Fed Decision Time: Rate Cuts Before Nov Election?

Fed Decision Time: Rate Cuts Before Nov Election?

With the upcoming November 5 presidential election, there is significant political pressure on the Fed’s decisions.

The U.S. Federal Reserve is anticipated to maintain the federal funds target range at 5.25%-5.5% when officials conclude their two-day meeting on Wednesday. Investors will be scrutinizing the statement to learn when the central bank might eventually reduce its rate and the potential frequency of such cuts this year.

Market expectations suggest a possible rate cut in mid-September, 2 months ahead of the November 5 presidential election. Eswar Prasad, a professor at Cornell University, noted that the recent May jobs report likely ruled out a rate cut in July, while Adam Posen, director of the Peterson Institute for International Economics, goes even further, suggesting that the robust U.S. economy diminishes the likelihood of a pre-election rate cut.

The Fed has rescheduled its November meeting to occur post-election, a move reminiscent of 2020.

In a letter addressed to Fed Chairman Jerome Powell, three Democratic senators, including Elizabeth Warren, have called for rate cuts as soon as possible. “The Fed’s monetary policy is… driving up housing and auto insurance costs—two of the key drivers of inflation…”.

Former Fed Vice-Chair Donald Kohn asserted that Chair Powell has consistently maintained that decisions are driven by economic conditions rather than political considerations, expressing confidence that this principle will be upheld in the coming months.