Fed Chairman Jerome Powell is likely to face bipartisan fire this week if, as expected, he signals that the fight against inflation is nearing an end with the first interest rate cut in four years.
That seems perfectly fine with him.
Of course, political winds can change quickly, but the Fed chairman is in a stronger position than expected: the central bank he oversees seems likely to be able to neutralize criticism in the coming days, even as it approaches the climax of a year in which it has had to deal not only with a complex economic situation but also with a closely fought 2024 election.
At stake is a 14-month-old decision on when and how aggressively to start cutting interest rates. Powell and his colleagues are likely to decide when they meet this week whether to cut rates by 25 or 50 basis points.
Read more: How the Federal Reserve’s interest rate decision will affect your bank accounts, CDs, loans and credit cards
Both options fall somewhere in the middle of the political spectrum.
To be sure, former President Donald Trump will blast any “change in course” from the Fed in the weeks before the election, but his recent criticism of Powell is mixed, given that his campaign has focused on lowering interest rates.
Perhaps most notably, President Trump himself has recently ignored central banks to focus elsewhere, and the topic did not come up during last week’s debate with Vice President Kamala Harris.
Powell is also likely to face criticism from the left for waiting too long. On Monday, three Democratic senators, including Massachusetts Sen. Elizabeth Warren, called for a 75 basis point cut.
So there is a good chance they too will remain dissatisfied.
As economic evidence mounts in favor of cutting rates, perhaps most importantly for Powell, people across the political spectrum on both sides of the aisle are already signaling they have no problem with the central bank’s widely expected move.
It remains to be seen whether the Fed’s strategy is right for the economy, but in purely political terms, as the old expression goes, if you’re being attacked from both sides, it means you might be doing the right thing.
Has Powell “made mistakes too many times”?
For Trump and his allies, recent months have been marked by wider criticism of Powell as the economic case for cutting rates has become harder to deny.
Donald Trump’s last comments about the Fed were last month, when he said Chairman Powell “made a lot of mistakes.” But he also seemed undecided about how far Powell got it wrong, adding, “He tends to be a little late on things, a little too early, a little too late.”
The story continues
It was a shift in tone from Trump’s more direct attacks on Powell earlier this year. Trump told Bloomberg in June that the cuts were “something they know they shouldn’t be doing.” That came after Trump said in a February Fox Business interview that “I think she’s probably going to do something that helps the Democrats” about the cuts.
As of Monday afternoon, Trump had not appeared to have made any online posts or comments about the Fed in weeks, and comments from his campaign have focused more on cutting interest rates than past accusations about the politicization of the Fed.
“Kamaranomics has delivered the fastest increase in mortgage rates since 1981,” Republican National Committee spokeswoman Anna Kelly charged in a statement, adding that Trump “will rapidly lower mortgage rates and interest rates.”
Part of what’s happening is a growing realization among many, including President Trump’s allies, that a rate cut is not only inevitable but justified, thanks to a struggling labor market and inflation that continues to move toward the Fed’s 2 percent target.
Some of President Trump’s key allies have directly broken with him on this issue, with a number of prominent Republican lawmakers openly stating that interest rates need to be lowered now, according to a recent Politico article.
“It’s time to lower interest rates,” Sen. John Kennedy of Louisiana, a staunch supporter of President Trump, told the outlet, adding that “this economy, and especially the labor market, is weakening rapidly.”
Meanwhile, on the left…
The central bank’s efforts to counter President Trump’s political attacks may also be bolstered by ongoing criticism from the left.
Some liberals have been critical of the Fed for some time, with some even arguing that a 75 basis point rate cut was the right approach.
“Because employment data is slow to change, the Fed should frontload rate cuts to avoid a potential crisis,” Senators John Hickenlooper, Warren and Sheldon Whitehouse wrote in a letter Monday urging further rate cuts.
There has been growing criticism from senators and others on the left that the Fed is responding too slowly, increasing the likelihood of a recession.
“You’re really risking disaster” with a small rate cut, former Fed economist Skanda Amarnath said at a press conference on Monday. Amarnath, executive director of the group Employ America, added that “it would make sense for the Fed to act a little more decisively.”
Powell is almost certain not to follow through, with traders split on whether to expect a 25-basis-point cut or a 50-basis-point one, and they see zero chance of any other outcome this week.
As for the White House, Powell is unlikely to hear publicly from the current administration this week, as Harris recently reiterated her preference for the Fed to run independently.
And White House national economic adviser Lael Brainard, speaking to the Council on Foreign Relations on Monday, said President Joe Biden has “clearly committed to respecting the Federal Reserve’s independence in fighting inflation.”
Some have suggested that if Powell was trying to influence the 2024 election, he would have cut rates sooner.
“The only political debate among nonpartisan Fed watchers and people with actual money at stake is whether the Fed will delay cutting rates for fear of the perception of politicization,” Harvard University’s Jason Furman wrote in a lengthy recent social media post about why the central bank avoids electoral considerations and why he considers any criticism “unserious political noise.”
Powell, meanwhile, has long maintained he paid no attention to the fuss.
After the last Federal Reserve meeting, a reporter asked whether the Fed could remain apolitical through the remainder of the election period.
“Of course,” he quickly replied, adding that he and his colleagues would remain solely focused on the economy and “won’t change our approach to address other factors, such as the political agenda.”
Ben Werschkul is Yahoo Finance’s Washington correspondent.
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