“Exclusive Interview with Former New York Fed Official: Global Easing Cycle Will Benefit Risky Assets”

This content was automatically translated using machine learning; view original page online

Global Financial Connection

Shi Shi, Yang Yulai, and Li Yinong, September 19, 2025, 7:14 AM

Southern Finance 21st Century Business Herald reporters Shi Shi and Yang Yulai

"Super Central Bank Week" is coming.

Central banks in countries like Indonesia, the United States, Canada, the United Kingdom, and Japan have successively announced interest rate decisions, attracting significant investor attention. While these decisions vary, overall, global monetary policy is moving toward an easing cycle.

In an exclusive interview with Southern Finance, Richard Roberts, former head of credit risk at the New York Federal Reserve, stated that the Fed's recent rate cut could mark the beginning of a new easing cycle. However, he emphasized that continued rate cuts through the end of the year or even next year could pose risks. "My biggest concern is a resurgence of inflation that could have a severe impact on the economy, leading to a sharp pullback in asset prices that have been rising for a long time."

According to Xinhua News Agency, the Federal Reserve announced on the 17th that it would lower the target range for the federal funds rate by 25 basis points to between 4.00% and 4.25%. This is the first interest rate cut by the Federal Reserve in 2025.

While the Federal Reserve's interest rate cut met market expectations, the reasons for the move remain a subject of considerable debate. Was it a rational assessment based on economic data or the result of pressure from the Trump administration? Roberts told reporters that the answer was both. On the one hand, there were signs of labor market weakness; on the other, US President Trump exerted pressure on the Fed, attempting to influence its decision-making and repeatedly publicly criticizing Powell for being too slow.

Roberts added that the Federal Reserve's monetary policy will continue to be influenced by political factors. However, global monetary policy will remain independent. "Central banks will continue to pay attention to core data in their respective regions and act accordingly."

Two new factors prompted the rate cut

Global Financial Connection: The Federal Reserve cut interest rates by 25 basis points as expected. What is your first reaction to this decision?

Richard Roberts : Overall, the Fed is balancing a difficult situation. Inflation remains stubbornly stubborn, near or even above 3% by some measures, while the labor market is showing signs of incipient weakness. Therefore, it opted for a smaller rate cut of 25 basis points rather than 50 basis points. In my view, this rate cut is neither a mistake nor a victory. The policy path from now until the end of the year, and potentially even into early 2026, will depend not only on the latest data-the Fed has always been "data-dependent"-but now there is a new variable: political signals from the Trump administration. Trump has repeatedly and forcefully pressured for rate cuts. Therefore, the combination of continued data releases and political pressure from the White House will determine the Fed's policy direction for the rest of the year.

Global Financial Link: Considering that the employment data was significantly revised downward, is 25 basis points really enough?

Richard Roberts : I think 25 basis points is adequate. Clearly, we haven't fully understood the changes in the labor market data. The magnitude of the downward revision was quite significant, with the US non-farm payroll report revised down by approximately 900,000. While some factors are explainable, others are puzzling. Therefore, a 25 basis point rate cut is appropriate for now until we have a clearer picture of the labor market: whether this is a problem or a one-time data correction, there's no need to overreact.

Global Financial Connection: At the beginning of the year, did you foresee that the Fed's first interest rate cut would take place in September?

Richard Roberts : In fact, starting late last year, I believed the Fed wouldn't cut rates at all this year until we saw revised labor market data. I was convinced of this because of inflation-it hasn't returned to the Fed's 2% target and is even showing signs of rising. Therefore, I didn't think the Fed would cut rates until inflation was close to its target. Core inflation is currently around 3%, and by some measures, it's even higher. My view at the time was in the minority, but I had a deep understanding of the Fed's thinking.

Two new factors now precipitated this rate cut, albeit a mere 25 basis points. The first is labor market data. Previously, the Fed focused primarily on inflation, given the overall strength of the labor market. Recent revisions to employment data have called this assessment into question-the labor market may not be as strong as the Fed previously believed. While the unemployment rate remains historically low, currently at 4.3%, having previously been lower, it remains quite low by historical standards and has recently risen slightly.

The second factor is political pressure. Trump has exerted pressure on the Federal Reserve, attempting to influence its decisions. He has appointed key members to the FOMC and repeatedly criticized Powell publicly for being slow to act. He also attempted to pressure Cook, a voting board member, to remove him, but the courts blocked his move. This may be another attempt, or at least perceived as a means of influence, by Trump.

The impact of tariffs may be just a one-time thing

Global Financial Connection: With White House economic adviser Stephen Milan joining the FOMC, will the Federal Reserve remain independent in the future?

