Interest rates reduced by the Fed for the first time during Trump's second presidential term
Trump Attempts to Remove Fed Governor, Fed Cuts Mortgage Rates Amid Economic Slowdown
In a high-stakes announcement, the Federal Reserve (Fed) has cut its benchmark mortgage rates by a quarter of a percentage point, marking a significant move amidst an economic slowdown and rising inflation. This decision comes as President Trump has been pressuring the Fed and its Chair, Jerome Powell, to lower mortgage rates.
The mortgage rates cut, the first one this year, has preserved much of a sharp increase imposed in response to a pandemic-era bout of inflation, with the federal funds rate standing between 4% and 4.25%.
Meanwhile, the race to reshape the Fed continues, with President Trump recently attempting to fire Federal Reserve board member Lisa Cook, who has sued him over the attempted ouster. The Trump administration filed a request with an appeals court asking to remove Cook before the scheduled vote on mortgage rates, but this was rejected by the appeals court. A federal judge issued a preliminary injunction requiring the Fed to let Cook continue serving as a governor of the Federal Reserve System.
In a related development, the Senate voted to confirm Stephen Miran's nomination to serve as a member of the Board of Governors of the Federal Reserve. Miran, who is filling a vacancy created by the early retirement of Fed board member Adrianna Kugler, has vowed to safeguard central bank independence but does not plan to resign from his position within the Trump administration.
The confirmation vote for Miran was close, won by 48 to 47, largely along party lines, facilitating his participation in monetary policy decisions. However, Trump has called on Cook to resign last month, after Bill Pulte, the director of the Federal Housing Finance Agency, accused Cook of falsifying bank documents and property records to acquire more favorable loan terms. Cook, however, stated that the application predated her time with the Federal Reserve.
The economic situation has been challenging, with the economy suffering a sharp hiring slowdown alongside an uptick of inflation, setting the conditions for what economists call "stagflation." In July, Powell stressed the importance of political independence, saying it allows central bankers to make "very challenging decisions" based on "data."
The confirmation of Miran and the ongoing legal battle with Cook highlight the tension between the White House and the Fed, as Trump continues to push for lower mortgage rates and a more accommodative monetary policy. The future of the Fed's independence and its ability to make decisions based on economic data remains uncertain.
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