2024-03-17 17:26:57
Do the US elections prevent lowering interest rates?
This week, world markets are awaiting the US Federal Reserve meetings, which are scheduled to be held over the course of Tuesday and Wednesday, despite the consensus that the bank will stabilize interest rates, as everyone realizes that what will take place in these meetings might indicate the possibilities of lowering interest rates, before the US presidential elections. Scheduled to be held next November.
Until early this year, most expectations indicated that the largest central bank in the world might begin a new cycle of rate cuts at this week’s meeting, but many of the data that appeared during the last period showed the stability of high inflation in the American market, despite… The bank imposed the tightest monetary policy since the global financial crisis in 2008.
Over time, some began to wonder whether the bank would begin the cut at the June meeting, or whether the decision would be postponed once more, interfering with the heated race for the White House, in the fall.
Until now, stubborn price pressures, especially in housing and services, are forcing the Fed to wait and see. But CNN quoted economists as saying that the interference of the elections with the Federal Reserve’s vision of reducing interest rates will not prevent the bank from making its decision, if necessary.
According to futures prices prevailing at the end of Friday trading, the markets show a tendency for traders to expect the first interest rate cut in June, while some traders are betting, to a lesser extent, on July. Federal Reserve Chairman Jerome Powell said he and his colleagues will begin cutting interest rates when they “gain sufficient confidence” that inflation is under control.
The central bank can also cut interest rates if the economy suddenly weakens and causes the unemployment rate to rise sharply. Bank officials said they would not wait for annual price increases to reach the Federal Reserve’s 2% target before making a decision.
Last month, in an interview with Fox News, former President Donald Trump accused Powell of “doing political work,” hinting that Powell might lower interest rates before the presidential elections, to help the Democratic Party retain the White House.
Trump, who during his presidency was the one who appointed Powell to head the US Central Bank, said that, if elected as President of the United States, he would seek to replace him, accusing him of “practicing political action.”
But Kathy Bostiancic, chief economist at the Fed, said: “The Fed is supposed to be an apolitical institution, and it largely is, but they are in Washington, so they are not immune to conversations regarding the election or feeling the pressure to some extent.” “. At the national level, according to CNN.
She added: “The Fed has all the cover it needs to cut interest rates around that time if it is clear that economic data is driving this decision. Economists have full confidence that the Fed will make the first cut in the fall, if it must.” So”.
Private sector data show that rents have declined steadily over the past year, but this has not materially translated into inflation indicators yet. These indicators are still reacting to rising shelter costs and a sharp rise in gas prices, which together contributed 60% of the monthly jump in prices in February, according to the latest CPI.
Likewise, the Fed’s preferred measure of inflation, the Personal Consumption Expenditures Price Index, showed that service prices were not as moderate as investors had hoped.
Analysts attributed this to a variety of reasons, such as the perceived strength of the economy that may maintain some upward pressure on prices, or interest rate increases not reaching the broader real economy yet.
It is not clear what the economy will look like in June, let alone September and November. But inflation may actually decline, which would put the Fed in the difficult position of having to cut interest rates so close to an election already.
Powell, the bank’s president, is a reliable defender of the central bank’s apolitical approach to policy making, always declining to comment on what Congress should do or on other political issues affecting the economy, such as last year when the government nearly defaulted on its obligations. Finance.
“We’re not thinking regarding politics,” Powell said in December following the bank’s decision that month. “We’re thinking regarding what is the right thing to do for the economy.”
Academic research also indicates that the Fed has not played politics at any point in its history, as a 1987 study by political scientist Nathaniel Peck, on the Fed’s behavior during election cycles, stated that “the Fed does not change its policy-making process to help… re-election of the president” and that “monetary policy before elections responds to roughly the same forces as it has at other times.”
“The Bank responds, instead, negatively to fiscal policy, whether election-inspired or not,” the study said.
The Fed is already under enormous pressure from politicians. US Senator Elizabeth Warren, a potential 2020 presidential candidate, for example, almost routinely writes a letter to Powell before each bank meeting, criticizing the bank’s decisions.
But the Federal Reserve remained invincible over the years, and its Chairman, Powell, ignored all the criticism he was subjected to during the more than seven years he assumed his presidency.
1710698875
#elections #prevent #lowering #interest #rates
