In a move that some economists are seeing as a necessary precursor to something more dramatic in September, the Federal Reserve has just announced that it is maintaining current interest rates.
“Recent indicators suggest that economic activity has continued to expand at a solid pace,” an official statement released by the Fed’s Board of Governors said.
“Job gains have moderated, and the unemployment rate has moved up but remains low,” the statement continued, adding that “inflation has eased, but remains somewhat elevated.”
The Fed’s steady approach, Chairman Jerome Powell remarked in a news conference, is in response to an economy that is “moving closer to the point where it will be appropriate to reduce our policy rate.”
Short of offering any specifics, Powell added: “That time is drawing near. That time could be in September if the data supports that.”
How close is the country to seeing a rate drop? “It’s just a question of seeing more good data,” was as far as Powell cared to go.
The prospect of a September cut is tantalizing the business world, promising lower borrowing costs for credit cards, mortgages, and auto loans.
Powell’s comments, along with the official Fed statement, declared the Financial Times, marks the “clearest sign yet that the central bank is readying a policy pivot more than two years after ramping up its fight against inflation in earnest.”
But that September cut, remarks the Wall Street Journal, would inevitably be weighed for its political significance coming at the beginning of the fall presidential campaign: “The Fed is likely to upset Republicans or Democrats no matter what it does.”
The publication added that even though the Fed has scrupulously tried to steer clear of partisan politics, a September rate cut will put it “on a crash course with the presidential election.”
“The Fed’s ability to maintain an appearance of independence ahead of the 2024 presidential election will require more due care than usual,” agrees the publication Forbes.
A recent study produced by the Mitsubishi UFG Financial Group reveals that the Fed cut interest rates two months before the presidential elections of 1976, 1984, 1992, and 2008.
Only in 1984 did a cut appear to help the incumbent party, which in that year saw President Reagan successfully running for re-election.
Rate hikes two months before an election occurred in 1980, just before President Carter was defeated for a second term, and in 2004, when the second George Bush was narrowly re-elected.
By Garry Boulard
Image Credit: Courtesy of Pixabay
