The mood of Americans heading into the November elections is likely to be shaped in part by the interest-rate decisions of the Federal Reserve.
On the menu today: While the Democrats gather in Chicago, the mood of Americans heading into the November elections is likely to be shaped in part by the interest-rate decisions of the Federal Reserve, and its chair, Jerome Powell, is expected to share his outlook in a speech in Jackson Hole on Friday. Everyone expects the Fed to cut interest rates starting in September, which should goose the U.S. economy when Kamala Harris needs it most — although there are some surprising data indicating most Americans give her a pass for the Biden administration’s economic policies. Meanwhile, Donald Trump continues his message that “we are a failed nation,” which he calls a “beautiful phrase,” and Joe Biden and Harris are on opposite sides of the question of whether inflation has been defeated.
A Little Help from the Fed
This week, Americans will turn their eyes to the Democratic National Convention in Chicago, which John Fund calls “The city that people leave.” (National Review will have a convention liveblog all week! Tune in to see if warm and welcoming host Jeff Blehar has enough plywood over the windows of his downtown home!)
But the course of the 2024 election may well be set by an equally important, and much less covered*, meeting coming Friday, when Federal Reserve chair Jerome Powell is scheduled to deliver remarks on the nation’s economic outlook at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyo.
The Federal Reserve is widely expected to lower interest rates starting in September. Inflation, as measured by the Consumer Price Index, is closer to the Fed’s 2 percent target, clocking in at 2.9 percent in June. After a long stretch of low unemployment, the national unemployment rate inched up to 4.3 percent in July, slipping away from “good” and toward “just okay.”
The Fed hasn’t lowered interest rates since March 2020, when it was attempting to resuscitate the economy from the sudden and far-reaching effects of the Covid pandemic. From March 2022 to August 2023, the Fed steadily increased interest rates, attempting to get runaway inflation under control. Rates are currently at 5.33 percent, which is high by post-2000 standards.
Interest rates on everything from 30-year fixed-rate mortgages to home-equity loans to credit-cards and car loans move in tandem with the Fed’s primary interest rate.
At a press conference at the end of July, Powell said:
Inflation has come down much closer to our goal, and that’s happened while unemployment has remained low. We’re very tightly focused on using our tools to try to foster that state of affairs continuing. That’s at each of our meetings and all of our decisions, our focus is strictly on that and really on nothing else — doing our part, whatever that part may be.
Broadly speaking, the markets love interest-rate cuts. A lower interest rate means it is easier for both businesses and individuals to borrow money, which puts more money in people’s pockets, which usually leads them to spend more.
When interest rates get cut, the stock markets usually rise, which means people’s 401(k) statements will probably be looking better as November approaches.
While nothing in the U.S. or global economy is guaranteed, there’s a good chance that when voters start casting ballots this fall, the economic news will be good. (And Lord knows, certain institutions will want to convince you that “Joe Biden has given us the best economy ever,” as Dean Baker of the Center for Economic and Policy Research claimed.)
That may or may not be enough to change Americans’ mostly negative perceptions of the economy. But if you’re Harris, you want interest rates to be coming down, the cost of borrowing money to be declining, and the stock market to be on a good run.
Trump’s message, consistently, is that Biden and Harris have driven the U.S. economy to a state of failure. Just this past Saturday, at a rally in Wilkes-Barre, Pa., he said:
We’re a nation in decline. You know, we were talking about that before, my phrases are copied so much, right? I use the term, often times in closing, “We are a nation in decline. We are a failed nation,” and I think it’s a beautiful phrase, although I don’t like the topic very much. I don’t like what it represents, but there’s a certain beauty. All of a sudden all of these candidates, including Republicans, are saying, “We are a nation in decline. We are a failing nation,” and I say, “You know, what the hell do they have to copy me for, right?” But they have a lot of words that they copy, many of our words.
Note that even in the recent ABC News–Washington Post poll showing Harris ahead, Trump led Harris by nine points when voters were asked whom they trusted more to handle the economy and inflation. Another wrinkle: When asked, “How much influence do you think Harris has had within the Biden administration’s economic policies?” just 11 percent of respondents answered, “a great deal,” 24 percent said “a good amount,” 30 percent said “just some,” and 34 percent said “very little.” (Luckily for Harris, the administration and its media allies chose to call their policies “Bidenomics,” and not “BidenandHarrisnomics.”)
