The September FOMC meeting delivered the expected 25 basis points cut in the target Fed funds rate, the first Fed easing for 2025 and probably not the last. Powell characterised the move as a 'risk management cut,' highlighting labour market weakness over inflation risks.
First-time FOMC voter Stephen Miran dissented in favour of a 50 basis points cut, in line with Trump's policy preferences, which might prove to be directionally correct, even if lacking in caution. The irony here, of course, is that Miran as a Federal Reserve Board member gets to do clean up on Miran as CEA Chair. More than any other member of the Trump administration, Miran has provided the fig leaf of intellectual respectability for the administration's tariff policies that are now weighing on the labour market. Waller and Bowman were presumably happy that the cut they sought at the last meeting was delivered this time, without seeking more.
On Thursday, Trump asked the Supreme Court to remove Lisa Cook from the FRB. If the Supreme Court takes on the case, it will be a massive test of two key US institutions. As Cook's lawyers have argued:
A stay by this Court would therefore be the first signal from the courts that our system of government is no longer able to guarantee the independence of the Federal Reserve. Nothing would then stop the President from firing other members of the Board on similarly flimsy pretexts. The era of Fed independence would be over.
The risks to the nation’s economy could be dire. Central banks like the Federal Reserve are independent for a reason: Even the perception of political influence can destroy the investor confidence that is essential for economic growth and stability. And that bell cannot be unrung. Once confidence in the bank’s independence is lost, it cannot easily be regained.
Institutional failure should now be viewed as the base case rather than a tail risk.