The Fed Chairman, Jerome Powell, and the US Federal Reserve are between a rock and a hard place.
There is far too much that can be said on the topics of where interest rates should be and the timing of when interest rates will be adjusted (most likely lower in the near future). To sum it up: politics, political opinions and political pundits – not to mention political candidates of both parties – have now entered the picture, clouding the views of regular people on the street even smarter investors attuned to the finer points of stock and bond markets.
The Federal Reserve has two mandates given it by the US Congress:
- Maximum employment (minimizing unemployment)
- Stable prices (minimizing inflation)
The primary mechanism at the Fed’s fingertips is the setting of short-term interest rates.
Amidst any current simmering controversy around the timing of the Fed adjusting interest rates so close to a US Presidential election, there is plenty of data and precedent for the Fed adjusting rates ahead of and just prior to an election.*
- In July 1992 (George H.W. Bush vs. Bill Clinton)
- May 2000 (George W. Bush vs. Al Gore)
- June 2004 (George W. Bush vs. John Kerry)
- throughout 2008 (Barack Obama vs. John McCain)
- September 2012 (Barack Obama vs. Mitt Romney)
- September 2020 (Joe Biden vs. Donald Trump)
In all of these cases the Federal Reserve made changes (mostly lowering rates) that were criticized but that objective expert observers state were made with “the Fed’s… heads down, [keeping in mind] the right policies… and what was necessary.”
There is little reason to believe anything different in this election cycle.
*Nick Timiraos, WSJ.com. July 31, 2024.
This material has been prepared for informational purposes only and is not intended to provide, and should not be relied upon for, tax, legal or accounting advice.