Yun Jun, Will the Interest Rate Cut Be Accelerated... Trump and Biden's Statements Are Variables

November US Presidential Election
Fed's Timing for Interest Rate Cut Uncertain
Both Trump and Biden Negative on High Rates
Fed: "Politics Cannot Influence Monetary Policy"

Will the upcoming U.S. presidential election in November become a variable in the Federal Reserve's (Fed) timing of interest rate cuts? There are speculations that the Fed's rate cut timing could be accelerated due to the election.

The New York Times (NYT) reported on the 10th (local time) that "changes in the Fed's monetary policy decisions could receive political attention this year due to the election," and "with the November election scheduled, the timing of rate cuts could be brought forward."

Jerome Powell, Fed Chair [Image source=Yonhap News]

The Fed consists of the Board of Governors, 12 Federal Reserve Banks, and the Federal Open Market Committee. The structure prevents the executive branch from controlling or intervening in the Fed's monetary policy. The purpose is to ensure that the Fed's monetary policy is not swayed by the interests of elected officials and can promote economic stability. The tradition of the executive branch not interfering with the Fed's policies weakened during the Donald Trump administration. Former President Trump referred to Fed Chair Jerome Powell as an "enemy" during his tenure.

This year, the Fed lowered its year-end rate forecast from 5.1% to 4.6%, suggesting the possibility of three rate cuts. However, the Fed has not directly mentioned the specific timing of these cuts. With former President Trump, a leading Republican presidential candidate, campaigning, there is a possibility he will continue to make remarks that irritate the Fed.

Former President Trump recently claimed in rallies and interviews that mortgage rates are too high. This is interpreted as a statement aimed at stirring the votes of dissatisfied voters due to high rates. The average 30-year fixed mortgage rate in the U.S. was 6.61% at the end of last month. Although this is the lowest rate in seven months since the end of May (6.57%), it remains high compared to the pre-COVID-19 period when rates were around 4%.

Former President Trump also stated that if re-elected, he would pressure the Fed to ease monetary policy further. He also said he would not reappoint Chair Powell after his term expires. The NYT reported, "As Trump campaigns, he may continue to make remarks that make the Fed uncomfortable."

Some on Wall Street have predicted that the Fed might bring forward the timing of rate cuts due to the election. This is to send a message that it is not influenced by politics. Laura Rosner-Warburton, chief economist at Macropolicy Perspectives, forecasted, "Trump's remarks will prompt the Fed to cut rates soon."

President Joe Biden tends to avoid commenting on the Fed's monetary policy but opposes continued rate hikes. Analysts believe Biden cannot ignore the negative public opinion on high rates. He recently said, "The Fed should not raise the benchmark rate and should wait for positive employment reports to achieve stable economic growth and low inflation."

The NYT stated, "Despite inflation slowing and a strong labor market, persistently high prices and mortgage rates are dampening economic sentiment and depressing voters. The statements from presidential candidates amid this situation will resonate widely," and evaluated that "the Fed is likely to continue receiving attention."

The Fed maintains that politics can never influence monetary policy. James Bullard, former president of the Federal Reserve Bank of St. Louis until last year, argued, "The Fed operates the same way in election years and non-election years."

However, there are exceptions. During the 2019 Trump administration, amid rising uncertainties from the U.S.-China trade war, the Fed cut rates three times, reversing the hikes made in 2018. At that time, the Fed raised rates starting in 2018 due to strong U.S. economic growth, causing significant friction with then-President Trump. The NYT explained, "Some economists viewed this as the Fed appearing to yield to the Trump administration."

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