Is Jerome Powell a lame-duck as chair of the Federal Reserve? The central bank’s meeting this week could give us the answer as he tries to steer a divided monetary-policy committee.
On the surface, the decision shouldn’t be contentious.
Traders are pricing in an overwhelming chance of a quarter-point cut to interest rates. There is a general consensus that slowing employment is more of a threat than runaway inflation right
now. There’s no panic in the stock market, in fact the prospect of lower borrowing costs are helping—U.S. indexes keep hitting record highs with the S&P 500 headed for a ninth consecutive quarter of earnings growth.
But there is much more at play and this could be the most divided vote in nearly 40 years. Two Fed officials dissented against leaving rates steady at the meeting in July. They could call for a half-point rate cut this
time, and in that case are likely to be joined by President Donald Trump’s newest Fed nominee Stephen Miran.
The emergence of a dovish bloc could pave the way for three governors to dissent from the majority
decision for the first time since 1988. Meanwhile, Fed Gov. Lisa Cook plans to attend the meeting despite Trump’s attempt to remove her from the board. The market will have to gauge how much weight to put on her vote, while also looking ahead to the end of Powell’s term as chair in May next year.
Powell may be able to hide much of the discord if he can remind his fellow board members about the risks of failing to present a united front. A lack of clarity in the Fed’s monetary-policy decisions leads to market volatility and raises inflation expectations, according to Apollo Global’s chief economist Torsten Sløk.
But even a temporary pact could be exposed if the dot plot—the chart displaying where meeting participants think rates will head in future—shows significant disagreement. Powell’s job is only going to get harder from here.
—Adam Clark
*** Chinese stocks are up sharply this year, along with stocks in other Asian emerging markets -- and the gains aren’t coming only from tech. What is driving the rally, will it continue, and where should investors shop now? Join Barron’s senior managing editors Lauren R. Rublin and Ben Levisohn today at noon when they discuss the Asia-Pacific investment landscape with Roderick Snell, an Emerging Markets & Asia (Ex Japan) fund manager at Baillie Gifford. Sign up here.
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Fed’s Rate Decision This Week Comes Amid Swirl of Issues
It’s crunchtime for the Federal Reserve. The policy committee meets this week under unusual circumstances that go far beyond expectations for an interest-rate cut, with mixed economic signals, political drama, and questions about central-bank independence and even the makeup of the committee itself.
- In addition to making any changes to the benchmark interest rate, members will provide near- and longer term forecasts for gross domestic product growth, unemployment, inflation, and the federal-funds rate. The economic projections accompany the release of the policy statement on Wednesday.
- Fed Gov. Lisa Cook plans to attend the meeting, even as she fights President Donald Trump’s attempt to remove her from the board. A federal judge temporarily blocked her dismissal, and her lawyers say she will continue performing her duties. Trump’s team is appealing the judge’s decision.
- Council of Economic Advisers Chair Stephen Miran is expected to join the Fed Board. The Senate Banking Committee has advanced Trump’s Fed nominee and a full Senate vote is scheduled for later today. If confirmed, Miran will fill a term that expires at the end of January.
- A quarter-point rate cut is likely. But two Fed governors dissented against holding rates steady in July, and those who favor a looser policy may argue for a larger cut now. Recent economic data, particularly the weak August jobs report, have strengthened the case for more aggressive easing.
What’s Next: With June’s economic projections, Fed officials expected two quarter-point cuts this year, but that consensus may be shifting. The September projections may reflect fewer than the usual 19 committee participants if Miran doesn’t submit his forecasts in time.
—Nicole Goodkind
Nvidia
Broke China’s Antimonopoly Laws, Regulator Says
Nvidia has violated China’s antitrust laws, Beijing’s market regulator said early Monday after a preliminary inquiry. The body said it plans to conduct a further investigation into the U.S. chip maker.
- China’s State Administration for Market
Regulation said an initial inquiry found Nvidia had violated Beijing’s antimonopoly laws, according to a statement translated by Barron’s using online tools. Nvidia didn’t immediately respond to a request for comment from Barron’s.
- The inquiry is a blow for Nvidia because it looks very unlikely that China would allow the chip maker to sell new hardware in the country while saying it had breached antimonopoly laws.
- Nvidia previously asked some partners to stop work related to production of its H20 processor for the Chinese market after Beijing told domestic companies not to buy the hardware, The Wall Street Journal has reported, citing people familiar with the matter.
- Despite the Chinese government’s apparent opposition, Nvidia CEO Jensen Huang has said there is a “real
possibility” the company might be able to sell its more advanced Blackwell chips in the country in the future.
What’s Next: Beijing announced the inquiry’s initial findings as officials from both the U.S. and China gather in Madrid for another round of trade talks. Nvidia investors will hope there’s a significant breakthrough when it comes to AI chips.
—George Glover and Adam Clark
Health Plan Subsidies In Play as Congress Races for Funding Extension
Lawmakers are looking for ways to stop health insurance costs from ballooning for tens of millions of people enrolled in government-subsidized marketplace plans. Congress didn’t extend enhanced tax credits this summer, putting enrollees on track for major sticker shock when they re-enroll this fall.
