Jerome Powell is poised to take plenty of partisan fire this week if, as expected, he sends a signal that the fight against inflation will end with an interest rate cut — the first in four years.
It seems to suit him well.
The political winds will change soon, of course. But the Federal Reserve chair has positioned herself in a stronger position than expected: Even as the central bank she oversees nears a one-year peak, it doesn’t have to go it alone. A complicated economic picture, but also a heated 2024 election.
It’s been 14 months of debate to decide when and how seriously to start cutting interest rates. Powell and his colleagues appear to be deciding whether to cut rates by 25 or 50 basis points when they meet this week.
Read More: What the Fed’s Rate Decision Means for Bank Accounts, CDs, Loans and Credit Cards
Any preference appears in the middle of an array of political voices.
Of course, former President Donald Trump would slow down any Fed “pivot” just weeks before the election. But Trump has been mixed in his criticism of Powell of late and his campaign has focused more on lowering interest rates.
Trump may have recently ignored the Fed and focused elsewhere on the topic Didn’t even make it to last week’s debate.
In their view, Powell is dinged from the left for waiting too long. On Monday, three Democratic senators, including Elizabeth Warren of Massachusetts, It also insisted on cutting 75 basis points.
So they are also likely to be dissatisfied.
More importantly for Powell, the broad political spectrum in both parties is already signaling that it is fine with the Fed’s widely expected move, as economic evidence piles up in favor of cuts.
Whether the central bank’s strategy is right for the economy remains to be seen. But purely in politics, as the old expression goes, being attacked from both sides means you’re doing something right.
Did Powell ‘get it very wrong’?
For Trump and his allies, the criticism of Powell in recent months has been significant, as the economic case for the cuts has been hard to refute.
When Donald Trump last commented on the Fed, he suggested that Powell “got a lot wrong,” but the former president also seemed undecided about how Powell got it wrong, adding, “He’s a little late. In terms of things, he’s a little early and a little late.” .”
It seemed a change in tone from Trump’s attack on Powell earlier this year, when he was more direct. He told Bloomberg in June “They knew they shouldn’t” after February. Fox Business Interview When Trump said of the cuts, “I think [Powell’s] I’m going to do something to help the Democrats.”
As of Monday afternoon, Trump did not appear to have posted online or commented on the Fed in weeks, and his campaign’s comments focused more on cutting rates than past accusations of politicization at the central bank.
“Comalanomics has led to the fastest increase in mortgage rates since 1981,” RNC spokeswoman Anna Kelly charged in a statement, adding that Trump would “quickly lower mortgage and interest rates.”
Part of what seems to be happening among many — including many Trump allies — is that a rate cut is not only inevitable, but justified by a tight labor market and inflation continuing to move toward the Fed’s 2% target.
Some key Trump allies broke with him directly over the issue. Got the latest political article Several top GOP lawmakers Now he says frankly that he needs lower interest rates.
“It’s time for a rate cut,” said Louisiana Sen. John Kennedy told the outlet. “This economy — especially the labor market — is softening very, very, very quickly,” said a staunch Trump ally.
Meanwhile, on the left…
The Fed’s efforts to push back against Trump’s political attacks could be helped by continued criticism from the left.
Some liberal voices have long been critical of the Fed — and there’s even a camp that says a 75-basis-point cut is the way to go.
“The employment numbers are slowly correcting, so the Fed should pre-load rate cuts to avoid heading toward a potential crisis,” Sens. John Hickenlooper, Warren and Sheldon Whitehouse emphasized the big cut in their note on Monday.
A growing criticism from that senator and others on the left is that too slow a Fed could increase the chances of a recession.
“You’re really flirting with a potential disaster,” former central bank economist Skanda Amarnath said of a modest interest rate cut during a media briefing on Monday. He is currently executive director of the group Employ America and said “it makes a lot of sense for the Fed to move a little more decisively.”
With traders now split on whether to expect a 25 or 50 basis point cut, Powell is certain not to comply. They say there is 0% chance of any other outcome this week.
As for the White House, Powell is unlikely to hear publicly from the current administration this week, with Vice Chair Kamala Harris recently reiterating her desire to allow the Fed to operate independently.
White House National Economic Adviser Lael Brainard said in a speech to the Council on Foreign Relations on Monday that President Joe Biden “made a clear commitment to respect the Federal Reserve’s independence in fighting inflation.”
Others have noted that if Powell wanted to influence the 2024 election, he would have cut back sooner.
“The only political debate among nonpartisan Fed watchers and people who put real money at risk is whether the Fed will be slow to cut interest rates for fear of the appearance of politicization,” said Harvard’s Jason Furman. In a recent extended social media post Why does he think the central bank is avoiding electoral considerations and any criticism is “radical political noise”.
For his part, Powell has long said he wasn’t paying attention to all the noise.
After the last Fed meeting, a reporter asked if the Fed could remain apolitical for the rest of the election season.
“I absolutely do,” He responded quicklyHe and his colleagues will focus only on economics. “We will not change anything in our approach to address other factors such as the political calendar.”
Ben Werschkull is a Washington correspondent for Yahoo Finance.
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