Fed 'Speed Adjustment' Expected... Eyes on Powell at FOMC Just Before US Election

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] With the Federal Open Market Committee (FOMC) meeting scheduled in November just before the U.S. midterm elections that will reshape congressional power, not only investors but also political circles are focusing their attention on Jerome Powell, Chairman of the Federal Reserve (Fed). Amid renewed expectations for a so-called 'speed adjustment' due to concerns over a recession caused by excessive tightening, political pressure related to the upcoming election is also becoming apparent.

On the 26th (local time), economic media CNBC reported that Powell is once again facing political pressure as concerns about the economy grow. The November FOMC, where a giant step (a 0.75 percentage point increase in the benchmark interest rate) is virtually certain, will be held on November 1-2, just about a week before the U.S. midterm elections (November 8), drawing unprecedented attention from political circles. In particular, the key issues are the pace of future tightening, economic outlook, and judgments related to recession that Powell will present after the monetary policy decision.

CNBC conveyed the atmosphere, saying, "With significant stakes in mind, both the market and lawmakers will be all ears to Powell's press conference held six days before the election." Politico evaluated, "Typically, the Fed does not want to be at the center of attention when an election is imminent. But now, whether they like it or not, they are inevitably in the spotlight."

Warnings to prevent unemployment and recession caused by excessive tightening are also pouring in toward the Fed. Sherrod Brown, Chairman of the U.S. Senate Banking Committee and a Democrat, sent a letter to Chairman Powell the day before, stating, "While controlling inflation is your job, you must not lose sight of the view that ensuring full employment is also your duty," and pointed out, "The decisions you make at the next FOMC should reflect a commitment to both responsibilities?full employment and price stability." This is a warning that monetary policy must be cautious as excessive tightening on top of already high inflation could fuel unemployment.

Local media interpret Chairman Brown's letter as being mindful of the midterm elections held a week after the FOMC. Ohio, Brown's constituency, is one of the key battleground states where Democrats and Republicans are in a close contest. Besides Brown, Senator Elizabeth Warren, also a Democrat, recently warned again about the adverse effects of interest rate hikes on employment, calling it "dangerous."

Quincy Crosby, Chief Equity Strategist at LPL Financial, said he does not think this political pressure will influence the Fed but acknowledged, "You can sense the tension in the political circles." Politico mentioned, "Whatever choice Chairman Powell makes, he will face criticism."

Currently, as recession fears rise in the market, there is growing expectation that the Fed may slow the pace of rate hikes before a pivot (policy shift). According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) rate futures market still strongly anticipates a giant step in November. However, the likelihood of a giant step continuing through December has weakened. Instead, the probability of a big step (0.5 percentage point increase) in December has risen to the mid-50% range.

On the same day, the Bank of Canada’s decision to raise rates by only 0.5 percentage points, below market expectations, adds weight to these speed adjustment expectations. Investors view that recession concerns influenced the Bank of Canada's monetary policy decision.

This content was produced with the assistance of AI translation services.