- The Federal Reserve has signalled rates will remain steady this year. It has penciled in one hike in 2020.
- Trump is pressuring the central bank to cut interest rates, however.
- But economists say financial and credit conditions would have to be different.
President Donald Trump on Friday stepped up an unprecedented amount of pressure on the Federal Reserve, saying it should cut interest rates. But economists say business and consumer conditions would likely need to change substantially in order for that to happen.
Here are the top paths to a rate cut, according to economists.
Stocks have recovered after booking their worst year since the financial crisis. But another sell-off in financial markets, heightened volatility, or another instance of an inverted yield curve could raise concerns again.
“In this case, the Fed would cut until markets have been supported and the stress has been removed from the system,” Bank of America Merrill Lynch analysts said in a research note. “The Fed would be unlikely to bring rates to the zero-lower bound and could actually resume hikes after some time.”
To support inflation
Inflation has held below the Federal Reserve’s inflation target of 2%, a stubborn point for central bankers, but remains solid enough. If it were to fall further, however, officials could eventually cut to underscore a commitment to higher inflation.
“If [Fed Chair Jerome Powell] is really serious about low inflation being ‘one of the major challenges of our time’ – either as an economic issue or a political fig leaf – then yes the Fed could cut rates to support inflation,” said Josh Wright, chief economist at iCIMS.
While growth is expected to slow in the coming months, the Federal Reserve has reiterated that the overall outlook remains solid. A return to strong hiring growth in March has further assuaged fears that a downturn is imminent.
“For the Fed to cut rates, growth would have to be pinned below the economy’s potential or financial market conditions would have be to tightening significantly,” said Ryan Sweet, an economist at Moody’s Analytics.
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