Trump on Fed: ‘Economy very bad or they’re playing politics’

FPI / September 20, 2024

The Federal Reserve on Wednesday voted to lower interest rates by a half-percentage point. It was the first interest rate cut during the Biden-Harris regime and less than two months before the presidential election.

Eleven of 12 Fed voters backed the cut, which brings the benchmark federal-funds rate to a range between 4.75% and 5%.

“I guess it shows the economy is very bad to cut it by that much, assuming they’re not just playing politics,” GOP presidential candidate Donald Trump said in televised comments from a bitcoin bar in New York. “The economy would be very bad or they’re playing politics, one or the other. But it was a big cut.”

The reduction, which was higher than most economic analysts had anticipated, "moved the central bank unwaveringly into a new phase of its inflation battle: It is now trying to prevent past rate increases, which last year took borrowing costs to a two-decade high, from further weakening the U.S. labor market," the Wall Street Journal noted.

“The 50 basis point cut suggests the Fed is worried about the labor market,” said Dean Maki, chief economist at the hedge fund Point72 Asset Management. “It is an unusually large move in the context of the economic data we’ve been receiving” and given little stress in financial markets.

“We are committed to maintaining our economy’s strength,” Fed Chair Jerome Powell said at a news conference. “This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labor market can be maintained."

Asked by MarketWatch if he believed Powell's indication in his press conference that the move was nothing more than a down payment, insuring that the soft landing, or the “goldilocks economy,” remains intact, economist David Rosenberg said: "No. I don’t believe in fairy tales."

"The FOMC (Federal Open Market Committee) is suffering from a classic case of cognitive dissonance. Monetary policy is still inordinately tight. The Fed moving 50 basis points was nothing more than an acknowledgement that it had stayed too tight for too long. All Powell did was do his best to sugar-coat the situation. How can he talk about the U.S. economy being solid at the same time he talked about downside risk to the labor market outweighing upside risk to inflation?"

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On Wednesday’s broadcast of the Fox Business Network’s “Kudlow,” Breitbart News economics editor John Carney stated that the Fed should have waited until after the November election to make rate cuts and that by announcing a cut of 50 basis points now, the Federal Reserve has locked itself into doing the same in November.

Carney said: "[T]hey absolutely should have waited until November. There’s no economic theory that tells you cutting in September will change the economic path of the country rather than waiting until the day after the election in November when they have their next meeting. The other danger of this 50 basis point cut is, what happens if Donald Trump is elected and they decide they want to do 25 in November? Guess what? It’ll look like they pumped the economy for Kamala and then decided to stop being as unrestrictive when Donald Trump got elected."

Carney added: "So, they are actually locking themselves into a series of 50 basis points cuts, and they don’t even realize it. Powell said, this is no set path, don’t think that this is the new way forward. It is the new way forward, especially if Donald Trump wins in November, because they will not be able to say, oh, we thought big cuts were good under Kamala, but now we’ve got to dial that back under Trump. That’ll be politically explosive."

Economic analysts said the decrease may provide some immediate relief to consumers with credit-card balances and to small businesses with variable-rate debt.

Carney added that the increases in the projections of long-term federal funds rate are a demonstration that “we have a bigger underlying inflation problem. That comes from the government overspending.”

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