Fed’s Cautious Approach Triggers Mixed Reactions

President Trump’s leading economic adviser recently endorsed the Federal Reserve’s careful approach to interest rates, despite the President’s call for more aggressive cuts.

Kevin Hassett, who heads the White House National Economic Council, backed the Fed’s decision to lower rates by 0.25 percentage points, which came as a bit of a surprise given the ongoing pressures from the White House.

“The numbers are gradually aligning with targets; it’s sensible policymaking,” Hassett stated in an interview with CNBC’s “Squawk Box.”

During a recent meeting, members of the Federal Open Market Committee (FOMC) voted 11-1 in favor of the cut, which is the typical adjustment size for the Fed. Only Governor Stephen Milan, currently on vacation, advocated for a more significant half-point reduction.

While the slight decrease may appear to be a win for Trump, it’s worth noting that the President is aiming for a significantly lower interest rate than what the Fed approved. He has been urging the bank to slash rates by a few percentage points this year, a step usually taken in severe economic downturns.

“I understand my colleague Stephen wished for a 50 basis point cut, but I believe the consensus leaned toward 25,” Hassett commented, adding that it serves as a positive initial move towards much lower rates.

Hassett argued that the Fed’s decision is justified at a time when inflation is projected to exceed its 2% target, and a growth uptick is anticipated in the third quarter.

However, Fed Chair Jerome Powell pointed out that the rate cuts are primarily in response to “unusual” slowdowns in the job market, rather than unexpected economic strength.

This year, the U.S. has only added an average of 29,000 jobs per month, significantly lower than the numbers typically necessary to stabilize unemployment. Powell mentioned concerns arising from a notable decline in both the supply and demand for workers.

He indicated that while Trump’s tariffs are expected to push inflation higher, they are simultaneously negatively impacting the labor market due to elevated import taxes and sudden immigration cuts.

“Our policy has been largely oriented towards tackling inflation for quite some time. Now, we’re seeing an evident downside risk in the job market, prompting us to move towards a more neutral policy,” Powell stated.