At first glance, this year's Jackson Hole conference proceeded a lot like in years past. Attendees of the storied economics conference in Wyoming, who mostly hail from central banks around the world, engaged in a healthy debate about the outlook for monetary policy, the latest developments in inflation and structural shifts across the labor market.
But increasingly hostile attacks from the White House against the Federal Reserve, including President's Donald Trump's threat to fire a sitting governor if she did not resign, created an inescapable distraction. As a result, officials at the central bank were left with little choice but to profess an unwavering focus on just doing their jobs.
"It is more than a full-time job to be focusing on the data and the analytics," Susan Collins, president of the Federal Reserve Bank of Boston, said in an interview on the sidelines of the conference. "There is a huge amount to do."
The central bank's congressional mandate is to set interest rates with an aim of keeping inflation low and stable and fostering a healthy labor market. It strives to make its decisions free of political influence to ensure that the best economic outcome is reached rather than one that will most directly benefit the person in the Oval Office.
Trump does not agree with that approach and has spent the past seven months trying to chip away at the Fed's independence in an attempt to get the rock-bottom interest rates he desires.
Most of his fury has centered on Jerome Powell, the Fed chair, whom he has called on to resign and has considered firing. But in a sign of the president's commitment to systematically disrupt the institution, Trump has turned his attention to other members of the Board of Governors, to pressure them to leave so he can install loyalists who will acquiesce to his demands.
The board has seven seats, and all members vote at every policy meeting alongside a rotating group of presidents from the 12 regional banks. Trump has already appointed one governor after Adriana Kugler recently vacated her post months before her term was set to expire in January.
Just before the conference kicked off Wednesday, Lisa Cook became the latest mark. By Friday, Trump told reporters that he would fire the governor if she did not resign over allegations that she falsified bank records to obtain favorable mortgage terms before she joined the Fed.
As much as officials wanted to stick to the policy debate at hand during the three-day conference, the ferocity of the White House's attacks on the institution inevitably diverted some of their attention. When asked how much time he was spending on studying the Fed's legal protections, Alberto Musalem, president of the St. Louis Fed, said he had been reading up on the issues and consulting with his staff. Collins said she was in close contact with the Boston Fed's board of directors, which ran the search process and appointed her to the position in 2022, about all internal matters.
The Federal Reserve Act stipulates that the president can only dismiss members of the board for cause, which is generally interpreted to mean gross professional negligence or malfeasance. It is a broad term that has little legal precedent, meaning it could be a high bar to prove.
To suspend or remove any of the regional reserve bank presidents, whose appointments are approved by the board, the law says the cause must be "communicated in writing." Those presidents are up for reappointment every five years, when a majority of the board could replace any of them, although that has never happened. The next vote on reappointing all the regional presidents will be in February.
Fed officials are now trying to figure out what constitutes cause; if the regional presidents have the same protections as board governors; and whether policymakers can continue to serve if they are removed by the president and choose to litigate the matter.
The Fed's legal staff cannot represent a governor for personal issues. So Cook, for example, must retain her own counsel on the mortgage fraud allegations. It is not yet clear if she has done so.
The central bank has taken some comfort in the recent assurances by the Supreme Court, which signaled in a ruling in May that it viewed the institution differently than other independent agencies whose top ranks the president has dismantled. But Fed policymakers also wonder whether the court will move to reaffirm that special status.
The political haze has deepened even though the central bank is likely to soon restart interest rate cuts that have been on pause since January.
In a hotly anticipated speech Friday, Powell sent his strongest signal yet that the Fed would soon begin lowering borrowing costs. The policy pivot is aimed at preventing the labor market from deteriorating as the supply of workers shrinks. But even as he cleared the path for a rate reduction at the central bank's next meeting in September, Powell indicated that a dramatic drop was not likely in light of lingering worries about inflation as a result of Trump's tariffs.
Powell's remarks underscored the tough balancing act facing Fed officials now that their two goals of stable inflation and labor market strength are in tension. That clash has stoked an intense debate within the Fed about the path forward for monetary policy, with two Trump-appointed policymakers splitting from Powell at the July meeting and supporting a quarter-point cut. As a result, Powell could face an uphill battle to forge a consensus about how much to cut in his remaining meetings as chair until his term expires in May.
"Inflation is running close to 3%, so almost a full percentage point above our target, and I have to weigh that against the unrealized risk that the labor market could weaken from here," Musalem said.
