Finance

Fed meets for first time since Trump’s term started. What to expect

Published

1 month ago

January 28, 2025

US Federal Reserve Chairman Jerome Powell speaks at a press conference after the Monetary Policy Committee meeting in Washington, DC, on December 18, 2024.

Andrew Caballero-Reynolds | AFP | Getty Images

The Federal Reserve gathers this week for the first time in the second presidential term of Donald Trump, who has already signaled that he wants lower interest rates.

If virtually every indication so far is accurate, the new leader of the free world is unlikely to get what he wants, at least not yet, as officials weigh multiple variables that could make policymaking difficult this year and are likely to keep the Fed on hold.

“They’re probably going to be taking a back seat,” said U.S. Bank chief economist Beth Ann Bovino. “Nobody knows what to expect from the White House. The policy moves are still very unclear, but we do know that a number of those proposals that have been talked about in the White House are a bit inflationary, and I think that’s going to keep the Fed in check.”

Indeed, market pricing is pointing to a near 100% certainty that the rate-setting Federal Open Market Committee will keep the central bank’s policy rate in a target range of 4.25%-4.5%, according to CME Group data.

In fact, traders see the Fed on hold until June, a span during which Trump’s plans for tariffs, regulations and immigration are likely to come more clearly into view. Trump said Thursday he will “demand that interest rates drop immediately,” though he does not have authority over the Fed’s decisions.

The Fed has cut rates at each of its last three meetings, reducing its short-term borrowing rate by a full percentage point. The rate decision will be released Wednesday at 2 p.m. ET.

Despite the White House pressure, central bankers should hold firm and take a break from policy changes, said former Dallas Fed President Robert Kaplan.

“It’s the right call to stay steady. Inflation progress is maybe not stalled but it’s going sideways, and you’ve got four or five big structural changes underway and about to unfold,” Kaplan, now a Goldman Sachs executive, said Monday in a CNBC interview. “The right thing to do is to do nothing in this meeting.”

Former Dallas Fed President Kaplan: The right thing for the Fed to do 'is to do nothing' this week

Kaplan cited three changes that could be disinflationary: government spending cuts, regulatory review from the newly minted advisory panel dubbed the Department of Government Efficiency, and Trump’s “drill baby drill” approach to energy as well as expected efforts to make the sector’s architecture more efficient.

On the inflation side, Kaplan sees the potential for tariffs to boost prices higher, while mass deportations — which began in earnest this week — could drive up labor costs.

“What Trump obviously would love them to do is speed their analysis, speed their assessment of these new policies and act sooner, even than what they’re comfortable,” Kaplan said. “The job of the folks at the Fed, in this case, is to do their analysis and don’t act until you have confidence.”

This meeting will not feature an update of the Fed’s quarterly economic projections, including the “dot plot” of individual members’ estimates for where interest rates are headed. At the December meeting, participants reduced their expected number of rate cuts to two from four previously, assuming each cut is made in increments of a quarter percentage point.

Investors will be left to pore through the post-meeting statement, which is expected to be little changed, then turn to Chair Jerome Powell’s news conference at 2:30 p.m. ET.

Powell had a contentious relationship with Trump during the president’s first go-round in the Oval Office, from 2017 to 2021, and he likely will be asked to respond to the president’s demand for lower rates.

“The Fed must follow its legislative mandate,” former Kansas City Fed President Esther George told CNBC in an interview Friday. “Congress has told us it is to bring prices to a low and stable level. In the long run, this institution has to think about those objectives rather than be swayed by outside commentary and political pressure that will come its way, as it has for its entire existence.”

Finance

Why banks don’t want the agency to disappear

Published

1 hour ago

March 10, 2025

Business Finance News

Jamie Dimon, CEO of JPMorgan Chase, leaves the U.S. Capitol after a meeting with Republican members of the Senate Banking, Housing and Urban Affairs Committee on the issue of debanking on Thursday, February 13, 2025.

Tom Williams | Cq-roll Call, Inc. | Getty Images

For years, American financial companies have fought the Consumer Financial Protection Bureau — the chief U.S. consumer finance watchdog — in the courts and media, portraying the agency as illegitimate and as unfairly targeting industry players.

