The Fed is at a crucial moment as Chairman Jerome Powell signaled that it may cut interest rates as soon as the upcoming September meeting. However, the biggest challenge is to do this without being seen as yielding to political pressure from the White House.

For months, Powell has steadfastly ignored repeated calls from President Donald Trump to lower interest rates. However, in a closely watched speech on Friday at the economic symposium in Grand Teton National Park (Wyoming), Powell stated that the risk of the U.S. economy slowing down is becoming evident, forcing the Fed to possibly take action.

Risks of Sluggish Growth and Cooling Labor Market

Powell emphasized that U.S. economic growth has "slowed significantly in the first half of this year," with an annual growth rate of only 1.2%, a sharp decline from last year's 2.5%. He also warned of a weakening in labor demand – a trend that could push the unemployment rate higher.

"The current risk is no longer an economy that is too hot, but one that is cooling down," Powell said, asserting that any move to lower interest rates would be made cautiously and gradually, completely unlike Trump’s demand for deep and rapid cuts.

Inflation and Political Pressure – The Fed's Tough Balancing Act

Despite the slowdown in growth, Powell also acknowledged that new tariffs are pushing up the prices of goods, creating inflationary pressure. This is a factor the Fed must carefully consider, avoiding excessive loosening that could risk a resurgence in prices.

Currently, the Fed's benchmark interest rate stands at 4.3%, directly affecting the cost of borrowing for homes, cars, and consumer credit. Trump has repeatedly publicly called for a reduction to 1% – a level no Fed official supports. The White House believes lower interest rates would help reduce interest costs on the government’s massive $37 trillion debt.

Protecting Independence – Surviving with the Fed

While Powell did not mention the 'independence' of the Fed in his speech, many other officials remain steadfast in defending this principle. Beth Hammack, President of the Cleveland Fed, affirmed:
"Inflation is still too high and heading in the wrong direction. I am focused on delivering the best outcomes for the public, and trying to tune out political noise," she said in an interview with AP.

Experts suggest Powell's avoidance of directly addressing the independence issue may be a wise strategy. Adam Posen, President of the Peterson Institute, argues: "He wants to send the message that the Fed is doing its job – discussing internally and making the right decisions, regardless of whether that pleases the President."

Rising Tensions – Trump Targets Fed Officials

At the same time, Trump is increasing pressure on Fed Governor Lisa Cook, threatening to fire her if she does not voluntarily resign. Trump and his allies accuse Cook of being involved in mortgage fraud related to real estate transactions in 2021, although there are currently no criminal charges. Cook has stated she will "not be bullied" and declined to comment further on this threat.

If Cook is removed, Trump will have the opportunity to appoint a loyalist to the Fed Board of Governors – the body that votes on every interest rate decision. He has already nominated Stephen Miran, a White House economic advisor, to fill the vacancy left by Adriana Kugler on August 1.

Outlook – Fed at a Crossroads

The upcoming developments will be extremely sensitive: if the Fed cuts interest rates too early, they could be accused of political capitulation; but if they delay, the risks of an economic downturn will increase. Powell and his colleagues are walking a tightrope – balancing between price stability, sustainable growth, and maintaining the credibility of the world’s most powerful central bank.