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Cool-headed Federal Reserve Chairman Jerome Powell would never walk into a press conference, proclaim victory over inflation, then give the microphone away and give the middle finger to his haters. That’s not his style.
But in his own way — very modest, very thoughtful — that’s what happened on Wednesday when the Fed announced its first interest rate cut in four years: a big half-point reduction that will lower borrowing costs and provide financial relief to consumers and businesses.
“Our patient approach over the past year has paid off,” Mr. Powell said, perhaps the most understated boast ever made by a civil servant. (He then toned it down and said, “We never said ‘mission accomplished.'”)
Still, the overall message from the central bank governor was clear: “The U.S. economy is doing well, and today’s decisions are aimed at keeping it that way.”
In a parallel world, everyone would be happy that the pandemic-ravaged economy is finally returning to a healthy equilibrium, but here in the United States, we have 48 days until a national election, so everything is political, even the routine adjustments to monetary policy by the fiercely nonpartisan and independent Federal Reserve.
Republican Sen. Tommy Tuberville of Alabama called the decision “shamelessly political” on Wednesday and argued that the central bank is “clearly trying to tilt the balance in Kamala Harris’ favor.”
While it is true that lowering interest rates might help the vice president, it is far from clear that voters would be swayed by interest rate changes that would take months to ripple through the economy.
“It’s likely to have very little impact on the economy until Election Day,” economist Jason Furman told CNN. “It’s already priced into the markets, and it’s too early to tell how it will impact unemployment, GDP or inflation.”
Former President Donald Trump responded Wednesday with his own spin.
“Assuming they’re not just playing politics, I think cuts this big are an indication that the economy is very bad,” Trump said during a visit to the bitcoin-themed bar Pubkey in New York City. “Either the economy is very bad or they’re playing politics,” he said.
(To be clear, the Fed does cut rates when the economy is “bad,” like when a pandemic forces lockdowns. But in this case, the rate cut is more like taking your foot off the brake than it is like stepping on the gas.)
The irony of these political concerns is that Powell is perhaps the most politically silent public figure in the federal government.
Powell, a registered Republican, was appointed by President Trump and reappointed by President Joe Biden. He made his name in the private equity industry, not exactly a place filled with closeted leftists. Unlike his predecessor, Powell is not an economist. He is a lawyer who moved into investment banking in the 1980s (and who wouldn’t, honestly?) before joining the Fed’s Board of Governors under President Barack Obama.
Mr. Powell never backs down when reporters ask him about politics, and he sounded almost exasperated when asked on Wednesday whether the half-point rate cut was politically motivated.
“This is my fourth term on the Federal Reserve and it’s always the same: Our job is to support the economy on behalf of the American people,” he said. “We all take this very seriously. We don’t have any other filters.”
Then he pointed out some more finer points.
“We’re not in service to any particular politician, any particular politician, any particular cause, any particular issue. We’re just trying to maximize jobs and price stability on behalf of all Americans.”
Of course, it’s unlikely that either party will be able to stop themselves from using news of a rate cut to their advantage, given that the economy is a top concern for Americans going to the polls on Nov. 5. Harris can hold up the rate cut as the crowning achievement of the Biden administration, which inherited an economy ravaged by the pandemic. Trump can continue to argue that the cut is a sign of a weak economy.
“No matter what Powell does, somebody is going to complain,” Steve Sosnick, chief strategist at Interactive Brokers, told me. “I think he handled this very well, which is why the market definitely voted in his favor.”
He added: “Even if he scores a touchdown, I’m not sure the Fed chairman would be able to spike the football.”