September Rate Cut Would Thrust Fed Into Brutal Election Campaign

The Wall Street Journal ^ | July 31, 2024 | Nick Timiraos

[MinorityRepublican]

By opening the door wider to an interest-rate cut in September, the Federal Reserve is on a collision course with the presidential election.

For a central bank that judiciously aspires to stay above the fray of partisan politics, confronting a potential policy shift around election time amounts to a lose-lose. Delivering a rate cut ahead of the election could rile up Republicans and former President Donald Trump, but withholding a needed reduction could undermine the economy and upset Democrats.

The awkward optics give extra incentive for central bank officials in the coming weeks to set expectations for and explain the reasoning behind any sequence of rate reductions they could initiate at the Fed’s next meeting, in mid-September.

Fed Chair Jerome Powell continued a long-running effort to lay such groundwork on Wednesday when he said his attention was squarely trained on ensuring the Fed could bring down inflation while preventing past rate increases from tipping the economy into recession.

“Our focus is strictly on that,” Powell said.

[SteveH]

deep state anti-2024-trump-reelection plan A: illegal immigration motor voter / mail-in ballots (failed)
deep state anti-2024-trump-reelection plan B: j6 lawfare (failed)
deep state anti-2024-trump-reelection plan C: nys ‘hush money’ election interference case lawfare (stalled)
deep state anti-2024-trump-reelection plan D: fani willis fulton county ga election interference case lawfare (failed)
deep state anti-2024-trump-reelection plan E: mar-a-lago classified documents case lawfare (failed)
deep state anti-2024-trump-reelection plan F: attempt to assassinate trump before he can name his VP choice (failed)
deep state anti-2024-trump-reelection plan G: restrict trump campaigning by making trump rallies too dangerous for trump to hold, by SS/DHS benign neglect (failed)
deep state anti-2024-trump-reelection plan H: replace joe biden with kamala harris (failing)

projected:

deep state anti-2024-trump-reelection plan I: fed quantitative easing

[avital2]

the Fed can cut between meetings -

[Thorium90]

The best course of action is allowing the market to set interest rates.

A free market has a way of pricing things correctly.

[Theoria]

That's what happens with higher unemployment and other grievances. Higher debt and deficits is the norm these days. The US doesn't know how to function without mass government spending, regardless who is elected.

[Theoria]

That would be a huge bearish implication, the market would hate it and love it at the same time.

[Mariner]

Rates should go up, not down.

Alas, the Fed will most certainly pander to the global left.

And burn the world down with inflation.

[shanover]

It’s called STAGFLATION. Here comes Harris to the rescue because it’s Trump’s fault!

[Nervous Tick]

” For a central bank that judiciously aspires to stay above the fray of partisan politics...”

🤣😂🤣😂🤣

Yeah. Right.

[SaxxonWoods]

“the Fed can cut between meetings -”

They can but they really try to avoid that since it gives the impression they have blown their job and can spread some panic in the markets.

[reed13k]

Historically the market downturn comes after the Fed starts cutting rates (because they wait too long) and they basically follow the 2 year rate because the market knows more then the economists when it is time to do something.

2 year maxed at 5.05 (below current fed rate) in Sept of last year. Fell, then popped up again maxing at 4.82 in May, been heading down ever since. End of last week was the market telling the Fed they are waiting too long and by the time they get around to a cut the economy will already be in the sh&&ter...which is what the unemployment numbers are starting to say as well.

I was thinking earlier in the week that they may hold off again depending on the PPI/CPI coming up in 2 weeks...now I’m thinking they may cut 50 basis points instead of 25. 2 year is at 3.87 and the Fed at 5.33...too much of a gap. They need to listen to the market here.

They got burned in the 70s by cutting too soon and now all of them are overly cautious like a dog that’s been beaten.

[Nervous Tick]

>> That era could be viewed as the maximum that Democrats are willing to go.

From where do you derive THAT fantasy? The Carter-era ‘Rats didn’t slow or stop inflation — Reagan/Volker did.

[Beowulf9]

“The Fed should not try to control demand in the economy and interfere with free markets by playing with the Fed Funds overnight loan rate and George W Bush changed the law to say they could not do this anymore. The Fed is supposed to unwind its balance sheet to tighten, not mess with interest rates, which are not just high…..they are way too high. If you look at the CPI, PPI and core inflation, and are realistic in understanding the Fed cannot control certain prices and shouldn’t try——if you understand how destructive recessions are socially and politically and economically……then the Fed not only should cut, they should cut their Funds rate deeply, to 3% or under. Big Business is doing great now, but small business and banks are getting killed. Inflation is NOT going to get out of control if we let markets work. The economy cannot grow fast unless the Fed accommodates fast growth. People have not gotten raises since 2019, but prices are up on most things they buy. Since Volcker, the Fed has increasingly divided the country by allowing prices to rise when the economy is bad, but now allowing wages to rise when the economy is good—-which is a misinterpretation of its “dual mandate” to prevent recessions, which do NOT reduce inflation at all, but just begin a new cycle of inflation that leaves the middle class out of jobs and working wages and salaries. People who claim the Fed should keep rates high or raise them higher do not believe in free markets at all. They believe the Fed should take the side of buyers of labor over sellers of labor & interfere with the workings of the free market”.

[Beowulf9]

There is no high inflation now. And the unemployment rate has risen from 3.5% to 4.3% already…..headed to 5.5% or higher by Election Day. You cannot make a real argument for why the Fed’s fund rate on overnight loans should be higher than 2yr, 5yr, 10yr Treasuries, as well as higher than yearly producer price inflation, consumer price index and core inflation

[Beowulf9]

If deficits cause inflation, it must be true that recessions with rising unemployment rates and spending make deficits worse. That’s why the Fed policy is so wrong to play with interest rates and attack inflation when deficits are smallest during booms.

[Beowulf9]

There is no stagflation. 1970s was about high regulations and high and steep taxes. We don’t have that now….not even close. The Fed cannot fix Biden’s war on fossil fuels or healthcare or rents. And they should not try to. The 70% tax bracket was at $105,000 in 1980. The 50% tax bracket was at $45,000 in 1980. We don’t even have a 40% tax bracket now…..and the corporate income tax is 21% now. The Fed can do NOTHING about all those $15K to $20K minimum wage laws all over the country that are indexed for inflation.

[SteveH]

Hmmmm

Good point…

[JayGalt]

I think the Fed has conned America too long. They ignore the root problems and pretend that rate cuts & raises fix everything. They are partisan actors who are rearranging deck chairs on the titanic.

[JayGalt]

Exactly.

[nickcarraway]

I’m not sure about that. So, you think people should vote for Biden/Harris, because they tamed inflation?

[Ancesthntr]

Let the Fed cut rates. Trump can immediately go on the attack, on two grounds: first, that if the economy was strong, it wouldn’t need a rate cut; second, the fact that inflation is still high, shows that the Fed is playing politics, because, cuts and inflation don’t go together very well. He gets a two-fee, slamming both the current administration and the Fed on economic grounds, where he is at his biggest advantage.