In that July 31 press conference, CBS News’ Jo Ling Kent asked Powell, “With a possible September rate cut on the table, it would be less than two months before the election, and former President Trump reportedly said that cutting rates so close to the election is something the central bank knows ‘they shouldn’t be doing.’ What’s your response, and do you believe it’s possible to really remain apolitical with a September rate cut?”
Powell responded:
We don’t change anything in our approach to address other factors, like the political calendar. Congress has, we believe, ordered us to conduct our business in a nonpolitical way at all times, not just some of the time. I’ll say this, too: We never use our tools to support or oppose a political party, a politician, or any political outcome. The bottom line is, if we do our very best to do our part and we stick to our part, that will benefit all Americans. If we get it right, the economy will be stronger. We’ll have price stability. People will find jobs. Wages will rise in real terms. Everyone will benefit. So that’s what we believe, and that’s how we will always act. This is my fourth presidential election at the Fed. I can tell you this is how we think about it. This is what we do. So anything that we do before, during, or after the election will be based on the data, the outlook, and the balance of risks and not on anything else.
Trump appointed Powell, but he’s been critical of the Fed chair frequently, and he recently contended that if elected president, he should have some say in setting the Fed’s interest rates. Trump, at his press conference in Mar-a-Lago, August 12:
Well, look, the Federal Reserve is a very interesting thing and it’s sort of gotten it wrong a lot, and he’s tending to be a little bit late on things. He gets a little bit too early and a little bit too late, and that’s very largely a. . . . It’s a gut feeling. I believe it’s really a gut feeling, and I used to have it out with him. I had it out with him a couple of times very strongly. I fought him very hard. And we get along fine, we get along fine, but I feel the president should have at least say in there, yeah. I feel that strongly. I think that in my case, I made a lot of money, I was very successful, and I think I have a better instinct than, in many cases, people that would be on the Federal Reserve or the chairman.**
Surely, everyone who works in finance or the markets will breathe easily at the thought of Trump bringing the same stable, steady, clear, and logical decision-making that he’s displayed in this campaign to setting interest rates.
*An estimated 15,000 journalists are expected to be in Chicago to cover the Democratic National Convention.
**Notice Trump does not use Jerome Powell’s name during this lengthy answer. More fodder for the “Trump can’t remember names as well as he used to” theory.
An observation from Megyn Kelly, August 13:
I will say that in that discussion with Elon, to me, [Trump] seemed quite rambling. I mean it was like he rambles, he goes on too long at his rallies and in these exchanges and at his presser the other day, to where you get kind of bored. You lose the thread. You lose interest, which is not something you’re used to with Trump. Trump in 2016 — he was tough to lose interest in! And I think that’s probably an age-related change. So I think this is one of the challenges of the people around him, who are, I’m sure, are desperately trying to get him to stick on message.
Even some of Trump’s biggest boosters and allies — Larry Kudlow, Kellyanne Conway, Nikki Haley, Kevin McCarthy , Peter Navarro, Vivek Ramaswamy, Sean Hannity — are begging him to stay on message, stop rambling about crowd sizes and imaginary helicopter rides with Willie Brown, stop attacking Brian Kemp, stop claiming Biden tried to have him assassinated, and stop saying that the Presidential Medal of Freedom is better than the Congressional Medal of Honor.
The biggest obstacle to a Republican victory in 2024 is the Republican nominee.
Speaking of Inflation . . .
President Joe Biden, Wednesday, August 14:
Q: Has the U.S. beaten inflation, Mr. President?
Biden: Yes, yes, yes. I told you we’re going to have a soft landing, we’re going to have a soft landing. My policies are working. Start writing that way, okay? Anyway, thank you.
Vice President Kamala Harris, Friday, August 16:
We all know that prices went up during the pandemic when the supply chains shut down and failed, but our supply chains have now improved, and prices are still too high. A loaf of bread costs 50 percent more today than it did before the pandemic. Ground beef is up almost 50 percent.
I look forward to watching Kamala Harris debate Joe Biden.
ADDENDUM: I don’t mind the discussion of “painful memories of 1968” for Democrats, but keep in mind that if you were 18 in the year 1968, you are about 74 years old now.
I think our cultural memory often defaults to the era of the Baby Boomers, and most people forget that even the youngest boomers — if you use the common cutoff date of 1964 — are now 60 years old and knocking on the door of eligibility for Social Security.