Federal Reserve officials do not answer to the White House and they insist that they do not take politics into account when they are setting interest rates. But because borrowing costs have a big effect on the economy and the nation’s economic vibe, the central bank’s decision on Wednesday is sure to draw political attention.
Former President Donald J. Trump regularly promises to bring interest rates down if he is elected president again — even though the president has little to no direct impact on borrowing costs. While in office he publicly railed against the Fed for taking too long to cut rates, to little avail.
And Mr. Trump has remained focused on the Fed as it approaches its first rate cut in more than four years.
“You’ll see, they’ll do the interest rate cut and all of the political stuff tomorrow,” Mr. Trump said during a town hall in Michigan this week. “Will he do a half a point? Will he do a quarter of a point? But the reason is that the economy is not good. Otherwise you wouldn’t be able to do it.”
In fact, Mr. Trump has suggested repeatedly that it would be political of the Fed to cut borrowing costs in the weeks leading up to the election. Rate cuts are “something that they know they shouldn’t be doing,” he told Bloomberg Businessweek earlier this year. At another point he told Fox News that lower rates would “help the Democrats.” He has since suggested that presidents should “have a say” on interest rates, though he later walked the comment back.
Vice President Kamala Harris, the Democratic nominee, has largely avoided talking about the Fed. While President Biden steers clear of saying what the Fed should do, he has at times tiptoed close to doing so, including earlier this year when he said he “bet” that interest rates were going to come down.
The rhetoric underscores a reality. The party in power — in this case, Democrats — often stands to benefit from lower Fed rates.
In today’s instance, a decision to lower borrowing costs would signal that the Fed is winning its battle against rapid inflation and would make it cheaper and easier for families to borrow money to buy a house or start a business. That combination could make consumers feel better about the economy, at least around the edges, as they head for the polls in November.
But the Fed says that it does not take such considerations into account when it is thinking about interest rates.
Fed board members are appointed by the White House and confirmed by the Senate, but once they are in place, they are insulated from political pressures. It is difficult — if not impossible — to remove key Fed officials, and the president has no say on interest rate decisions.
There’s a reason for that independence. Historical and global experience has shown that central banks that are free to make hard decisions — like keeping rates high to choke off inflation during an election year — achieve better results that keep the economy on a more stable footing in the long run. Politicized central banks can incur problems like runaway inflation.
But Mr. Trump’s comments have worried some economists, who are concerned that the Fed’s independence could come under assault if he is elected in November.
There are several paths to influencing Fed policy. Mr. Trump could try to appoint officials who would be more likely to follow his lead. The leadership term for Jerome H. Powell, the Fed chair, expires in 2026. Another Fed governor, Adriana Kugler, will also see her term lapse that year. That could leave the next president with seats to fill.
He could also pursue other approaches. He could complain about Fed policy publicly, as he did in his term in office, when he called central bank officials “boneheads” and likened Mr. Powell to a bad golfer. And he could try to pull at least some aspects of the Fed’s job — like bank regulation — closer to the White House.
For now, politicians are likely to have little sway over how the Fed is approaching policy. But that won’t keep them from talking about it in the weeks to come.
The post What Trump Has Said About Rates, and Why It Matters appeared first on New York Times.