Richard Roberts : I expect that as long as Trump remains in office, his administration's influence will continue to influence Fed policy in the short term, and if economic conditions align with his goals, there may even be further rate cuts in the future. In the short term, he will have his finger on the pulse of the Fed, exerting influence on it, and we will soon see the impact of this influence.

Global Financial Link: You have previously stated that inflationary pressure is obvious and that the Fed's interest rate cut at the end of 2024 may be "too premature." Is today's action a repeat of the same mistake?

Richard Roberts : Easing policy at this time could further drive up inflation, which would be detrimental to the economy. However, the risks inherent in this 25 basis point rate cut are limited. More importantly, the question is: Does it signal the start of a cycle of rate cuts? Should we expect more rate cuts to come?

If a series of 25 or 50 basis point rate cuts occurs by the end of the year without a clear weakening in the labor market, the Fed would be in a dangerous position. US economic growth remains solid, at around 2.5% to 3% this quarter and likely 1.8% to 2% annually, but inflation remains elevated. There are two key factors: first, confusing labor market data, which is impacting policy decisions; and second, a new factor: the influence of Trump.

Global Financial Connection: What do you think about the impact of recent US tariffs on inflation? Will this make the Fed's task more complicated?

Richard Roberts : Tariffs have already pushed up US inflation. This is a classic "supply-side tariff shock": a leftward shift in the supply curve, rising inflation, and an economic slowdown-stagflation. However, most believe that the tariff shock is merely a one-time price jump and will not create a sustained inflationary spiral. With luck, current inflation will be a "one-time jump," with no further increases expected. Trump's tariffs have indeed pushed up inflation, but hopefully, this is a one-time shock rather than a sustained upward trend. To gauge the impact of tariffs on inflation, one can observe market inflation expectations. However, there is some concern that, due to the impact of tariffs, long-term inflation expectations remain elevated and have risen slightly. The ultimate impact remains to be closely monitored.

Interest rate cuts may be a huge boost to risky assets

Global Financial Connection: How do you interpret the stock, bond and gold market reactions to the Fed's rate cut?

Richard Roberts : The market is currently in a bull market, which is very interesting, and risk assets are also benefiting. I have mentioned many times in my speeches this year that once the Federal Reserve starts a rate cut cycle, it will release liquidity through rate cuts, which will be beneficial to risk assets, including cryptocurrencies.

The overall upward trend is likely to continue, but markets never move in a straight line. If inflation were to rise significantly, the market could fall sharply. Currently, inflation has fallen and stabilized around 3%, but the latest data shows a slight increase. If interest rate cuts cause inflation to rise to 4% or higher, it would be a real blow to the market.

Global Financial Connection: The dot plot suggests that there will be two more interest rate cuts this year. Do you think so?

Richard Roberts : The decision to continue cutting rates will depend on the data: the direction of economic indicators and the pressures on the Fed. If core PCE falls to around 2.5% and the job market remains a concern, several more rate cuts are likely. However, if inflation remains above 3% and employment data does not deteriorate, the Fed will remain on hold.

The second key factor is the pressure exerted by the Trump administration. This pressure could lead the Federal Reserve to cut interest rates despite data that previously would have prevented it. By year-end, we could see a combination of data: slightly higher inflation, minimal deterioration in job market risks, and the Fed's continued concerns-a combination that would have previously led it to hold its ground. But now, with the added influence of Trump, the Fed is likely to continue cutting rates despite this combination.

The interest rate cut cycle may have begun

Global Financial Link: Do you expect other major central banks, such as the European Central Bank, the Bank of England and emerging market central banks to follow the Fed's interest rate decision?

Richard Roberts : I believe each major central bank has its own data focus. We'll have to wait and see how this impacts capital flows. The market has fully priced in the Fed's modest 25 basis point rate cut. I don't expect other central banks to significantly adjust their policies as a result of this Fed decision. Central banks will continue to monitor and act accordingly with their own core data. Therefore, this Fed rate cut will not have a decisive impact on other major central banks, such as the European Central Bank.

Global Financial Connection: Does this mean that the Federal Reserve has not yet officially entered the interest rate cut cycle?

Richard Roberts : I believe this rate cut could be seen as the beginning of a new cycle of rate cuts. The key lies in Trump's influence, which may be enough to sway the Fed's decisions. If this influence were ignored, the Fed might simply cut once and then stop until the situation becomes clearer. However, under Trump's pressure, this rate cut is likely to mark the official start of a Fed easing cycle.

I'm deeply concerned about this. If interest rate cuts continue into the end of the year or even into next year, there could indeed be risks. Therefore, we must remain highly vigilant and respond flexibly. Among the potential consequences of premature rate cuts, the core risk that I'm most concerned about is a resurgence of inflation, which could severely impact the economy and cause a sharp pullback in asset prices that have been rising for a long time.