THE FED AT A CROSSROADS: CUT INTEREST RATES OR FACE RECESSION?
Pressure mounts, Powell cannot delay the decision After months of avoiding
reality, Federal Reserve Chairman Jerome Powell is facing pressure to cut
interest rates earlier than expected.
Factors such as tariffs from the Trump administration, persistent
inflation, slow growth, and the risk of recession are putting the Fed in a
tough position.
Previously, Powell had assessed inflationary surges as temporary, but past
misjudgments are damaging the Fed's credibility.
Keeping interest rates high for too long could push the U.S. into
recession, but cutting rates too late would weaken the economy without a
timely solution.
More concerning, according to data from Bloomberg, the average tax rate in
the U.S. has risen from 2.3% to 22%, putting pressure on supply chains and
consumers' wallets. Some experts predict that the tax hike could push
inflation up by an additional 1.2%, particularly due to its widespread
indirect effects.
Trump forces the Fed to act early Although Powell still believes that the
impact of tariffs on inflation is only temporary, analysts are not as
optimistic. The Fed is closely monitoring price shifts, the extent of the
tariff impact on various industries, and consumer responses.
Meanwhile, the Trump administration continues to maintain a tough stance.
Commerce Secretary Howard Lutnick asserts, "It’s time to change the rules to
support America."
However, the price to pay could be steep, as consumers grow increasingly
concerned about long-term inflation, potentially causing prices to rise more
persistently.
Powell acknowledges that the Fed is running multiple forecast models, but
things are still unclear.
"It’s hard to say when we will have a clearer picture of this situation,"
he said. A delayed decision could lead the U.S. economy into an
uncontrollable recession.
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