Amid Conflicting Political and Economic Conditions, the Fed Decides on Interest Rates

SadaNews - Federal Reserve Chairman Jerome Powell and his colleagues are stepping into the central bank's boardroom on Tuesday to consider interest rates amid immense political pressures, developments in trade policy, and conflicting economic trends.

In a rare event, policymakers will meet in the same week that the government releases reports on GDP, employment, and the Fed's preferred price measures. Federal Reserve officials will convene on Tuesday and Wednesday, and it is widely expected that they will keep interest rates unchanged.

U.S. Economic Recovery in Q2

Forecasting agencies estimate that the extensive data package will show a recovery in economic activity in the second quarter, largely due to a sharp decline in the trade deficit, while job growth slowed in July. The third major report is likely to show a slight rise in core inflation for June compared to the previous month.

While the preliminary government estimate for quarterly GDP is expected to show an annual increase of 2.4% - after the economy contracted by 0.5% from January to March - the Wednesday report will likely reveal only modest demand from households and business investment.

The midpoint of expectations in a Bloomberg survey indicates a 1.5% increase in consumer spending, marking the weakest pace for two consecutive quarters since the pandemic began in early 2020. Additionally, fluctuations in the housing market impacted activity in the second quarter.

Companies are Cautious in Hiring

By the end of the week, the July jobs report is expected to show that companies have become more cautious in hiring. Employment is likely to decline after an increase in June supported by a surge in jobs in the education sector, while the unemployment rate is expected to rise slightly to 4.2%.

The number of jobs in the private sector is expected to increase by 100,000 after recording the lowest increase in eight months. During the first half of the year, the hiring pace in companies slowed compared to the average for 2024. The range of job growth has also been relatively limited. Separate figures set to be released on Tuesday are expected to show a decrease in job openings available in June.

A few Federal Reserve officials have begun to express concern about what they consider a fragile labor market, including two who indicated they see merit in considering a rate cut now. There is also increasing pressure from outside the board. President Donald Trump has openly expressed his desire for Powell and his colleagues to lower borrowing costs for consumers and businesses.

What do Bloomberg Economists Think?

"We believe that the consumer-driven slowdown poses a risk to the outlook. While retail sales in June exceeded expectations, this is likely a reflection of price increases resulting from tariffs on certain categories of goods. Ultimately, the labor market - which we expect to remain weak this year - will determine the path of consumption."

- Anna Wong, Stewart Paul, Eliza Winger, Estelle O, and Chris G. Collins.