U.S. Vice President Kamala Harris in Milwaukee, Wisconsin, U.S. August 20, 2024 and former U.S. President Donald Trump in Bedminster, New Jersey, U.S., August 15, 2024 are seen in a combination of file photographs.
Marco Bello | Jeenah Moon | Reuters
Federal Reserve Chair Jerome Powell suggested that Wednesday’s larger-than-expected interest rate cut may have a limited effect on the presidential race between Vice President Kamala Harris and Donald Trump, because the decision’s impacts will ripple into the economy slowly.
“The things that we do really affect economic conditions for the most part with a lag,” Powell said at his press conference, responding to a reporter’s question about timing of the long-awaited rate cut, just 48 days before the Nov. 5 election.
The Fed on Wednesday announced its decision to cut interest rates by an aggressive 50 basis points, or half a percentage point, its first cut since March 2020, marking a milestone in the U.S. economy’s post-pandemic recovery.
Though the cut comes in the final sprint of the Trump-Harris race, Powell said the Fed made its decision with a focus on consumer interests and without “any other filters.”
“This is my fourth presidential election at the Fed, and it’s always the same,” Powell said. “We’re always going into this meeting in particular and asking what’s the right thing to do for the people we serve.”
Federal Reserve Board Chairman Jerome Powell holds a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, U.S., September 18, 2024.
Tom Brenner | Reuters
Despite the Fed’s effort to separate its highly anticipated decision from the political backdrop, the rate cut turned into a political football soon after the announcement.
The Biden administration took the rate cut announcement as a victory lap for the president’s economic agenda.
“We just reached an important moment: Inflation and interest rates are falling while the economy remains strong,” President Joe Biden wrote in an X post following the announcement. “The critics said it couldn’t happen — but our policies are lowering costs and creating jobs.”
The Harris campaign used the rate cut as an opportunity to double down on the Democratic presidential nominee’s economic platform.
“While this announcement is welcome news for Americans who have borne the brunt of high prices, my focus is on the work ahead to keep bringing prices down,” Harris wrote in a statement Wednesday.
Meanwhile, Trump turned the rate cut into a line of attack against the Biden-Harris administration’s economic record. He also suggested that the Fed could have been politically motivated.
“I guess it shows you the economy is very bad to cut it by that much, assuming they’re not just playing politics,” Trump said at a surprise visit to a bitcoin-themed bar in New York. “It was a big cut.”
During his first term, Trump routinely criticized Powell, bucking a tradition of the White House abstaining from commenting on Fed actions to help the institution maintain its political independence. As he campaigns for a second term, Trump has said he believes the president should get official input in Fed decision-making.
Harris and Trump are both working to pitch themselves as the best candidate for the health of the U.S. economy, as voters repeatedly rank the high cost of living as their top issue in national polls.
In the wake of the pandemic, inflation shot up to a 40-year high, making grocery bills, housing, gas and other day-to-day living costs more expensive for American consumers. To cool down the economy, the Fed began hiking interest rates in March 2022, further squeezing consumer budgets.
That economic pain turned high prices into a top voter priority this election cycle and as a result, a major focus for both the Democratic and Republican campaigns.