Recent data indicates a downturn in the US economy, prompting the Federal Reserve to defend its actions before Congress. Meanwhile, pressure on the central bank is mounting.
Decline in Leading Economic Index
According to The Conference Board, the Leading Economic Index (LEI) dropped by 0.1% in May, marking its sixth consecutive monthly decline. The index is now down 16% from its peak, reaching its lowest level in nine years. Over the past six months, the index has been falling at an annualized rate of about 5%, which is typically indicative of an impending recession.
Political Pressure on the Fed
Jerome Powell is scheduled to testify before Congress, starting with the House Financial Services Committee and then the Senate Banking Committee. Meanwhile, two Fed officials, Michelle Bowman and Christopher Waller, have publicly supported rate cuts, adding tension within the Fed amidst increasing political pressures.
Market Reaction and Expert Opinions
Economic advisor Mohamed El-Erian noted that political influence has become evident in the FOMC, especially after Bowman and Waller backed July cuts. However, some officials, like Waller, emphasize the need for caution. Experts warn that too rapid a rate cut could lead to unintended consequences for economic growth.
US economic indicators reflect negative trends, and pressure on the Fed is intensifying from both the Trump administration and internally. The upcoming hearings may prove pivotal for determining future monetary policy.
