Finally, the Federal Reserve began its interest rate cut cycle at its September meeting: the FOMC announced a 50 basis point reduction in the target range for the federal funds rate, to a level between 4.75% and 5.00%. The last time the Federal Reserve cut interest rates was in March 2020, which means this is the first time in four and a half years that it has done so.
With only 7 weeks left until election day, the Federal Reserve's high-profile move to cut interest rates has caught the attention of two presidential candidates in the United States: Democratic candidate Harris praised the move as a blessing for middle-class families, while Republican candidate Trump said the rate cut may be politically motivated.
This' tit for tat 'comment also highlights to what extent the economy and interest rates have quickly become the focus of the election, and both parties are seeking to use this measure to consolidate their campaign positions.
However, as expected, Powell, the chairman of the Federal Reserve, avoided the question of the US general election, and said that the Federal Reserve's decision was based on its service to the American people. The decision was never about politics or anything else. When making a decision, no other filtering conditions were set.
As he has always insisted, the Federal Reserve is an "independent institution" that will not allow political pressure to influence its decisions.
Clear contrast
Trump said during his campaign at a bar in Manhattan that this rate cut is a "very unusual number," regardless of the Fed's motives.
I think if they're not just playing politics, then cutting interest rates so much indicates that the economy is very bad. Anyway, this is a significant reduction in interest rates, "he said.
Harris said in a statement that this decision "is particularly welcome news for Americans who are suffering from the impact of high oil prices". Her statement exposed that inflation is one of her biggest political burdens. Inflation has severely impacted American households and influenced voters' views on President Biden's economic management.
Harris also said, "I know that prices are still too high for many middle-class and working-class families. As president, my top priority will be to reduce the cost of daily necessities such as healthcare, housing, and groceries
This is the opposite of what Donald Trump would do as president. While proposing tax cuts for billionaires and large corporations, his plan would impose Trump taxes on goods that families rely on, such as gasoline, food, and clothing, increasing their annual costs by nearly $4000, "she added.
Current President Biden praised this move as a "significant moment" in the fight against inflation. In a statement on X, he said, "With the economy remaining strong, inflation and interest rates are falling, which critics say is impossible - but our policies are lowering costs and creating job opportunities
The timing of interest rate cuts is controversial
However, supporters of Trump have criticized the Federal Reserve for taking interest rate cuts so close to the November election, with American hedge fund billionaire and Trump financier John Paulson stating that he believes the Fed should "stay away from presidential politics".
Paulson founded the hedge fund company Paulson&Co. in 1994; In 2020, the fund company transformed into a family office. In the 2008 subprime mortgage crisis in the United States, Paulson shorted approximately $25 billion in mortgage-backed securities, earning clients a huge profit of $15 billion, earning him the titles of "Wall Street bear" and "hedge fund champion". His successful bet was recorded in the book 'The Greatest Trading of All Time'.
In addition, Paulson is also a "super donor" to Republican presidential candidate Trump. Previously, sources revealed that if Trump wins this year's election, he will recruit Paulson as the Secretary of the Treasury.
Paulson said, "Traditionally, the Federal Reserve has never cut interest rates near an election. The only rate cut of this century was after the 2008 financial crisis, when significant action was needed. But our situation today is different. This decision avoids the question of whether choosing this timing was intended to drive Vice President Harris' campaign
The Federal Reserve claims to be above politics, but the timing of today's action raises doubts about its claims, "he added.
These criticisms echo Trump's own fierce criticism of the Federal Reserve, which has raised concerns about whether he will increase pressure on the Fed if he wins the election. In June of this year, Trump hinted that cutting interest rates this autumn could be seen as a form of political intervention.
The interest rates are very high now, it's difficult for them. I know they want to try this. Maybe they will do it before the election, before November 5th, even if they know they shouldn't do it, "he said at the time.
Pressure from the Federal Reserve
The former president had previously accused the Federal Reserve of being against him, and in 2016 he criticized then Federal Reserve Chair Janet Yellen for keeping interest rates low during her campaign against Democrat Hillary Clinton for the White House.
Moreover, in recent weeks, Trump has also stated that the president should have more say in the Federal Reserve's handling of interest rates and monetary policy - a move that would overturn the Fed's long-standing independence from politics.
For decades, US presidents have traditionally avoided publicly criticizing the Fed's interest rate issues, but Trump has publicly criticized the Fed during his presidency. Earlier this year, he also stated that if he wins this year's election, he will not reappoint Powell as Chairman of the Federal Reserve.
Trump is not the only 'political giant' who is pressuring the Federal Reserve on interest rate decisions. Three prominent Democratic senators also called on Powell to lower interest rates by 0.75 percentage points this week.
Pennsylvania Congressman Brendan Boyle, the main leader of the House Budget Committee, said on Wednesday that the Fed's decision to cut interest rates was a victory for the middle class, praising it as "significant progress on inflation.