Federal Reserve set to cut interest rates – but still Trump won’t be happy | Federal Reserve

Stocks rose on Friday after the most powerful signal, but we are prepared to restart the interest rates of the US Federal Reserve this autumn. But how long can this celebration take?

Wall Street cheered the Fed Chair Jerome Powell’s speech at the Annual Jackson Hole Symposium in Wyoming, while Powell has made a reality check on where interest rates can settle in the long term.

“We cannot say exactly where the rates will settle in a longer run, but their neutral levels may now be higher than 2010, P said Powell.

In other words: Even if the FED begins to reduce interest rates this year, they may not return to pre -pandemic levels. Despite the short -term optimism on potential ratio interruptions, a signal that the long -term appearance of the FED is more unstable.

Oxford Economics economist Ryan Sweet said, “The markets may be in front of their skiing about how aggressive in reducing interest rates, because neutral odds may be higher than they believe in.”

Higher rates mean that borrowing will be more expensive for loans such as mortgages. The average fixed mortgage ratio of 30 years was slightly below 3% in 2021, where interest rates were close to zero.

Now average mortgage ratio Closer to 6.7 %. High mortgages, which are matched with house prices nearby, mean that many Americans will continue to fight to buy a house.

Although Trump is push Claiming that Powell is “very bad harm to the housing industry”, it is fed for months to reduce the rates to 1%, and it does not seem to be able to return to such a level soon.

The Fed is trying to get a Goldilocks balance. Very high -risk unemployment rates, very low rates may mean higher inflation. Policy makers are looking for a “neutral” level where everything is true.

Many economists believed that the Central Bank was close to reaching this balance before Trump began its second period. In the summer of 2022, as the inflation scaled the highest levels in a generation, the FED began to increase the rates of risk of damaging the labor market in order to reduce inflation to 2%.

The rates rose to approximately 5.3% in less than two years, but the labor market remained strong. Even if inflation fell, unemployment was still historically low. Although some economists were afraid that rapidly increasing rates would stagnate the US economy, the FED has achieved what is known as “soft landing ..

However, when Trump returned to the office, a complete trade war against the key trade partners of the United States was equipped with promises to put into force.

The President has long argued that tariffs would increase American production and prepare the ground for better trade agreements. “Tariffs do not cause inflation. They cause success, Tr Trump explained in January, a” temporary, short -term deduction “may be acknowledged.

However, the success has been limited so far. Economists doubt that policies will create a production Renaissance, and Trump’s trade war inspired new commercial alliances that excluded the United States.

During this time, US consumers are starting to see higher prices due to Trump’s tariffs.

Powell at Jackson Hole on Friday said tariffs began to raise some prices. Inflation was 2.7% in June and July – since April, when Trump’s first announced its tariffs, it received 0.4 percent.

This is still a modest increase in price increase, but most of the White House’s highest tariffs came into force only in early August. FED policy makers are waiting to see if Trump’s aggressive trade strategy will cause a one -time change at the price levels or whether the effects will continue.

Once upon a time, the powerful labor market became stagnant. Although there are less business opening, there are fewer people looking for jobs. Powell called it “both the supply of the workers and a“ curious balance in which the demand slows down.

This instability in the labor market has made Fed officials more open to a rate deduction. Powell pointed out to relaxation in consumer expenditures and the weaker gross domestic product (GDP), which shows that there is a general slowdown in economic activity.

Although Powell’s speech was far from being optimistic, although it prepared the ground for a ratio cut as soon as possible next month.

“In this environment, it is difficult to distinguish cyclic developments from trends or structural developments,” he said. “Monetary policy can work to stabilize cyclical fluctuations, but it can do little to change structural changes.”

It seemed like a careful warning from Powell, which is typically diplomatic and allocated to the public statements: when the executive policies unstable the economy, the FED can only do a lot to limit the damage.