 1%. He then called Chairman Powell a “stiff.” BTW do you really want Trump to dictate monetary policy?
What is interesting is that Treasury Secretary Bessent noted that Powell only has one vote on the committee, so a change in the chair does not guarantee the entire committee voting in a way desired by the president. Four other members of the committee who voted to lower the rate indicated initially that they did not favor a cut but apparently were persuaded by Powell to go along with the 25 basis point cut. Powell indicated that more cuts may not be forthcoming in 2026 as did seven members of the committee. Recall that the committee consists of the seven governors, the president of the New York Fed and four of the 11 other reserve bank presidents. This is a warning shot across the bow of the president indicating that regardless of who he picks in January and who he then picks to replace Powell, that rate cuts are not likely forthcoming in the new year. Prepare for more insults hurled at the committee members and stepped up efforts to fire them.
Trump is already looking to see if the governors nominated by Biden were authorized by use of the autopen, indicating that they are not legitimate. The Supreme Court has yet to opine on the president’s attempt to fire Lisa Cook. Bessent is questioning the appointment of several reserve bank presidents who did not reside in the district that they preside over prior to their nominations by their reserve bank boards of directors. He wants there to be a three year residency requirement for any president. Atlanta Fed president Bostic is an example. He was on the faculty of the University of Southern California prior to being named Atlanta Fed president. Boston president Susan Collins was provost at the University of Michigan although she did get her PhD from MIT. Yet the notion of the nominee residing in the area is not new. When I was in Washington in the 1970s, a Texas congressman proposed it but it never became law. Personally, I don’t see the logic in it for the reserve bank presidents. There is a de facto rule however that a person nominated to the Board of Governors itself is supposed to represent a particular Federal Reserve district and traditionally that person is a resident of that region.
haroldblackphd.com 
It’s interesting and frustrating to watch the broad ignorance of the impact of inflation on the populace, and its direct connection to interest rate manipulation by the Fed. Trumps acolytes – Bessent, Hassett, Levitt, et al, will knowingly speak to “core inflation” while sidestepping and discounting “volatile food and energy prices” as part of the everyday man’s fiscal equation. But aren’t those the cruelest types of inflation? Food and energy are the most regressive forms of inflation (“price tax”) because every person must eat and most must drive. The average citizen is generically unconcerned about the cost of a semiconductor or copper commodities; their lives are volatile because they stand at the grocery bunker cooler and see $8.99 ground beef that was $4.99 four years ago. Republicans – led by Trump’s insatiable desire for ratings – are going to fall on their own pitards, walking directly into a helicopter blade called “malaise.” Rate cuts will overheat this economy next year, in the face of still short supply. Will any Republicans have the guts to stand alone?
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Well said. Maybe add housing to the list with food and energy. Trump’s response is to blame Biden. It falls on deaf ears. It’s his economy now.
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Bessent did try to get Trump to just cruise on the economy. Not to draw negatives fm the Fed..It didn’t work..
This blog doesn’t talk religion , Trump’s greatest survivalist technique..
Yesterday I listened to a radio minister talk Liberty and Freedom, coming only by submission and servitude. Great, but he is not talking submission to God ; he’s talking submission to a human representative..
I recall the escalator, that Trump’s coming down an escalator meant he was the Tribal leader chosen by God. I never dreamed the continuance of servitude to Trump was service to God— but people started that Day One, won’t let go of it. .
Nothing will change. Because of continued submission. I do believe in eternity : Trump will live and rule forever.
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Well, I guess eternity ends in a little over 3 years….
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Larry, Earlier I asked if MAGA had legs. Personally I think of it as a personality cult and Vance is incapable of carrying the mantle. Also I don’t see all the fundamentalist elements that you see. Yes I think Trump maybe anti Muslim but he is solidly pro Israel despite all the antisemitism on the fringe right.
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Maybe I just don’t recall, but I would welcome your POST opinions on Israel..
Esp since it was Democrat Truman that bears the legacy of being the first leader to recognize Israel..
In looking at the life of Golda Meir, did you know she lived in Milwaukee ? And that her own biography says her return to the Middle East , was a
return ‘ to Palestine’. Meir- whose whole life is the history of Israel- involves the mention of a Palestinian State..
I hope you went to the Violins of Hope display and concert- once promoted by Hal Hill.
The attendance in Tennessee Theater was disgraceful…
I know that people , who cry ISRAEL, are really not onboard.
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Where was the Fed in 2021? Who praised the inflation reduction act? Why did they cut interest rates before the 2024 Election? Does anyone really think the Fed is independent anymore? It seems like the Fed just carries water for the Democratic party?
What caused all this inflation in 21,22, and 23?
https://ycharts.com/indicators/us_inflation_rate
Where was the concern for inflation then?
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We have gone over that ground many times. I blame the Fed as well for its accommodative policies both in Trump’s first term and during the Biden disaster. Do you really think that yielding to Trump’s demand for a one percent Fed funds rate would be in the best interests of the country?
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I believe the Fed not standing up to the Biden Admin on the inflation reduction act was a massive mistake. I think all would agree.
I do believe rates are still higher than neutral. And there is room to lower them more. I would continue to do quarter point cuts next year. If inflation stays in check. And cut more if inflation goes below 2%.
The reason is AI productivity gains and the softening of the employment market from those gains in productivity.
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I see your point. But I would have left the rate unchanged. Am I a democrat? In this environment I believe that lowering rates will have little impact on either growth or employment. But will be inflationary due to increasing the money supply. Even you talk about AI.
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I just think there are businesses out there that are slower because of rates that are above neutral. Specially Real Estate. Not many are wanting to move and lose their mortgage rate.
And no, you are not a bad person for wanting to hold them steady. As long as your stance isn’t based on simply not liking someone.
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Lowering prices and inflation will bring down the 10 year Treasury and lower mortgage rates. That’s not on the Fed.
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