US, Fed lowers interest rates by 25 basis points

It has been reduced, but uncertainty remains high. "Changes in government policies," Powell said, "continue to evolve and their effects on the economy remain uncertain. Higher tariffs have begun to push up some prices in certain asset categories, but their overall impact on economic activity and inflation has yet to be assessed. A reasonable basic assumption is that the effects on inflation will be relatively short-lived: a one-off shift in the price level. It is also possible, however, that the inflationary effects will be more persistent, and this represents a risk that needs to be assessed and managed. Our task is to ensure that a one-off increase in the price level does not turn into a lasting inflationary problem'.

"The increase in asset prices (manufacturing, ndr)," Powell added, "accounts for most, if not all, of the increase in inflation this year. These are, at the moment, not very large effects, but we expect them to continue to rise over the rest of the year and into next year as well." There is a fairly definite link to tariffs, but they are not all passed on to consumers: 'If we look at the general category of goods,' he added, 'goods inflation was negative last year. If we go back 25 years, that was the norm: goods inflation tended to go down, also in relation to quality. Now, on the other hand, I believe that in the last year, goods inflation was 1.2 per cent. It doesn't sound like much, but it is a big change. We believe, although analysts have different opinions, that this is contributing about 0.3 or 0.4 percentage points to overall inflation, which is at 2.9 per cent. So there is a contribution. What seems to be happening is that tariffs are not mostly paid by exporters, but largely by the companies that are between the exporter and the consumer. So, if you buy something and resell it at retail or use it to produce a good, you are probably absorbing a lot of those costs without yet being able to pass them entirely on to the consumer.

Not only tariffs but also immigration policies seem to weigh on the labour market, a mix that makes the picture 'unusual': few hirings and few dismissals. "It is also possible that there are effects (of tariffs, ndr) on employment," said the president, "but I would say that in this case the change in migration flows also matters a lot: the supply of workers is decreasing. There is virtually no growth, if any, in the supply of workers and, at the same time, the demand for workers has dropped quite sharply, to the point where we see what I have called a curious equilibrium. Usually, when we talk about equilibrium, it sounds like a good thing. But in this case the equilibrium is due to the fact that both demand and supply have fallen sharply, with demand falling more sharply: in fact we now see the unemployment rate rising.

The current situation confirms what emerges from the 'dots' chart: the September cut is only the first cut in a new phase of credit cost reduction: 'We see that the labour market is weakening and we do not need it to weaken further, nor do we want it to. So we use our tools, starting with a 25 basis point rate cut, but the market is also pricing in a rate path. I am not at all endorsing what the market is doing, I am just saying that this is not a single measure.

On the presence of Miran, who is the first member of the Board determined to maintain a close relationship with the White House, of which he is one of the economic advisors, Powell confined himself to saying that "Today we welcomed a new member of the committee, as we always do, and the committee remains united in pursuit of our dual mandate goals. We are strongly committed to maintaining our independence and, beyond that, I really have nothing more to add'. He did, however, have to assess, in response to a question from reporters, Miran's argument that the Fed's mandate includes not only price stability and maximum employment, but also a moderate level of rates. "We always think in terms of a dual mandate," he said, "because we believe that moderate interest rates are a consequence of stable inflation: low and stable inflation and full employment. So we have not for a long time considered this as a third mandate requiring independent action. As far as I'm concerned, there's no intention of reconsidering it or incorporating it in a different way."
On the case of Lisa Cook, who was fired by Trump in a decision blocked by a federal judge, Powell lapidarily considered that it would be "inappropriate" for him to intervene on the issue. No comment, other than a vague 'we are certainly open to always trying to do better' to the idea of an independent review put forward by Treasury Secretary Scott Bessent.