Now, with the CFPB on life support after the Trump administration issued a stop-work order and shuttered its headquarters, the agency finds itself with an unlikely ally: the same banks that reliably complained about its rules and enforcement actions under former director Rohit Chopra.

That’s because if the Trump administration succeeds in reducing the CFPB to a shell of its former self, banks would find themselves competing directly with non-bank financial players, from big tech and fintech firms to mortgage, auto and payday lenders, that enjoy far less federal scrutiny than FDIC-backed institutions.

“The CFPB is the only federal agency that supervises non-depository institutions, so that would go away,” said David Silberman, a veteran banking attorney who lectures at Yale Law School. “Payment apps like PayPal, Stripe, Cash App, those sorts of things, they would get close to a free ride at the federal level.”

The shift could wind the clock back to a pre-2008 environment, where it was largely left to state officials to prevent consumers from being ripped off by non-bank providers. The CFPB was created in the aftermath of the 2008 financial crisis that was caused by irresponsible lending.

But since then, digital players have made significant inroads by offering banking services via mobile phone apps. Fintechs led by PayPal and Chime had roughly as many new accounts last year as all large and regional banks combined, according to data from Cornerstone Advisors.

“If you’re the big banks, you certainly don’t want a world in which the non-banks have much greater degrees of freedom and much less regulatory oversight than the banks do,” Silberman said.

Keep the exams

The CFPB and its employees are in limbo after acting Director Russell Vought took over last month, issuing a flurry of directives to the agency’s then 1,700 staffers. Working with operatives from Elon Musk’s Department of Government Efficiency, Vought quickly laid off about 200 workers, reportedly took steps to end the agency’s building lease and canceled reams of contracts required for legally-mandated duties.

In internal emails released Friday, CFPB Chief Operating Officer Adam Martinez detailed plans to remove roughly 800 supervision and enforcement workers.

Senior executives at the CFPB shared plans for more layoffs that would leave the agency with just five employees, CNBC has reported. That would kneecap the agency’s ability to carry out its supervision and enforcement duties.

That appears to go beyond what even the Consumer Bankers Association, a frequent CFPB critic, would want. The CBA, which represents the country’s biggest retail banks, has sued the CFPB in the past year to scuttle rules limiting overdraft and credit card late fees. More recently, it noted the CFPB’s role in keeping a level playing field among market participants.

“We believe that new leadership understands the need for examinations for large banks to continue, given the intersections with prudential regulatory examinations,” said Lindsey Johnson, president of the CBA, in a statement provided to CNBC. “Importantly, the CFPB is the sole examiner of non-bank financial institutions.”

Vought’s plans to hobble the agency were halted by a federal judge, who is now considering the merits of a lawsuit brought by a CFPB union asking for a preliminary injunction.

A hearing where Martinez is scheduled to testify is set for Monday.

‘Good luck’

In the meantime, bank executives have gone from antagonists of the CFPB to among those concerned it will disappear.

At a late October bankers convention in New York, JPMorgan Chase CEO Jamie Dimon encouraged his peers to “fight back” against regulators. A few months before that, the bank said that it could sue the CFPB over its investigation into peer-to-peer payments network Zelle.

“We are suing our regulators over and over and over because things are becoming unfair and unjust, and they are hurting companies, a lot of these rules are hurting lower-paid individuals,” Dimon said at the convention.

Now, there’s growing consensus that an initial push to “delete” the CFPB is a mistake. Besides increasing the threat posed from non-banks, current rules from the CFPB would still be on the books, but nobody would be around to update them as the industry evolves.

Small banks and credit unions would be even more disadvantaged than their larger peers if the CFPB were to go away, industry advocates say, since they were never regulated by the agency and would face the same regulatory scrutiny as before.

“The conventional wisdom is not right that banks just want the CFPB to go away, or that banks want regulator consolidation,” said an executive at a major U.S. bank who declined to be identified speaking about the Trump administration. “They want thoughtful policies that will support economic growth and maintain safety and soundness.”

A senior CFPB lawyer who lost his position in recent weeks said that the industry’s alignment with Republicans may have backfired.

“They’re about to live in a world in which the entire non-bank financial services industry is unregulated every day, while they are overseen by the Federal Reserve, FDIC and OCC,” the lawyer said. “It’s a world where Apple, PayPal, Cash App and X run wild for four years. Good luck.”