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Fed still sees rate cuts this year; election timing won’t affect decision

staticwire | April 3, 2024

Federal Reserve Chair Jerome Powell indicated in a speech at Stanford University that the central bank is likely to reduce its benchmark interest rate later this year, despite recent reports showing that the U.S. economy is still strong and that U.S. inflation picked up in January and February.

Powell stated that the recent data does not significantly change the overall picture, which continues to show solid growth, a strong labor market, and inflation moving down toward the Fed’s 2% target. Most Fed officials see it as appropriate to start cutting their key rate at some point this year.

In his speech, Powell also made it clear that the Fed’s interest-rate decisions would not be influenced by the upcoming presidential election. The Fed will meet in July and September to decide on whether to cut rates, which coincides with the peak of the presidential campaign season.

While inflation has cooled significantly from its peak, it remains above the Fed’s target of 2%. The recent pickup in inflation has led some economists to delay their projections for when the Fed will start cutting rates. This move would reverse the 11 rate increases the Fed implemented beginning in March 2022 to combat high inflation levels.

Many economists now predict that the central bank’s first rate cut will not come until July or later, which has sparked speculation on Wall Street that the Fed might postpone rate cuts until after the presidential election in November. Former President Donald Trump has criticized Powell for considering rate cuts, claiming they could benefit President Joe Biden and other Democrats.

Powell emphasized the Fed’s independence from politics in his speech, noting that officials serve long terms that do not coincide with elections. He stated that this independence enables and requires the Fed to make monetary policy decisions without taking short-term political matters into account.

Recent reports have shown that the economy remains healthy, largely due to strong consumer spending. However, the strength of the economy could make it challenging for the Fed to achieve its goal of slowing inflation to its 2% target. Annual inflation increased to 2.5% in February, though it was down significantly from its peak of 7.1%.

During their most recent meeting, Fed officials forecasted that they could potentially cut their benchmark rate three times this year. However, nearly half of the 19 policymakers indicated that they only expect two or fewer rate cuts to take place.

Overall, Powell’s comments suggest that the Fed is closely monitoring the economic conditions and is prepared to take action to support the economy while keeping inflation in check. The decision on when to cut rates will depend on future data and economic developments.

Written by staticwire


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