Inflation may ease slightly by next year, but higher tariffs and their second-round effects, a resilient economy and an expansionary budgetary policy mean inflation risks remain. Core inflation in August at multi-month highs of 3.1% year-on-year is concerning.
Market Participants Underestimate Challenges to Fed Independence
Market participants appear to be underestimating the implications of rising political pressure on the Fed. President Donald Trump is calling for 300bps of prompt rate cuts. Trump loyalist Stephen Miran has been appointed to the Fed’s board of governors, while the president is seeking to dismiss Governor Lisa Cook.
The increasing politicisation of the central bank raises the risk that monetary policy will lean increasingly in a dovish direction. Such pressures could undermine price and financial stability in the long run, with ripple effects for macroeconomic stability and the dollar, including accelerating de-dollarisation.
For a look at all of today’s economic events, check out our economic calendar.
Dennis Shen, CFA is the Chair of the Macro Economic Council and Lead Global Economist of Scope Group. The rating agency’s Macroeconomic Council brings together the company’s credit opinions from multiple issuer classes: sovereign and public sector, financial institutions, corporates, structured finance and project finance.
