Jerome Powell could face considerable cross-party criticism this week if he, as expected, signals that the battle against inflation is nearing an end with a rate cut — the first in four years.
This appears to be working well for him.
Of course, political winds can change quickly. But the Federal Reserve chairman has put himself in a stronger position than expected: The central bank he oversees appears capable of neutralizing critics in the days ahead, even as it nears the climax of a year in which it must deal not only with a complex economic picture but also with the volatility of the 2024 election.
There has been 14 months of debate over when and how aggressively to cut interest rates. Powell and his colleagues appear to be deciding whether to cut rates by 25 or 50 basis points at a meeting this week.
Read more: What the Fed rate decision means for bank accounts, CDs, loans and credit cards
Both options appear to be central to political voices.
Of course, former President Donald Trump would criticize any sort of “pivot” from the Fed just weeks before the election. But Trump has been mixed in his criticism of Powell lately and his campaign has been more focused on lowering interest rates.
Perhaps most telling is that Trump himself has recently been ignoring the central bank and focusing elsewhere, and the topic did not even come up in last week's debate.
Powell is also likely to face criticism from the left because they say he waited too long. On Monday, three Democratic senators, including Elizabeth Warren of Massachusetts, also urged a 75 basis point cut.
Therefore, there is every possibility of them remaining dissatisfied.
Perhaps most importantly for Powell, as the economic evidence mounts in favor of a rate cut, a large segment of the political spectrum in both parties is already signaling it has no objection to the central bank making its much-anticipated move.
Whether the Fed's strategy is right for the economy or not remains to be seen. But in terms of pure politics, as the old saying goes, being attacked from both sides means you're doing something right.
Has Powell 'made a lot of mistakes'?
For Trump and his allies, recent months have been notable for criticism of Powell, which has grown more withering as the economic case for cuts has become harder to deny.
Donald Trump's last comment on the Fed came last month, when he said Powell “got a lot of things wrong,” but the former president also seemed undecided on exactly how Powell was wrong, adding, “He decides on things a little too late, he decides a little too early and he decides a little too late.”
Trump’s tone seemed to change from earlier this year, when his attacks on Powell were more direct. He told Bloomberg in June that the cuts were something “they know they shouldn’t do.” Following an interview with Fox Business in February when Trump said of the cuts, “I think [Powell’s] I’m probably going to do something to help the Democrats.”
As of Monday afternoon, Trump appeared to have not posted online or commented on the Fed in several weeks, and comments from his campaign were more focused on lowering rates than previous accusations of politicization at the Fed.
RNC spokeswoman Anna Kelly alleged in a statement that “Kamlanomics has led to the fastest increase in mortgage rates since 1981.” She further said that Trump would “lower mortgage and interest rates quickly.”
There appears to be a sense among many – including many of Trump’s allies – that cutting interest rates is not only inevitable, but appropriate, as the labor market is performing poorly and inflation continues to creep toward the Fed’s 2% target.
Some of Trump’s key allies have even broken with him outright on the issue. A recent Politico article found that several top GOP lawmakers openly said lower interest rates are needed now.
Louisiana Senator John Kennedy told the outlet, “Now is the time to cut interest rates.” The staunch Trump ally added that “this economy — particularly the labor market — is softening very, very, very quickly.”
Meanwhile, on the left…
The central bank's efforts to push back against Trump's political attacks could also be helped by criticism coming from the left.
Some liberals have long criticized the Fed — and there's even a group arguing that a 75 basis point rate cut is the right way to go.
“As employment numbers adjust slowly, the Fed should begin cutting rates to avoid sliding toward a potential crisis,” Senators John Hickenlooper, Warren and Sheldon Whitehouse wrote in their note Monday urging a big cut.
There is growing criticism from senators and people on the left that the Fed's too slow tapering could increase the likelihood of an economic recession.
“You're really flirting with potential disaster,” former Fed economist Skand Amarnath said of a modest rate cut during a media briefing on Monday. He is currently the executive director of a group called Employ America and said it would be “much wiser for the Fed to move a little more decisively.”
With no full agreement on Powell's move, traders are divided on whether to expect a 25 or 50 basis point rate cut. They assign a 0% chance of any other outcome this week.
As far as the White House is concerned, Powell is unlikely to hear anything publicly from the current administration this week, as Vice President Kamala Harris recently reiterated her desire to let the Fed operate independently.
And White House national economic adviser Lael Brainard said in a speech at the Council on Foreign Relations on Monday that President Joe Biden has made a “clear commitment to respecting the Federal Reserve’s independence in fighting inflation.”
Others have said that if Powell wanted to influence the 2024 election, he would have made the cuts already.
Harvard's Jason Furman recently said in an extended social media post that “the only debate about politics among non-partisan Fed observers and those with real money at stake is whether the Fed will be slow to cut rates for fear of the perception of politicization.” He wrote a recent post about why he thinks the central bank is avoiding electoral considerations and that any criticism is “non-serious political noise.”
At the same time, Powell has been saying for a long time that he is not paying attention to this noise.
After the last Fed meeting, a reporter asked if the Fed could remain apolitical through the rest of the election season.
He quickly responded, “I certainly do,” adding that he and his colleagues will remain focused solely on the economy. “We don’t change our approach to address other factors, such as the political calendar.”
Ben Werschkul is Yahoo Finance's Washington correspondent.
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