As presidential campaign season heats up, the Federal Reserve may decrease interest rates, giving President Joe Biden a boost as polls show Americans despise his economic management. The Fed might influence election-year opinions about stubbornly high inflation and rising housing costs, which have hurt Biden's reelection bid.
Rate cuts will also invite adversaries, including Republican challenger Donald Trump, to claim that an independent monetary body is favoring Biden. Trump told Fox Business last month that Fed Chair Jerome Powell, whom Trump appointed as central bank chief in 2018 but soured on soon after, "to do something to probably help the Democrats... if he lowers interest rates."
Given interest rates' heavy mindshare among consumers exhausted and angry by the sharpest inflation since Reagan, Trump's angst and Biden's projected optimism are comprehensible. Rate cuts are hugely popular. "It will boost economic confidence as people focus on the election," said Celinda Lake, a top Biden 2020 pollster who recently conducted private Fed polls for a client. "People are really feeling like they are being gouged every way to Sunday."
survey after survey ranks the economy as one of the most significant election-year concerns, and U.S. central bankers' assessment at last week's meeting is optimistic for Biden. He is expected to ride a booming economy, low unemployment, moderating inflation, and cheaper borrowing into Nov. 5 elections.
Investors expect rate cuts at two of the four Fed meetings between now and then, in mid-June and mid-September, which Biden might use to claim inflation has peaked and sway voter economic views. The Fed solely regulates banks' overnight borrowing rate, which has been 5.25%-to-5.50% since July. Lowering that rate swiftly lowers mortgage rates, car loans, and small business lending terms.
The question is whether half a percentage point of reductions before elections will be enough. Progressive Washington think tank Groundwork Collaborative director Lindsay Owens doubts it will.
She claimed the Fed will drop rates too slowly to help Biden politically because to the low unemployment rate, good economic growth, and inflation. "We're in a 23-year-high interest rate environment and getting another 25-basis point cut or two before November doesn't change the fact that mortgage rates are going to be high," he added.
Americans consistently rate Biden's economic management poorly, largely due to increased grocery, petrol, and other expenditures that have squeezed the poor and middle class. Biden has spent most of the last year praising the economy, but it hasn't changed Americans' negative views.
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