Presidential candidate Donald Trump has been giving clear hints about when he wants the Federal Reserve to start cutting interest rates, but Chairman Jerome Powell isn’t interested.
This week, the Federal Open Market Committee (FOMC) meets to discuss whether base interest rates, which are now at more than two-decade highs, should be lowered.
Although the economy remains warm enough to raise concerns that lowering the cost of money through lowering the base rate will lead to inflation, some members of the Fed have begun considering a rate cut after the next meeting in September.
Lowering the target benchmark interest rate to 5.25% to 5.5% will relieve pressure on consumers, who may therefore be more favorable to the Biden administration’s handling of the economy.
This is exactly the opposite of what Trump wants to happen.
The Republican candidate told Bloomberg that lowering the base rate before the November election “is a good idea” [the Fed] Know they shouldn’t do this.
‘We don’t want to be involved in politics in any way’
The Fed is supposed to be a nonpartisan, politically independent entity. Powell was keen to spell out this detail in his speech after yesterday’s FOMC meeting. In direct response to a question about Trump’s criticism of a pre-election rate cut, Powell said he was “absolutely” confident that any decision the Fed makes will be apolitical.
“First of all, we haven’t made any decisions yet,” he began. “I don’t know what the data will reveal or how that will impact the appropriate path for our policy.”
“I do know how we’re going to make that assessment… So if you take a step back, what’s happening is that inflation has moved much closer to our target, and that’s while the unemployment rate remains low. We’re very Focus on using our tools to try to help that continue.
“Every meeting and all of our decisions are strictly about that and really nothing else.”
If these words were coming from someone else, they would sound reasonable and prosaic. But for a Fed chairman who knows that even the slightest misstep in a speech can affect global markets, these are battle words.
His response comes after Trump has repeatedly tried for years to draw Powell and the Fed into the political conversation.
Back in February, the former president told Fox Business that Powell “I think if he lowers interest rates, he’s going to do something that might help Democrats.” He went on to say Powell was “political,” adding: “It seems to me that he’s trying to lower rates to get people elected, I don’t know.”
Powell flatly rejected the idea at a press conference on Wednesday. “We are a non-political organization,” he said. “We don’t want to be political in any way.”
Powell’s job in jeopardy
Powell was nominated by Trump when he was president in 2017.
The Republican candidate said in February that he would not reappoint Powell if he won the election, but walked back that stance in an interview with Bloomberg last month.
“I will let [Powell] “Especially if I think he’s doing the right thing,” Trump said.
Still, that hasn’t stopped Trump from hinting at who he would hire to replace Powell. His list of (possibly unwilling) candidates includes JPMorgan Chase CEO Jamie Dimon, who has repeatedly said he has no interest in such a position.
Powell said he does not plan to leave the chairman’s office before the end of his term, but also did not consider how the Fed’s decision will affect politicians.
“We believe Congress has ordered us to conduct business in a non-political manner at all times, not just some of the time,” Powell said Wednesday. “We never use our tools to support or oppose a political party, a politician, or any political outcome.”
“The bottom line is, if we do our best to do our part and hold on to our part, it will benefit all Americans. If we do it right, the economy will be stronger, we will have price stability, and people will have jobs. , wages will actually rise – and everyone will benefit.
Powell, who served as deputy Treasury secretary under Republican President George H.W. Bush, noted that he first joined the group in 2012 and worked with the Fed through four presidential elections.
“That’s how we will always act…that’s what we think, that’s what we do,” he said. “Anything we do before, during or after the election will be based on data, prospects and a balance of risks, not anything else.”
Powell added that while the Fed keeps abreast of comments and insights from academics and analysts, “we will not make any changes in our approach to addressing other factors such as the political calendar.”
The Fed does face growing pressure from doves and hawks on when to cut interest rates. Some, including former New York Fed President Bill Dudley, said ahead of the Federal Open Market Committee’s July meeting that the Fed needed to cut interest rates as soon as possible.
Other analysts, such as those at Bank of America, insist on a rate cut in December at the latest. As seen in a note posted yesterday wealth“We still forecast a first rate cut in December,” U.S. economist Michael Gapen, rates strategist Mark Cabana and currency strategist Alex Cohen wrote. , as we believe downside risks to the economy are exaggerated.
Kamala Harris may have few loyalties
Although his most recent nomination came from the Democratic Party, Powell may also receive a snub if Kamala Harris is elected to the Oval Office.
In 2018, Harris voted against confirming Powell as Fed chair in the Senate, instead supporting a group of progressive lawmakers.
Although Powell was reappointed while Harris was vice president, political commentators believe it is “very unlikely” that Powell will receive another nomination from either candidate once his term ends in 2026.
On a question about Trump and Harris and their different approaches to the economy, Powell said their policies would not affect forecasts.
“We would never do that,” he said. “We don’t know who’s going to win, we don’t know what they’re going to do… we just can’t do it.”
While the Fed can model economic policies proposed by Republicans or Democrats, he reiterated: “We will never try to make a policy decision based on the outcome of an election that hasn’t happened yet — that’s a line we will never cross.”
