Fed will retain autonomy under Trump, says Quarles

Fed will retain autonomy under Trump, says Quarles
Former Fed vice-chair says fears come from misunderstanding.
JAN 13, 2025
By  Bloomberg

by Swati Pandey

The Federal Reserve’s independence won’t be in jeopardy once President-elect Donald Trump takes office, neither are inflation and the labor market, according to former Federal Reserve Vice Chair Randal Quarles.

“There’s a fair bit of misunderstanding about what Fed independence is. Fed independence doesn’t mean that the president can’t express a view on Fed policy,” Quarles, a Trump appointee to the Fed who served as vice chair of supervision until 2021, told Bloomberg Television’s Stephen Engle on the sidelines of a forum on Monday. 

“Structurally, the Fed can’t really be affected by the president’s bullying pulpit and the people who are appointed the Fed generally have fairly thick skin. So while there’s certainly political pressure there’s not really political levers that someone can pull to affect their independence,” he said.

There had been concerns about Fed autonomy after Trump’s criticisms of Chair Jerome Powell last year and said he won’t appoint him to another term.

Quarles said that tariffs by themselves shouldn’t be inflationary although at the margin can convince the Fed to lower rates. He also said he expects material deportations once Trump takes office but they won’t affect the labor market.

The comments come ahead of a hotly anticipated inflation report on Wednesday which is likely to show that underlying US inflation cooled only a touch at the close of 2024 against a backdrop of a resilient job market and steadfast economy. That will potentially support the Fed’s go-slow approach to further rate cuts. 

The Fed cut three times in 2024 but that pace is unlikely to be replicated this year, with price data increasingly suggesting that progress toward tamer inflation has essentially stalled, at a time when the labor market and demand show scant signs of distress. 

Economists at Bank of America Corp., Citigroup Inc. and Goldman Sachs Group Inc. pared back their forecasts for additional Federal Reserve interest-rate cuts in response to stronger-than-expected December US employment data released Friday.

Money markets are now pricing just one Fed rate cut in 2025 and even that might not come until October. Quarles said markets are pricing in Fed’s moves this year more accurately than last year.

 

Copyright Bloomberg News

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