LOS ANGELES. (OC).–Cutting the Federal Funds rate 25 basis points for the second time this year, Federal Reserve Board Chairman Jerome Powell and his Federal Open Market Committee [FOMC] read the economic tea leaves, putting more emphasis on unemployment than inflation. Powell has been reluctant to cut rates fearing a new round of inflation, something not likely to occur with all the fallout from the government shutdown. With the government losing billions in productivity daily, it’s bound to take its toll on the economy, prompting Powell to be generous with the rate cut, though some Fed governors argued for no rate hike at all. Others wanted a more bold cut of 50 basis point, something Powell wasn’t willing to do knowing that there’s always the December Fed meeting to either cut or leave things alone. President Donald Trump has railed on Powell’s reluctance to cut rates.
President Donald Trump has been pushing Powell to cut rates for some time, prompting Democrats and the press to rip him for meddling with the independent Federal Reserve Board. With Powell set to retire in a few months, Trump can pick-and-choose his next preference to lead the Fed. Trump wants as much monetary stimulus as he can get to fuel the economy, knowing, with the AI revolution, jobs losses are inevitable. Lower in the Federal Funds Rate to 3.75%, the prime and mortgage interest rates already adjusted downward, giving credit care and mortgage borrowers more breathing room. Lowering the prime helps auto and leasing financing, enabling more consumers to afford new or used cars. “A further reduction in the rate at the December meeting is not a foregone conclusion. Far from it,” said Powell, saying it multiple times at today’s press conference.
Lower interest rates helps everyone that needs to borrow money to survive, whether for consumer purchases, travel or dining out, creating more activity in the U.S. economy. Any consumer looking to buy a car in 2025 or 2026 looks forward to lower lease and financing rates the comes to a cut to the Federal Funds Rate. Between now and December, the economy isn’t likely to start adding jobs, though holiday usually has a bump in part-time or seasonal employment. Democrats and Republicans need to do their jobs and compromise to get the federal government back in operation. With 25 million Obamacare subscriber facing doubling or tripling of premiums, consumers won’t have any discretionary cash to spend into the economy, whether on goods or service, certainly travel. How can consumers travel if airports are shut down because of no air traffic controllers?
Powell can’t really comment about extraordinary events like government shutdowns or, worse yet, geopolitical disruptions like foreign wars. Trump has been engaged in gunboat diplomacy in Venezuela with no one really knows where it will end up. Russia, a close OPEC ally of Venezuela, just delivered emergency goods to Caracas in a show of solidarity and force with the Maduro government. Trump accused Maduro of backing narco-trafficking, something denied by the government. Powell has no clue what would happen to markets if Trump intervenes military in Venezuela. He’s already shot down 12 allege drug-running boats in the Gulf of Mexico or the Eastern Pacific Ocean. Trump thinks he has the legal authority to order the Pentagon to shoot down suspected drug-running boats in the open seas. Legal experts doubt that Trump has the authority.
Powell doesn’t have a crystal ball only knows what his Fed’s data reports show him, completely detached from the government shutdown or geopolitical events. Elected officials don’t have much more time before their inaction causes adverse effects in the economy with more citizens losing their jobs. Corporate hiring has already slowed according to outplacement firm Challenger, Gray and Christmas, seeing more job losses on the horizon. Even outplacement firms don’t have a crystal ball to predict the impact of AI on the job market with many economists predicting downward trends. Whatever Powell does with interest rates in Decmber it’s not going to affect the macro picture that has robotic-assisted work replace more mid-level management jobs. Amazon just announced massive cuts, initially 14,000 corporate, white collar jobs with more cuts to come.
Powell had better keep an open mind about more interest rates cuts in December, giving the bad news from Amazon and other mulitnational companies like Microsoft, already cutting 15,000 in 2025 with two months left. Keeping as much monetary stimulus as possible, Powell should have started cutting the Federal Funds Rate months ago, not wait to the last minute with corporate momentum promise more cuts in the immediate future. Whatever happens with AI in the future is anyone’s guess. What’s know now is that some of the nation’s biggest companies are slashing jobs because of bloated payrolls. Cutting rates help consumers prop up the economy, giving more reason for entertainment, travel and big ticket items like buying cars and homes. Minor adjustments to the average 20% credit care rate doesn’t hurt but it’s not enough to stop hemorrhaging in the jobs market.
About the Author
John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He’s editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.
