In December, articles around the country said that the United States’ economic challenge “now” is inflation, but inflation has remained above the U.S.-Federal Reserve’s 2% target for five years, compounding and affecting affordability, that we all felt over the holidays.
The Federal Reserve seems confused. The Fed, which had fought rate hikes, then cut interest rates, twice, seemingly unconcerned about furthering price increases. There are only three plausible explanations for the cuts: 1) The Fed sees drastically rising unemployment (which usually “lags,” after recessions), 2) There are housing worries, or 3) President Trump’s July meeting with Mr. Powell had an impact.
Mr. Powell has been the only entity changing, not the tariffs, nor the housing market. We will see if tariff increases were “one-time” when we start to compare 2026 inflation numbers, monthly year-over-year, with 2025, when most of the tariffs were implemented.
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For the first hypothesis, the recent increase in unemployment will likely see wages rise, but would it not be better to see higher wages before spurring prices to rise again? The overriding factor seems not to be economic, but that Mr. Trump influenced Mr. Powell this summer, with Powell desiring to keep his FOMC membership after 2026. The blame for the economy is on Powell, a non-economist lawyer. One would like to be kind, but Chairperson Powell’s main worries, from his raising rates only after re-appointment by President Biden, to cutting rates before the 2024 election, to cutting them now, seem to have been about his own job. What will happen at the next Fed meeting later this month is therefore uncertain.
Dr. Todd J. Barry is an adjunct professor of economics at the University of Hartford.