Musalem, who is one of 12 officials who will vote on policy decisions this year, signaled an openness to consider gradually reducing interest rates should the risks to the labor market materialize. But he also did not discount the possibility that price pressures stemming from tariffs might morph into a more persistent problem.
Austan Goolsbee, who leads the Chicago Fed and is also a voting member of the policy-setting committee this year, flagged the recent acceleration in services-related inflation. If that intensified, he warned, it would challenge the theory that tariffs will only lead to a "one-and-done" price hike.
Goolsbee conceded that the September meeting was a "live" one, suggesting that the Fed could make a move. But he indicated that there was no significant urgency to cut by much, based on his interpretation of the latest developments in the labor market. Monthly jobs growth has slowed sharply this summer even as the unemployment rate has stayed relatively stable. Goolsbee said that might reflect a drop in the supply of workers as a result of Trump's immigration restrictions, rather than reduced demand.
Perhaps even more important than when interest rate cuts resume is how quickly the Fed moves once it gets going again. Rates are set in a range of 4.25% to 4.5%. Another big question is where they end up eventually settling.
"Some restrictiveness is appropriate in an environment in which inflation continues to be elevated and is expected to increase before it declines," said Collins, who conceded that she saw a path for the Fed to cut interest rates in September if the labor market continued to soften.
But she said that quickly moving interest rates to a "neutral" rate -- which is a level of interest rates that neither stimulates the economy nor slows it down -- was not her goal.
"Dialing back to preserve healthy labor market conditions while we continue to restore price stability in a way that is sustainable would be what I'm aiming to achieve," Collins added.
For participants at the conference, which is hosted annually by the Kansas City Fed, there appeared to be no greater risk to the world's largest economy and global financial system than the efforts to erode the Fed's independence and curtail its ability to make the right decisions at the right time.
Karen Dynan, a professor at Harvard who was the chief economist at the Treasury Department during the Obama administration, warned that a politicized Fed could risk stoking inflation and significantly harming the labor market, as a central bank would likely need to raise interest rates more than it would otherwise in order to win back its credibility.
"The demise of Fed independence may not happen all at once, but over time, independence is not at all assured," added Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics who was formerly the chief economist at the International Monetary Fund. "We have seen this type of institutional degradation in other countries, with uniformly awful results."
But increasingly hostile attacks from the White House against the Federal Reserve, including President's Donald Trump's threat to fire a sitting governor if she did not resign, created an inescapable distraction. As a result, officials at the central bank were left with little choice but to profess an unwavering focus on just doing their jobs.
"It is more than a full-time job to be focusing on the data and the analytics," Susan Collins, president of the Federal Reserve Bank of Boston, said in an interview on the sidelines of the conference. "There is a huge amount to do."
The central bank's congressional mandate is to set interest rates with an aim of keeping inflation low and stable and fostering a healthy labor market. It strives to make its decisions free of political influence to ensure that the best economic outcome is reached rather than one that will most directly benefit the person in the Oval Office.
Trump does not agree with that approach and has spent the past seven months trying to chip away at the Fed's independence in an attempt to get the rock-bottom interest rates he desires.
Most of his fury has centered on Jerome Powell, the Fed chair, whom he has called on to resign and has considered firing. But in a sign of the president's commitment to systematically disrupt the institution, Trump has turned his attention to other members of the Board of Governors, to pressure them to leave so he can install loyalists who will acquiesce to his demands.
The board has seven seats, and all members vote at every policy meeting alongside a rotating group of presidents from the 12 regional banks. Trump has already appointed one governor after Adriana Kugler recently vacated her post months before her term was set to expire in January.
Just before the conference kicked off Wednesday, Lisa Cook became the latest mark. By Friday, Trump told reporters that he would fire the governor if she did not resign over allegations that she falsified bank records to obtain favorable mortgage terms before she joined the Fed.
As much as officials wanted to stick to the policy debate at hand during the three-day conference, the ferocity of the White House's attacks on the institution inevitably diverted some of their attention. When asked how much time he was spending on studying the Fed's legal protections, Alberto Musalem, president of the St. Louis Fed, said he had been reading up on the issues and consulting with his staff. Collins said she was in close contact with the Boston Fed's board of directors, which ran the search process and appointed her to the position in 2022, about all internal matters.
