Trump, Harris Angle to Gain Political Edge From Fed Rate Cut

(Bloomberg) -- The Federal Reserve’s move to slash interest rates reverberated across the 2024 presidential race as Democrat Kamala Harris hailed the move as a boon for middle class families while Republican Donald Trump suggested the cut may have been politically motivated.

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The heated rhetoric over the Fed’s decision to lower its benchmark interest rate by a half percentage point highlighted how the central bank — an independent institution whose Chair Jerome Powell has pledged not to allow political pressures to influence decision making — could be swaying the momentum of the 2024 presidential race with just seven weeks until Election Day.

The dueling narratives also underscored the extent to which the economy and interest rates have rapidly become a focal point in the race, with both parties seeking to use the move to bolster their election standing.

Trump, speaking at a campaign stop at a bar in Manhattan, framed the cut as a “very unusual number” and bad news for his opponent, whatever the Fed’s motivation.

“I guess it shows the economy is very bad, to cut it by that much, assuming they’re not just playing politics,” Trump said. “The economy would be very bad, or they’re playing politics, one or the other, but it was a big cut.”

Harris, in a statement, cast the decision as particularly “welcome news for Americans who have borne the brunt of high prices.” Her statement betrayed the extent to which inflation, which has hit US households hard and soured voter perceptions of President Joe Biden’s handling of the economy, is one of her top political liabilities.

“I know prices are still too high for many middle class and working families, and my top priority as President will be to lower the costs of everyday needs like health care, housing, and groceries,” Harris added, seeking to draw a contrast with Trump’s agenda.

“This is the opposite of what Donald Trump would do as President. While proposing more tax cuts for billionaires and big corporations, his plan would increase costs on families by nearly $4,000 a year by slapping a Trump Tax on goods families rely on, like gas, food and clothing,” she said.

Biden also hailed the move as marking “an important moment” in the fight against inflation. “Inflation and interest rates are falling while the economy remains strong,” he said in a statement on X. “The critics said it couldn’t happen – but our policies are lowering costs and creating jobs.” The president said he would discuss the move further on Thursday.

Fed Timing

Trump’s supporters, however, assailed the Fed for acting on interest rates so close to November’s election, with hedge fund billionaire John Paulson, a major donor to the Republican presidential nominee and potential future Treasury Secretary if he is returned to power, saying he thought the Fed should have “stayed out of presidential politics.”

“Traditionally the Fed has not cut rates this close to an election and the only time it did so this century was in the wake of the 2008 financial collapse, which required dramatic action. We are not in a similar situation today,” Paulson said in a statement. “This decision begs the question if the timing was intended to boost Vice President Harris’ campaign. The Fed claims to be above politics, but the timing of today’s actions today cast doubt on its claims.”

The criticism echoes Trump’s own broadsides against the central bank — critiques which have raised concerns about whether he would ramp up pressure on the Fed if he wins the election.

In an interview with Bloomberg Businessweek this summer, Trump implied that cutting rates this fall could be seen as a form of political interference.

“Interest rates are very high now and it’s hard for them. I know they want to try and do it. Maybe they will do it prior to the election, prior to November 5, even though it’s something that they know they shouldn’t be doing,” he told Bloomberg News in late June.

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Trump Pressure

The former president has accused the Fed of working against him before, criticizing then-chair Janet Yellen in 2016 for keeping rates low during his White House campaign against Democrat Hillary Clinton.

But Trump has also suggested in recent weeks that presidents should have more say over the Federal Reserve’s handling of interest rates and monetary policy — a move that would upend the longstanding practice of the US central bank being independent of political actors.

US presidents for decades have traditionally avoided publicly criticizing the Fed over interest rates. Trump, who while president was vocally critical of the Fed, has said he would not reappoint Powell as chair if he wins the election this fall.

Trump isn’t the only elected official pressuring the Fed over interest-rate decisions. Three prominent Democratic senators on Monday had called on Powell to lower rates this week by three-quarters of a percentage point.

Representative Brendan Boyle of Pennsylvania, the top Democrat on the House Budget Committee, on Wednesday called the Fed’s decision to lower rates a win for the middle class, hailing what he called “significant progress on inflation.”

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