Federal Reserve expected to cut rates, lift Joe Biden’s re-election prospects
For the Fed, the current outlook, if it meets expectations, would be a singular triumph of its own; aggressive rates hikes in 2022, 2023 brought a punishing bout of inflation under control without causing a recession; now a turn to rate cuts may be as clo
he U.S. Federal Reserve looks on track to cut interest rates as the Presidentialcampaign season heats up, potentially delivering President Joe Biden a boost as polls show Americans dislike his handling of the economy.
The Fed could play an outsized — and potentially uncomfortable — electionyear role by helping shape attitudes about stubbornly high inflation and mounting housing costs that have been a drag on Mr. Biden’s reelection efforts. Rate cuts will also invite critics — Republican challenger Donald Trump chief among them — to argue an agency set up to be an independent monetary authority is tipping the political scales toward Mr. Biden.
Indeed, Mr. Trump isn’t even waiting for the first rate cut to happen before making that claim, telling Fox Business last month he expects Fed Chair Jerome Powell — whom Mr. Trump installed as central bank chief in 2018 and soured on soon afterward — “to do something to probably help the Democrats ... if he lowers interest rates.”
Mr. Trump’s angst — and Mr. Biden’s likely optimism over the matter is under
TBreaking jinx?
standable given the hefty mindshare interest rates have come to claim among consumers fatigued and angered by enduring the steepest inflation since the Reagan administration.
‘Massively popular’
“Rate cuts are massively popular with people. It will really help build confidence in the economy just as people are paying closer attention to the election,” said Celinda Lake, a top Biden pollster in his 2020 campaign who has recently done private polls on the Fed for a client. “People are really feeling like they are being gouged every way to Sunday.”
Americans in poll after poll rank the economy at or near the top of their most important electionyear issues, and the outlook U.S. central bankers sketched at last week’s meeting is rather a rosy one for Mr. Biden. Officials’ projections suggest he will ride a growing economy, low unemployment, moderating inflation, and also cheaper credit into Election Day on November 5.
Investors now anticipate rate cuts at two of the four
Fed meetings between now and then, in midJune and again in midSeptember, decisions that Mr. Biden could then point to as evidence the worst of inflation has passed and that could influence voter perceptions of the economy.
Moving the needle?
Though the Fed only controls an overnight borrowing rate among banks, reductions to that benchmark — set at 5.25%to5.50% since last July — translate quickly to lower mortgage rates, cheaper car loans and easier financing terms for small businesses. The question is whether what is anticipated — roughly half a percentage point of reductions before voters go to the polls — will be sufficient to move the needle.
Lindsay Owens, head of the Groundwork Collaborative, a progressive Washington think tank, is skeptical it will. With the unemployment rate low, the economy growing at a strong pace and inflation still a concern, the Fed will cut rates too slowly to aid Mr. Biden all that much politically, she said.
“We’re in a 23yearhigh interest rate environment and getting another 25basis point cut or two before November doesn’t change the fact that mortgage rates are going to be high,” Owens said.
Poor ratings
Polls repeatedly show Americans give Mr. Biden poor ratings for his handling of the U.S. economy, due in large part to rising costs for groceries, gasoline and other necessities that have squeezed the poor and middle class. He has spent large parts of last year touting the strong economy, but the effort has done little to change the Americans’ negative attitudes.
The University of Michigan’s widelyfollowed Consumer Sentiment Index plunged to a record low in June 2022 as inflation raged at a fourdecade high of 9.1%. Sentiment is now about halfway between that and its prepandemic averages.
The developing dynamic between Mr.Biden, the economy and the Fed is in contrast to what Former Presidents Jimmy Carter and George H. W. Bush faced in the late 1970s and early 1990s, when inflation and Fed rate hikes arguably hurt their reelection chances. Both lost.
For the Fed, the current outlook, if it meets expectations, would be a singular triumph of its own. Aggressive rates hikes during 2022 and 2023 brought a punishing bout of inflation under control without causing a recession, and now a turn to rate cuts may be as close as the central bank comes to a declaration of victory.
Mr. Biden offered a preview of sorts of how he will incorporate Fed decisions during a campaign stop in Philadelphia earlier this month. He talked about his efforts to lower housing costs for Americans and made a prediction.
“I can’t guarantee it, but I’ll bet you — I’ll bet you those rates come down more because I bet you that little outfit that sets interest rates is going to come down,” he said.
The White House later clarified Mr.Biden was offering his view of the economy, not making recommendations to the independent Fed, underscoring the political tightrope he and his campaign must walk when talking about the central bank.
Reductions to the benchmark translate quickly into lower mortgage rates, cheaper car loans and easier financing terms for small businesses