Despite economics being a complex subject I’ll keep this short. (I’m dealing with more than one thing today) Earlier this afternoon we got the expected news that the Fed cut interest rates. If there was any surprise in the announcement it was that they went ahead and cut the rate by a half-percent instead of only a quarter percent. There was a strong consensus among people who unlike me are actual experts this should have happened this summer. At the very least it was said, there should have been a quarter point cut back then and another one today. No matter. It’s now a done deal and it’s a sure thing Trump and the GOP will SCREAM that the Federal Reserve is playing Politics. That they are trying to boost Harris and the Democratic Party. I call bullshiite.
First let’s deal with today’s news. As reported by outlets including CNN the Fed did in fact cut rates today:
The Federal Reserve slashed interest rates aggressively Wednesday, announcing the first rate cut since March 2020.
The bold, but not unexpected, half-point move paves the way for lower borrowing costs on everything from mortgages to credit cards.
It marks a crucial milestone for the central bank’s historic inflation fight, which kept rates at a bruising 23-year high for more than a year.
I don’t know that I’d go so far as CNN did in the headline of its story calling this a ‘Jumbo” sized cut. Still, a half-point is nothing to sneeze at. And many thought only a quarter point cut was coming, to be followed by another quarter point cut later this year. Instead we got the full half-point AND a signal that another quarter point cut could take place before the end of the year! I don’t know the relief for average Americans will show up in time or enough that people feel improvement in the economy that would affect their votes. Still, it’s the first tangible relief they’ve been able to look forward to for some time. That’s the LAST thing Trump and the GOP want to happen right now as early voting gets underway. So I predict a wave of GOPers running for office, RWNJ outlets and even too many pundits from mainstream outlets saying the Fed is putting its thumb on the scale. For Harris and Democrats.
In theory the Federal Reserve operates independently from the actual government. Congress and Presidents can call for them to do this or that and have been known to do so. Sometimes LOUDLY. However for this non-economics expert it seems like for most of my life the Fed has pretty much ignored politics. Since Jimmy Carter (no folks, it was NOT Ronald Reagan who appointed anti-inflation warrior Paul Volcker) appointed Paul Volcker as Chairman of the Federal Reserve their mission has been to hammer down inflation. And that’s the issue because their main tool is the HAMMER of interest rates. The Fed doesn’t have any scalpels in its tool kit. To keep the economy from overheating they raise rates. To deal with recessions they lower them. What matters to Americans is their rate affects things large and small. For average folks it manifests in the rate one can get from a mortgage lender to buy a home, a car or the interest rate charged on their credit cards.
People feel the effects every day. It’s part of why despite economists talk so often about ‘major leading economic indicators’ the economy is ‘doing well’ average folks say “HUH?” So politicians try to play on that. For their own/their Party’s benefit they are always wanting the Fed to raise or lower rates. It’s certainly been an interesting ride since the big crash back in 2008. But a combination of Fed policy and good guidance from the Obama administration which managed at times to work with a GOP Congress the proverbial ‘big picture’ was that the economy was humming along when he turned over the reins to Trump.
Trump went out of his way to bully the Fed during his time in office. He inherited a solidly growing economy, albeit one in which the full benefits of the recovery of Wall Streets crashing the whole thing still hadn’t filtered down to the majority of regular Americans. Hell, it was that wave of discontent that allowed Trump to get into the freaking WH in the first place. However, the fact was the fundamentals were fine. Trump simply didn’t actually DO anything via his policies (or proposals) that would benefit his MAGAs or other regular folks.
He did however pass one signature piece of legislation – that tax cut that benefited rich folks. Rich folks, especially highly profitable corporations said they didn’t need it. Not that they were going to turn it down of course. But Trump sold it to the general public as providing “job creators” to invest in America and bringing back jobs. It didn’t matter that those people getting those tax cuts said they’d mostly use them to buy back their own company stocks. That’s exactly what they did so they made out even better from the whole thing. The rest of us? Not so much. What matters is that despite the deficit and debt exploding nature of that tax cut the economy, by macro standards at least kept humming right along.
Already really low interest rates not only did NOT get increased, but (arguable) due to Trump’s pressure/bullying the Fed CUT rates three times in 2019. A quarter point each time. Even though inflation, their primary concern was below their own 2 percent benchmark! If anything rates should have gone UP a bit. But that’s not what happened. When the COVID mess hit, and the economy needed boosting the Fed, just to (so I believe) keep Trump happy had no room to maneuver. How do you cut rates a point or even two when they are already close to zero?
Yes, the recovery from the pandemic resulted in significant inflation. It’s estimated that as much as half of that was from business/corporate price gouging but there’s not a lot either the federal government or the Federal Reserve can do about that. So the Fed raised rates. Even when inflation started to cool, and it became apparent the recession they so feared would be a slight one or maybe not happen at all they stubbornly refused to cut them! One could credibly argue they were working against President Biden and Democrats.
However as I said by this summer it was apparent that inflation was in fact decreasing and unlikely to jump back up despite wages outpacing it. Fears of a recession were if not gone then almost so. There was no reason, NONE for them to not cut rates back this summer by at least a quarter point. Yet they refused. I can’t help but wonder if they waited so that it would look like a POLITICAL move (to benefit Democrats – thereby creating a backlash) the GOP might be able to exploit.
