In a move some have called a “gift to Kamala,” the Fed on Wednesday slashed interest rates by 50 basis points just 48 days before the U.S. presidential election.
Ths is the first cut the Fed has made in four years. However, the decision was not unanimous, as Michelle Bowman, who has served as a governor on the Federal Reserve Board since 2018 when former President Donald Trump appointed her, voted against such a large rate cut, preferring that the cut be limited to 25 basis points. It was the first time since 2005 that a governor cast a dissenting vote on an interest rate decision.
Trump was critical of the Fed’s decision.
“I guess it shows the economy is very bad to cut it by that much, assuming they’re not just playing politics,” Trump said. “The economy would be very bad, or they’re playing politics, one or the other. But it was a big cut.”
Vice President Kamala Harris welcomed the news, however.
“While this announcement is welcome news for Americans who have borne the brunt of high prices, my focus is on the work ahead to keep bringing prices down,” Vice President Harris said in a statement on Wednesday. “I know prices are still too high for many middle class and working families, and my top priority as President will be to lower the costs of everyday needs like health care, housing, and groceries.”
Larry Kudlow, news analyst and former director of the National Economic Council, said the move was a “gift to Kamala.”
“This may well put the central bank smack in the middle of presidential politics – something they pledged not to do,” he said. “Now, in light of a modest decline in commodity prices and longer term interest rates, along with a softening in the labor market, a 25-basis point cut would seem to be justified in economic terms, with no political overtones, but a 50-basis point super-cut sounds a lot like the ultra-liberal Democratic senators Elizabeth Warren, Sheldon Whitehouse, and John Hickenlooper, who were jawboning the Fed to lower interest rates by 75 basis points.
“Not to mention, with 48 days until the election, there is no reason the Fed couldn’t have waited for their next meeting – in 49 days – and announced the rate cut the day after the election. Holding it off for 49 days would’ve had no economic impact, but it would’ve completely taken politics out of this whole story. ”
Kudlow described the issue as an “affordability crisis, where consumer prices throughout the Biden-Harris term have increased faster than wages,” noting that real wages rose by over 9% under Trump, as opposed to dropping by 4% under Biden-Harris.
Politico reports on the Fed’s decision to slash interest rates for the first time in four years less than two 50 days before elections. Here’s the start of the story:
The Federal Reserve announced Wednesday that it is slashing interest rates by half a percentage point and projected two more cuts before the end of the year, in a clear sign that officials believe they have won the battle against inflation.
The move — which is twice as large as a standard rate cut — also indicates that the central bank is growing nervous about the weakening labor market. While layoffs remain low, job opportunities have dwindled, helping to push up unemployment gradually.
The central bank’s decision to act more boldly is an effort to prevent a further rise in joblessness, a key fight that will determine what kind of economy the next president inherits. And Fed officials offered more good news on that front: They projected four rate cuts next year and two more the year after, with inflation basically returning to the 2 percent target by the end of 2025.
“We have more work to do on expanding affordable housing, eliminating junk fees, and addressing other pocketbook issues important to Americans,” Rep. Maxine Waters (D-Calif.) said in a statement immediately after the announcement. “But today’s decision by the Fed will help the U.S. economy maintain this momentum, get our housing market moving again, keep unemployment low, and minimize any adverse economic effects of higher rates.”
