Federal Reserve policymakers will likely hold interest rates steady when they meet today. But that’s not why market participants or Beltway economists are holding their breath. Instead, they’ll be watching for any sign from Fed Chair Jerome Powell about how central bank officials are thinking about the possibility of rate cuts in September and beyond as a growing number of indicators point toward softening inflation and a weaker labor market. Market participants are almost 100 percent sure that is what’s in store for September, according to CME’s FedWatch tool. But that would mark the first time the Fed has cut rates this close to an election since October 2008 — a little more than a month after the collapse of Lehman Brothers. Powell has repeatedly said the Fed does not consider politics when it makes a decision on rate policy. But the political implications of what he and his colleagues do next — and Fed officials no doubt hate that we’re bringing this up — are enormous. From Victoria Guida: “Former President Donald Trump recently told Bloomberg News that cutting rates just weeks before the election is ‘something that [central bank officials] know they shouldn’t be doing,’ while multiple Republican lawmakers have also suggested that such a move could raise questions of political bias. At the same time, standing pat — when markets overwhelmingly expect Fed policymakers to act in September — would also open them up to criticism.” Trump has a lengthy history of making his opinions known when it comes to rate policy. But he’s hardly the only Republican to make the point that a September rate cut would raise questions about election interference. Both Sen. Kevin Cramer (R-N.D.), who sits on Senate Banking, and Kentucky’s Rep. Andy Barr, who could be the top Republican on House Financial Services next year, made that point in separate interviews with POLITICO. It usually takes quite a bit of time for the Fed’s rate decisions to have an impact on macroeconomic indicators like the unemployment rate or price growth. But a September move would be a clear signal that the Fed believes its long-running battle against inflation has concluded and that the public can now anticipate lower borrowing costs. That could breathe life into a dormant housing market and reduce the interest charges Americans pay on auto loans and credit card bills. It would also reduce the cost of financing merger activity, something investment bankers and private equity firms have craved for months. Put another way, it would provide a boost to markets and consumers as Vice President Kamala Harris makes the case for four more years of Biden-era economic policies. The White House has made a point of staying away from any conversation about what the Fed should do. But Harris allies — including administration alums like Bharat Ramamurti, Jennifer Harris and Kitty Richards — this week said the Fed should not wait until September to start cutting rates. “At this point, the Fed’s interest rate policies are actually contributing more to the cost of living problem that American families are facing than inflation,” said Richards, a former Treasury official who’s now a senior strategic adviser at Groundwork Collaborative. “That’s largely because most American families do not buy houses in cash. They do not buy cars in cash, and they put some significant amount of consumer spending — at least temporarily — on credit.” It’s impossible to say with 100 percent certainty what the Fed will do next. But no matter the path Powell & Co. take, Democrats or Republicans will be furious. IT’S WEDNESDAY — Soft landings aren’t supposed to be so hard. Send tips and suggestions to ssutton@politico.com.
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