We’ll have to wait and see. For now Trump/Republicans seem to want to focus more on immigration but I’m pretty sure they are going to turn a fair amount of attention back to the economy. That however could be tricky for a reason I’ve cited. Even if consumers don’t widely feel a benefit before they cast their votes the fact the Fed made a half-point rate cut and will probably make another one before the end of the year might matter. They just might start thinking:
‘Maybe that Bidenomics stuff wasn’t a load of crap after all. Look at that bridge or building they broke ground on in my district/state. Or that big factory that’s being built that will bring back thousands of manufacturing jobs. And it will be a little easier to get a mortgage or finance a car. And Harris is talking about helping small businesses and home buyers and going after price gougers but Trump just keeps talking about having lost in 2020.”
That kind of thinking might produce a rise in consumer confidence right when it matters most. So like I said for the GOP to go trashing the Fed for cutting interest rates is a dicey proposition. Stay tuned. I’m sure there will be plenty more on this subject.
Haven’t the ‘pubes been bitching at the Fed to do exactly this for….a while now? wtf?
Maybe some did so back when Biden was the presumptive nominee and Trump was polling something like twenty percent ahead of him on the economy. Obviously things have changed and as Murfster noted in a piece earlier Trump only leads Harris on the who would be better for the economy issue in mid single digits. That’s a ‘bigly’ swing and if consumer confidence picks up even some it will be a bad moon rising for Trump on election night.
The only problem about the Fed’s lowering interest rates is that it usually does NOT affect anyone’s credit card payments for several months. Most credit card providers that do charge interest (there are a few that don’t but those usually require some substantial annual fee that frequently costs more than the amount of interest you’d pay) have a proviso where the rate they charge is based over a three-month average of the Prime Lending Rate (in addition, of course, to the percentage rate they add). So, just because the interest rate gets cut by half-a-point today, it may not show up on your credit card interest rate until your December, or more likely, January credit card statement.
Similarly, with mortgage rates and car loan rates, those aren’t normally affected by interest rate cuts or increases unless you bought in on a “variable rate” loan. You can always try to negotiate a reduction in your loan rates (especially if you’ve got a substantial amount of time left to pay) but, again, the rate changes usually don’t show up for a couple of months for varying and various reasons.
What you say is true, and perhaps something I didn’t make as clear as I should have. However, psychologically a half point reduction does I believe park in people’s minds more than a quarter point one. (not to mention the expectation of another cut before the end of the year according to the fed) It’s the knowing that not a huge amount, but some tangible relief is now coming that could matter. What makes an economy strong is not wealth/money but the USE of it. People have to believe things are if not okay right now headed in the right direction and this is the type of thing that will tell folks who aren’t economics experts (few of us are and even the experts I think don’t always know as much as they’d like us to believe) that things are looking better. AND that this time it won’t just be rich or really well-off people who will see some benefit soon.
Once again, much of the discontent in this country during the rebuilding of the economy after Wall Street crashed it in 2008 was that for the average American, just as with the “Supply Side” tax cuts that started with Reagan is that the whole “trickle down” to regular folks never seems to actually happen. Trump was effecive at exploiting this by using a combination of this and “the other” (immigrants and people of color – what Reagan dubbed Welfare Queens) by doing away with the coded language about non-white people. The election and re-election of Obama proved NOT that we had made a big stride forward in reducing racism – it exposed a nerve. By giving his MAGAs permission to openly use racist terms and let their racist freak flag fly AND pairing it up with the economic populism stuff we were off to the races – to hell.
Think of it this way – Trump was able to convince the goobers that not only were rich people screwing them, a BLACK rich person was leading the whole thing. Without using the words Trump basically painted Obama as the ‘Welfare King’ – an ‘undeserving’ black guy not just making out like a bandit but keeping ‘hard working REAL Mur-i-kuns’ down. That the MAGAs swallowed this shit sandwich and asked for more from the poster child for born-to-wealth white privilege is astounding. They got played for suckers.
The problem is rooted in human nature. I’ll bet a good half or more of MAGA nation knows deep down inside that Trump has played them for suckers. But who among us likes to admit making a huge, boneheaded mistake. Even if only to ourselves? It’s humiliating enough to have to admit to ourselves we got played, whether by a romantic interest or a car dealer or whatever. Doing so to others is even worse. So many rationalize by doubling down on a bad bet. And that’s why there are still so many MAGAs out there. So many in fact that even old-school GOPers, the so-called ‘wise men’ still think at times they can somehow gain control of the MAGA monster. To return to the days of the coded racism and resentment that existed prior to Trump’s rise.
For right now however, this interest rate cut is a bit of news that will make lots of people perk up if only just a bit. Better times are coming soon. It’s not a long bridge from maybe all that Biden stuff has actually started working to the fed cutting rates. It might only move small percentages of voters our way but in many crucial places if the last few elections have taught us anything mere tens of thousands of votes in certain states make all the difference when the Electoral Votes are counted.