Admin September 18, 2024
The Federal Reserve’s decision to opt for a bigger half-percentage-point cut opened a new area of disagreement between GOP nominee Donald Trump and Fed Chair Jerome Powell.
What Trump said this week is that the cuts are a sign of one thing: a weak economy that he claims was brought on by the Biden/Harris administration.
“I guess it shows the economy is very bad to cut it by that much assuming that they are not just playing politics,” Trump said at a Manhattan bitcoin bar Wednesday.
“One or the other,” the GOP nominee added “but it was a big cut.”
Powell — who was elevated to Fed chair by then-President Trump but has found himself often at odds with him in recent years — offered an opposite analysis Wednesday afternoon.
“Our economy is strong overall,” Powell told reporters, arguing the move to cut the Fed’s benchmark rate by 50 basis points was instead a way to try to ensure “strength in the labor market can be maintained” alongside economic growth.
Read more: The Fed rate cut: What it means for bank accounts, CDs, loans, and credit cards
Powell also tried to dampen concern that the large cut was a sign policymakers were behind the curve or overly concerned that a deeper downturn in the economy could be around the corner.
President Biden also weighed in Wednesday afternoon to say the news represented an important milestone.
“Inflation and interest rates are falling while the economy remains strong,” the president wrote as he sided with Powell on the question of the state of the economy.
Vice President Kamala Harris added in her own statement the move is “welcome news for Americans who have borne the brunt of high prices [but] my focus is on the work ahead to keep bringing prices down.”
How this ends up impacting the 2024 campaign or economic growth remains to be seen.
It comes after a run-up to the crucial decision saw Powell in a stronger-than-expected position politically, seemingly poised to sidestep more severe political fallout for making a crucial Fed pivot just weeks before a presidential election.
Powell was dinged from the left for waiting too long.
“This cut in interest rates is yet another acknowledgement that Powell waited too long to reduce rates,” wrote Sen. Elizabeth Warren after the news, but she added that she was happy that lower rates are now in place.
Warren, who previously this week advocated a 75 basis point cut, added Wednesday that “more rates cuts are needed.”
The commentary from Trump on monetary policy is just the latest in a year where Trump, as he did as president, has chosen to regularly weigh in on the Fed with criticisms of Powell.
Trump raised eyebrows last month when he offered that the president should “have a say” in Fed decisions and that Powell has “gotten it wrong a lot.”
On Wednesday, Powell responded to Trump’s comment by defending the historic independence of the central bank and expressing optimism that it would continue in the years ahead.
Earlier this year, Trump’s critiques of Powell were more directly political. He told Bloomberg in June that cuts are something “they know they shouldn’t be doing.” That came after a February Fox Business interview, when Trump said of cuts, “I think [Powell’s] going to do something to probably help the Democrats.”
More recently, Trump has tended to focus less on the central bank. Weeks can go by without the GOP nominee mentioning the central bank publicly and the topic didn’t even come up at last week’s debate with Harris.
Trump instead tends to discuss his energy plans when asked about interest rates, saying more drilling would help drive interest rates lower.
Trump’s plan if he wins, RNC spokesperson Anna Kelly told Yahoo Finance early this week, is to “declare a national energy emergency to quickly bring down mortgage and interest rates.”
Trump’s critique is one he’s been telegraphing this week. “They’ll do the rate cut and all the political stuff,” Trump told a Michigan crowd Tuesday night before the news came in but with a cut widely expected. The underlying reason, he added, “is because the economy is not good, otherwise you wouldn’t be able to do it.”
For his part, Powell again sought to downplay the role of politics, noting Wednesday afternoon that the economic effects of this week’s move would be felt “for the most part with a lag” — presumably after polls close in November.
Either way, he added, “Our job is to support the economy on behalf of the American people, and if we get it right, this will benefit the American people significantly so this really concentrates the mind.”
“We don’t put up any other filters,” he added of politics.
This post has been updated.
Ben Werschkul is Washington correspondent for Yahoo Finance.
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