Illustration: Sarah Grillo/Axios

Jay Powell did his best impression this week of a Fed chair making his own data-driven decisions about where he should set short-term interest rates. The reality, however, is that the markets and the president are giving him very little choice.

Driving the news: Powell cut interest rates on Wednesday — the first time the Fed has done so in over a decade. In doing so, he effectively fulfilled a prophecy that the fixed-income markets (and even the stock market) had been making for all of 2019. They saw the rate cut coming long before the Fed was willing to admit it, and they were right all along.

Donald Trump has been just as adamant about the necessity of a rate cut — a big one — and this week he worked out how to get what he wants. After the rate cut a few days ago, the market priced in a 64% chance of another cut in September. Less than 24 hours later, thanks to Trump, that probability had risen to north of 95%.

  • What we're seeing: The most important new word in the official Fed statement was "global." The Fed is no longer just reacting to domestic conditions; it's looking at an economic slowdown around the world, including China. Trump's announcement of new tariffs ensured that global trade will continue to disappoint and the Fed will continue to cut rates.

What they're saying:

"The president and his trade negotiators believe they have downside protection against the possibility that trade policies will cause any lasting damage to the economy or the stock market. After all, the Fed has very publicly shown that it views it as appropriate to cut interest rates to combat any slowdown related to trade wars."
Neil Irwin, The New York Times

The catch: Fed rate cuts are better at protecting the markets than they are at protecting the economy. In any case, as economist Nouriel Roubini notes, the Fed doesn't have nearly enough ammunition to protect against a fully fledged trade war.

The bottom line: Now that the Fed is being treated as a marionette by both the markets and the president, its much-vaunted independence is becoming increasingly insubstantial. The less control that Powell has over the Fed's actions, the less power he has.

Go deeper

The Biden blowout scenario

Joe Biden speaks at an outdoor Black Economic Summit in Charlotte yesterday. Photo: Kevin Lamarque/Reuters

Joe Biden or President Trump could win the election narrowly — but only one in a popular and electoral vote blowout. 

Why it matters: A Biden blowout would mean a Democratic Senate, a bigger Democratic House and a huge political and policy shift nationwide.

2 hours ago - Technology

Justice's moves ring Big Tech with regulatory threats

Illustration: Annelise Capossela/Axios

The Department of Justice proposed legislation to curb liability protections for tech platforms and moved a step closer toward an antitrust lawsuit against Google Wednesday.

The big picture: As President Trump faces re-election, lawmakers and regulators are hurriedly wrapping up investigations and circling Big Tech with regulatory threats.

Democrats' mail voting pivot

Illustration: Sarah Grillo/Axios

Democrats spent the early months of the coronavirus pandemic urging their base to vote absentee. But as threats of U.S. Postal Service delays, Team Trump litigation and higher ballot rejection rates become clearer, many are pivoting to promote more in-person voting as well.

Why it matters: Democrats are exponentially more likely to vote by mail than Republicans this year — and if enough mail-in ballots are lost, rejected on a technicality or undercounted, it could change the outcome of the presidential election or other key races.

Get Axios AM in your inbox

Catch up on coronavirus stories and special reports, curated by Mike Allen everyday

Please enter a valid email.

Subscription failed
Thank you for subscribing!