Topline
As the Federal Reserve heads into one of its most consequential meetings in recent memory, here’s how the presidential candidates have addressed the Fed and its management of interest rates during the campaign cycle, and, while former President Donald Trump has been far more outspoken, allies of Vice President Kamala Harris have not completely shied away from nudging for action.
Donald Trump, left, and Kamala Harris shake hands.
Key Facts
The notion of independence for the U.S. central bank from other government branches has not stopped politicians from voicing their opinion on what the Fed should do, namely on interest rates.
Interest rates can become a hot-button issue around elections, considering lower rates are a much more popular policy as it can boost personal finances with cheaper mortgages and lower interest on student and small business loans.
Trump has addressed the Fed and the highest rates on record, promising in July there will be a “lot of cutting” from the Fed should he take office and implying the Fed would be making a politically motivated decision if it lowers rates before November’s election, telling Bloomberg such a move from the Fed is “something that they know they shouldn’t be doing.”
Trump made further waves in August when he proclaimed the president should have a “say” in Fed decision making, saying he specifically is qualified because he “made a lot of money” and has “better instinct than…people that would be on the Federal Reserve or the chairman,” though Trump later walked back the stance by saying the Fed staff doesn’t “have to listen” to him.
Mostly tight-lipped on the Fed, Harris responded to Trump’s initial insinuation in August by reaffirming the Fed as an “independent entity” and vowing to “never interfere in the decisions that the Fed makes” if elected president.
But other powerful Democrats have waded into armchair Fed commentator territory, including President Joe Biden, who said in March he “bet” rates were “going to come down,” and Sens. John Hickenlooper, Elizabeth Warren and Sheldon Whitehouse called on Fed Chairman Jerome Powell to slash interest rates by a drastic 0.75 percentage points in a Monday letter.
What Does The Federal Reserve Do?
The U.S.’ central bank’s most important function is arguably determining the federal funds rate, the interest charged for capital reserve transactions between financial institutions, set by a panel of Fed officials known as the Federal Open Market Committee. The federal funds rate is often broadly just referred to as interest rates, considering its outsized influence on most U.S. borrowing from corporate bonds to new car loans. The bank historically runs independently from the rest of the federal government, guided by a “dual mandate” to minimize inflation and maximize employment, meaning its goal is to set the U.S. economy on a long-term path of growth. The Fed typically raises rates when inflation is too high, like it did in 2022 and 2023, and lowers rates when there’s a threat of a serious economic downturn, like it did in early 2020 amid COVID-19 lockdowns. Other than conducting its monetary policy objectives, the Fed also regulates commercial banks and controls how much money is in circulation.
What Impact Does The President Have On Interest Rates?
Little to none in theory, given the Fed’s pride in independent decision making. However, the president appoints and the Senate confirms the Fed’s seven board of governors, who have permanent seats on the 12-person Federal Open Markets Committee. Biden appointed four of the Fed governors, though Trump tapped Powell to the top central banker job he’s held since 2018.
News Peg
One of the Federal Open Markets Committee’s eight annual meetings takes place Tuesday and Wednesday, which is crucially the last meeting before the Nov. 5 election. Consensus is unusually split on what the Fed is expected to do, with market-implied probabilities of the Fed decision the least settled since Bank of America research began tracking the metric. Derivative trades monitored by CME Group price in a roughly 65% chance of a 50 basis-point cut announcement Wednesday and 35% odds for a 25 basis-point move (the 75 basis points suggested by Warren does not have much legs). However, the market-implied odds of at least a 0.25 percentage point cut is firmly at 100%, meaning the first rate cut since March 2020 is an all but certainty to come Wednesday.
Tangent
Project 2025, the controversial political roadmap laid out by Trump allies, though Trump has denied his involvement in the project, calls for a significantly diminished Fed, even laying out a scenario in which the central bank is “effectively abolished” in favor of a far more laissez-faire approach.
Further Reading
ForbesHow The Economy Really Fared Under Biden/Harris And Trump—From Jobs To InflationBy Derek Saul
