It is said that the Fed is facing a crucial moment as Chairman Jerome Powell has signaled that interest rate cuts may come as soon as the upcoming September meeting. However, the biggest challenge is to do this without being seen as capitulating under political pressure from the White House.

For months, Powell has steadfastly rejected ongoing calls from President Donald Trump to cut interest rates. However, in a highly anticipated speech at the economic conference in Grand Teton National Park (Wyoming) on Friday, Powell emphasized that the risks of the U.S. economy slowing down are becoming clear, forcing the Fed to possibly act.

Risks of Weak Growth and a Cold 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%, down sharply from 2.5% last year. He also warned of weakening labor demand - a trend that could push unemployment rates higher.

"The current risk is no longer an overheating economy, but rather a slowing economy," Powell stated, asserting that any decisions to cut rates will be made carefully and gradually, completely unlike Trump's demands for deep and rapid cuts.

Inflation and Political Pressure - The Fed's Difficult Mission

Despite the slowing growth, Powell also acknowledged that new tariffs are pushing up the prices of goods, creating inflationary pressure. This is a factor that the Fed must carefully consider, avoiding excessive easing that could lead to a surge in prices.

Currently, the Fed's benchmark interest rate stands at 4.3%, directly affecting the costs of borrowing for homes, cars, and consumer credit. Trump has publicly called for a cut to 1% - a level that no Fed officials support. The White House believes that cutting rates will help reduce borrowing costs on the massive $37 trillion public debt.

Protecting Independence - Surviving with the Fed

Although 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, asserted:

"Inflation is still too high and heading in the wrong direction. I focus on delivering the best outcomes for the community, and try to eliminate political noise," she said in an interview with AP.

Experts say that Powell's avoidance of directly addressing the issue of independence may be a wise strategy. Adam Posen, President of the Peterson Institute, stated: "He wants to send the message that the Fed is doing its job - discussing internally and making the right decisions, regardless of whether it pleases the President or not."

Escalation - 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 resign voluntarily. Trump and his allies accuse Cook of being involved in credit fraud related to real estate transactions in 2021, although there is currently no criminal indictment. Cook has stated she will "not be bullied" and declined to comment further on this threat.

If Cook is fired, Trump will have the opportunity to appoint a loyal supporter to the Fed Board of Governors - the agency that decides every interest rate decision. He has nominated Stephen Miran, an economic advisor to the White House, to replace Adriana Kugler on August 1.

Outlook - The Fed at a Crossroads

Upcoming developments will be very sensitive: if the Fed cuts rates too early, they could be accused of political capitulation; but if they delay, the risks of an economic recession will increase. Powell and his colleagues are walking a tightrope - balancing price stability, sustainable growth, and maintaining the credibility of the world's strongest central bank.

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