The Federal Reserve Act stipulates that the president can only dismiss members of the board for cause, which is generally interpreted to mean gross professional negligence or malfeasance. It is a broad term that has little legal precedent, meaning it could be a high bar to prove.
To suspend or remove any of the regional reserve bank presidents, whose appointments are approved by the board, the law says the cause must be "communicated in writing." Those presidents are up for reappointment every five years, when a majority of the board could replace any of them, although that has never happened. The next vote on reappointing all the regional presidents will be in February.
Fed officials are now trying to figure out what constitutes cause; if the regional presidents have the same protections as board governors; and whether policymakers can continue to serve if they are removed by the president and choose to litigate the matter.
The Fed's legal staff cannot represent a governor for personal issues. So Cook, for example, must retain her own counsel on the mortgage fraud allegations. It is not yet clear if she has done so.
The central bank has taken some comfort in the recent assurances by the Supreme Court, which signaled in a ruling in May that it viewed the institution differently than other independent agencies whose top ranks the president has dismantled. But Fed policymakers also wonder whether the court will move to reaffirm that special status.
The political haze has deepened even though the central bank is likely to soon restart interest rate cuts that have been on pause since January.
In a hotly anticipated speech Friday, Powell sent his strongest signal yet that the Fed would soon begin lowering borrowing costs. The policy pivot is aimed at preventing the labor market from deteriorating as the supply of workers shrinks. But even as he cleared the path for a rate reduction at the central bank's next meeting in September, Powell indicated that a dramatic drop was not likely in light of lingering worries about inflation as a result of Trump's tariffs.
Powell's remarks underscored the tough balancing act facing Fed officials now that their two goals of stable inflation and labor market strength are in tension. That clash has stoked an intense debate within the Fed about the path forward for monetary policy, with two Trump-appointed policymakers splitting from Powell at the July meeting and supporting a quarter-point cut. As a result, Powell could face an uphill battle to forge a consensus about how much to cut in his remaining meetings as chair until his term expires in May.
"Inflation is running close to 3%, so almost a full percentage point above our target, and I have to weigh that against the unrealized risk that the labor market could weaken from here," Musalem said.
Musalem, who is one of 12 officials who will vote on policy decisions this year, signaled an openness to consider gradually reducing interest rates should the risks to the labor market materialize. But he also did not discount the possibility that price pressures stemming from tariffs might morph into a more persistent problem.
Austan Goolsbee, who leads the Chicago Fed and is also a voting member of the policy-setting committee this year, flagged the recent acceleration in services-related inflation. If that intensified, he warned, it would challenge the theory that tariffs will only lead to a "one-and-done" price hike.
Goolsbee conceded that the September meeting was a "live" one, suggesting that the Fed could make a move. But he indicated that there was no significant urgency to cut by much, based on his interpretation of the latest developments in the labor market. Monthly jobs growth has slowed sharply this summer even as the unemployment rate has stayed relatively stable. Goolsbee said that might reflect a drop in the supply of workers as a result of Trump's immigration restrictions, rather than reduced demand.
Perhaps even more important than when interest rate cuts resume is how quickly the Fed moves once it gets going again. Rates are set in a range of 4.25% to 4.5%. Another big question is where they end up eventually settling.
"Some restrictiveness is appropriate in an environment in which inflation continues to be elevated and is expected to increase before it declines," said Collins, who conceded that she saw a path for the Fed to cut interest rates in September if the labor market continued to soften.
But she said that quickly moving interest rates to a "neutral" rate -- which is a level of interest rates that neither stimulates the economy nor slows it down -- was not her goal.
"Dialing back to preserve healthy labor market conditions while we continue to restore price stability in a way that is sustainable would be what I'm aiming to achieve," Collins added.
For participants at the conference, which is hosted annually by the Kansas City Fed, there appeared to be no greater risk to the world's largest economy and global financial system than the efforts to erode the Fed's independence and curtail its ability to make the right decisions at the right time.
Karen Dynan, a professor at Harvard who was the chief economist at the Treasury Department during the Obama administration, warned that a politicized Fed could risk stoking inflation and significantly harming the labor market, as a central bank would likely need to raise interest rates more than it would otherwise in order to win back its credibility.
"The demise of Fed independence may not happen all at once, but over time, independence is not at all assured," added Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics who was formerly the chief economist at the International Monetary Fund. "We have seen this type of institutional degradation in other countries, with uniformly awful results."
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