One Way the Fed Can Bolster Its Defenses

Federal Reserve Chair Jerome Powell is doing an excellent job of responsibly managing US interest rates despite escalating attacks from President Donald Trump. When it comes to the Fed’s broader approach to monetary policy, though, he still has some work to do.

Powell sent a clear signal at last week’s Jackson Hole Economic Policy Symposium: A 25-basis-point reduction in short-term interest rates will be on the table at the Fed’s September policy-making meeting. He noted that easing “may” be appropriate, given that monetary policy is still in “restrictive territory” at a time when the risk of a weaker labor market can materialize “quickly” and inflationary expectations are well-anchored enough to handle temporary tariff-induced price increases. Markets reacted by dialing up the probability of a September rate cut to nearly 90% — though much still depends on the next set of employment reports.