Federal Reserve Chairman Jerome Powell has repeatedly vowed to ignore politics, but that hasn't stopped both sides from trying to influence him as the election approaches.
Democrats tend to want cuts as quickly as possible, while Republicans generally want Mr. Powell to cut them slowly. Strategies for driving these points home vary widely depending on who applies the pressure and where the persuasion takes place.
And while they may differ on tactics, these politicians agree on key dynamics in an election year. Whether that was Mr. Powell's intention or not, a pre-election rate cut would likely be beneficial to President Joe Biden and the White House.
As a result, Democratic members of Congress tend to openly advocate lowering interest rates. Even Mr. Biden, who often avoids public conversations about monetary policy, showed some interest recently by suggesting that the “little organization that sets interest rates” will soon lower interest rates.
“I can't guarantee it, but I think we will,” he told an audience in Pennsylvania on Friday, discussing various ways to help homeowners facing high costs.
Meanwhile, most Republicans have made it clear they hope the Fed doesn't cut rates “prematurely” while pleading with Powell to ignore the political noise. Donald Trump has taken a more confrontational stance, suggesting Powell wants to “help Democrats” in the coming months.
“There is no safe place for the Fed here,” says Fed historian Sarah Binder. “Even if they don't really want to be involved, they're in the middle of the story here.”
Mr. Powell has tried to provide very clear guidance for decision-making. Limiting choices “may be part of the game,” says Desmond Luckman, a former managing director at Salomon Smith Barney and now at the American Enterprise Institute.
“He knows this is an election year, and the more he braces himself,” perhaps the less likely he will feel political pressure.
Different strategies on Capitol Hill
The differing strategies among lawmakers were clear last week as Mr. Powell faced two days of questioning before committees in the House and Senate.
“It would be appropriate to begin reducing policy restraints at some point this year,” he told lawmakers on both days, “but the economic outlook remains uncertain and continued progress toward the 2% inflation target remains uncertain.” is not guaranteed.”
The Republican response has often focused on getting Mr. Powell to keep his promise.
Rep. Patrick McHenry of North Carolina began a marathon questioning session with Powell, saying inflation is not “going away” and urging him to ignore pressure to cut rates too soon.
“The reliability is [Federal Reserve] “I encourage you to continue to maintain that stance,” Tennessee Sen. Bill Hagerty added, nearly 27 hours after testimony ended.
These Republicans had a clear message that they would do things Powell's way, but they also aimed to do it in a way that was friendly to all.
“I'm surprised by how much the Republicans respect Powell as Fed chair, even though this appointment of Powell was made by Biden,” Binder said, adding that Powell's commitment to lawmakers is He pointed to recent reports about how much time and effort they put into their courtship.
“That gives him an advantage in relation to these types of hearings,” she said.
Many Democrats, on the other hand, were more confrontational. Some questioned the Fed's 2% mandate altogether.
“Interest rates are too high,” Massachusetts Representative Ayanna Pressley told Powell in one colorful moment.
Congresswoman Maxine Waters made a similar point in an interview with Yahoo Finance's Jennifer Schoenberger, saying, “People are paying a disproportionate amount of their income on necessities like food, so we need to lower interest rates.'' There must be,” he said.
Various tactics in presidential campaigning
But if Democrats on Capitol Hill are confrontational and Republicans take a more moderate approach, the dynamics are almost exactly reversed in presidential campaigns.
President Trump has made it abundantly clear that he intends to attack efforts to cut interest rates in the coming months. The likely Republican nominee initially appointed Powell to the post in 2017, but quickly turned on him, calling him political and saying he would not give him a third term. There is.
“I think [Powell’s] I'm probably going to do something to help the Democratic Party,” President Trump said in a recent interview on FOX Business.
Although Biden made brief forays into monetary policy recently, he has generally tried to avoid commenting publicly on Powell as much as possible since reappointing him in 2021.
Mr. Biden has expressed support for his candidate, but has avoided addressing the question of whether interest rates should rise, fall or rise. But his prediction that interest rates would fall last Friday signaled a slight deviation from his strategy.
What would Powell do?
What remains to be seen is whether any of these many approaches will have any impact on Mr. Powell. But recent data appears to be aiding the broader Republican argument for slower action.
A new inflation report on Tuesday showed price pressures continuing. The Consumer Price Index (CPI) rose 3.2% year-on-year in February, accelerating from January's 3.1% annualized rise.
Some market players reacted to the news, suggesting that the grim inflation figures were not necessarily enough to change rate cuts plans this year.
Investors currently have only about a 30% chance that interest rates will remain unchanged after the June meeting, but that probability rose slightly after Tuesday's inflation news, according to CME Group data.
Mr. Powell is also under a lot of pressure from Wall Street. JPMorgan Chase & Co. (JPM) CEO Jamie Dimon recently said he supports keeping interest rates on hold until at least July.
“We can always cut back quickly and dramatically,” Dimon said Monday. “Their credibility is a little at stake here. I would wait past June and wait until everything is resolved.”
Torsten Slok, chief economist at Apollo Global, is already predicting zero rate cuts in 2024 and said Tuesday's inflation numbers “mean the Fed will keep rates going for longer.” . (Disclosure: Yahoo Finance is owned by Apollo Global Management.)
All of this adds up to a complicated situation for Mr. Powell in the coming months.
“There will be political pressure,” Lachman said. He believes the Fed should consider lowering interest rates sooner to address issues such as growing commercial real estate problems for the economy.
He also said Powell still has plenty of levers to pull from in the coming months, even if he falls into a hold pattern on interest rate decisions, such as the Fed's balance sheet adjustment.
“This is another part of monetary policy that doesn't get a lot of attention, so we can make some changes there as well,” he said.
Ben Werschkul is Yahoo Finance's Washington correspondent.
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