HOW TO THINK ABOUT IT

“Powell’s pirouette.” That’s what some have called the Fed chief’s gradual easing of an interest rate that’s been rising since 2015. The reduction was not only an answer to lower inflation and sagging business investment but also insurance against a weakening global economy and potential blowback from continuing trade turmoil. By keeping a finger on the pulse of world economic growth — or lack thereof — the Fed under Powell is displaying a level of global awareness that clashes with an increasingly inward-looking Trump administration. With the European Union’s quarterly growth at a mere 0.2 percent, the European Central Bank is set to apply a stimulus of its own, likely followed by other central banks around the world. But that could start a dangerous cycle: The Fed could feel pressured to continue cutting just to keep the U.S. dollar from getting too strong.

Maximum pressure. Powell’s vagueness on whether future cuts are in store clearly angered Trump. Meanwhile, some have described the Fed’s cut as “caving” to pressure from the president to juice the economy. Whether or not that’s the case, the stakes are high, with one expert equating Trump’s approach of confronting China while demanding low interest rates to “shooting yourself in the foot just to get another dose of morphine.” Meanwhile, there’s plenty of consumer confidence to lose, and keeping up record-low unemployment — the U.S. added 164,000 jobs last month — likely won’t be easy.

A Fed apart? More broadly, observers say the central bank is opening up to an unprecedented degree. Its regional branches are promoting their research, and officials are reportedly setting off on campaigns to connect with ordinary workers in a bid to show they’re listening. Could it be a political calculation to curry support as the Fed increasingly comes under fire from Trump? Sure, but talking more frequently about issues like income inequality could earn the institution more street cred from the public. “You have to know what their experiences are if you’re actually going to serve them,” Mary Daly, president of the Federal Reserve Bank of San Francisco, recently told The New York Times.

Eyes on the prize. But even as the central bank tries to gain credibility with ordinary Americans, it faces a dilemma: By racing with other central banks to keep interest rates so low that it can help inflation grow, the Fed risks backing into a corner, in which it has few options to cut rates further if there is an actual slowdown — or worse, a recession. Trump is already upset with the Fed, but a failure to give itself options for a recession could upset ordinary Americans too, when the economy hits bad times.

WHAT TO READ

How Donald Trump Is Sanctioning the US Economy by Daniel W. Drezner in The Washington Post
“Trump, in starting trade war after trade war, has made himself the uncertainty engine for those interested in investing in the United States. And the effects are starting to be felt.”

This Good Sign for the US Economy Could Be Bad for Your Paycheck by Brittany De Lea on Fox Business
“[T]he booming economy, complete with a low unemployment rate, draws workers back from outside the labor market. One potential side effect this can have? Dampening wage growth.”

WHAT TO WATCH