When policymakers gather in Washington on Tuesday and Wednesday, they are inclined to keep rates unchanged while monitoring inflation. However, President Donald Trump and some of his aides continue to press the central bank for a reduction in interest rates as concerns about a downturn grow.
Fed Chair Jerome Powell, caught in that predicament, could have found solace in official data released Friday that showed a substantial 177,000 increase in April payrolls. The Fed can more readily remain inactive if the labour market remains stable.
In the meantime, price pressures continued to subside gradually, according to the Fed’s preferred inflation indicator. Higher US import taxes risk undoing the inflation gains Powell & Co. has made, even though they would normally welcome such a cooling.
Powell is likely to emphasise price stability and fight back against market pricing. Fed Governor Adriana Kugler and Richmond Fed President Thomas Barkin are among the officials who have expressed worry that inflation expectations could be easing. When you combine this with the strong April payroll print, there isn’t much demand for a short-term cut.
The European Central Bank has been lowering interest rates to anticipate further disinflation and slower growth due to US tariffs. However, a study issued on Friday showed that while an underlying measure increased, euro-area inflation surprisingly remained unchanged.
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