US Presidential election and Fed policy

2024 will be an important year for monetary policymakers at the US Federal Reserve (Fed), as they are expected to begin cutting interest rates as inflation continues to decline. . However, this year is also the year of the US presidential election and the Fed’s policy shift could put the central bank in the center of political attention, as the candidates’ campaigns enter the acceleration phase.

The Fed’s progress in reducing interest rates will determine the health of the US economy. In theory, the Fed is independent from the White House, meaning the US Government does not have the right to control or influence Fed policy. This independence is intended so that the Fed can use its powerful tools to ensure long-term stability for the economy, whether Fed policies have a positive or negative effect on the economy. Politician wants to become the owner of the White House. Fed officials have always strongly defended that independence and insisted that politics is not a dominant factor in their decisions.

However, a New York Times article says that hasn’t stopped politicians from talking about the Fed. In fact, recent comments by leading candidates in the election scheduled for early November this year suggest that the Fed is likely to be a hot topic of debate in the near future. next.

Former President Donald Trump – the No. 1 candidate for the position of Republican Party representative – spent a lot of time during his term as US leader to pressure the Fed to reduce interest rates.


In interviews and campaigning in recent months, Mr. Trump has argued that mortgage interest rates – which are closely tied to Fed rates – are too high. This is an argument that can win over voters, because the expensive housing prices in the US are a challenge for many households in this country.

But on the other hand, Mr. Trump could also use an opposite tactic if the Fed starts lowering interest rates. During the 2016 election campaign, he criticized the Fed for keeping interest rates low, saying it gave an advantage to the Democrats who held the White House at that time.

President Joe Biden has avoided talking about the Fed, other than a few times mentioning the independence of the central bank. However, Mr. Biden also indicated that he wants interest rates not to increase further. Recently, he said that the jobs report remained positive but showed that job growth had slowed as “sweet” and “necessary to keep economic growth steady and inflation continuing to decline to discourages the Fed from raising interest rates further.”

Such statements reflect a reality that public opinion polls have made clear: rising prices and sky-high mortgage interest rates are putting pressure on the economy and making voters more skeptical. pessimism, even though inflation has recently slowed and the job market remains surprisingly resilient. As long as such Fed-related issues preoccupy Americans, the Fed will continue to be the focus of attention.

During the tightening campaign to fight inflation starting in March 2022, the Fed increased interest rates 11 times, bringing the federal funds rate from 0-0.25% to 5.25-5.5%, a level highest in the past 22 years. Currently, the pressure to increase prices in the economy has eased and Fed officials may soon enter a discussion about when interest rates can be reduced and at what speed.

In its forecast released in December 2023, the Fed said that there would be three interest rate cuts this year, each by 0.25 percentage points. The recently released minutes of the Fed’s December 2023 meeting did not mention any time frame for interest rate reduction. Meanwhile, the financial market is expecting the Fed to start reducing interest rates from March 2024 and there will be six reductions throughout the year.

In addition to raising interest rates, the Fed is also gradually reducing the amount of bonds it holds on its balance sheet – a process known as quantitative tightening (QT), which can push up long-term interest rates and thereby curb growth. economics and inflation. Minutes of the December 2023 meeting show that Fed officials signaled that they may soon discuss stopping QT.

Recently, mortgage interest rates in the US have decreased because investors expect the Fed to lower interest rates. After peaking at 7.8% in late October last year, interest rates on 30-year home mortgages are now down to more than 6.5%.

The Fed can explain its policy shift based on macroeconomic changes: inflation is falling rapidly and the Fed wants to avoid excessive tightening that could lead to a recession, but nonetheless However, this pivot by the Fed could still be placed in the middle of an important political turn for the United States.


Former and current Fed officials have insisted that the 2024 election will not really affect the Fed’s policy decisions. When making interest rate decisions, US monetary policymakers always try to ignore political factors, in fact the Fed has changed interest rates in previous election years, including when Covid-19 just became a pandemic in 2020.

“I don’t think politics comes up much in discussions at the Fed. The Fed’s response in years with and without elections is the same,” said Mr. James Bullard – who holds the position of Chairman of the St. Louis until last year – speaking.

However, many investors and experts on Wall Street believe that cutting interest rates before a presidential election could put the Fed in a difficult position, especially when such moves take place close to the deadline. November point. They believe that the sooner the Fed cuts interest rates, the easier things will be for the Fed. Some predict that Mr. Trump will likely continue to talk about the Fed during election campaigns and will emphasize any economic difficulties related to Fed policy.

Since the early 1990s, US Presidents have generally avoided mentioning Fed policy. But Mr. Trump has overturned that tradition since he was a presidential candidate and throughout his term in the White House. He often mentions Fed Chairman Jerome Powell on social media and in interviews. He also did not hesitate to criticize Fed officials and even called Mr. Powell an “enemy”.

It was Mr. Trump who nominated Mr. Powell to the position of Fed Chairman when Janet Yellen’s term ended, but he soon expressed disappointment with this choice. After that, Mr. Biden re-nominated Mr. Powell for a second term. Mr. Trump has said he will not re-nominate Mr. Powell for this position for another term if he is re-elected as President.

Of course, this wouldn’t be the first time the Fed has adjusted monetary policy in a difficult political environment like this. In 2019, economists were concerned that the Fed cutting interest rates, in the context of the Trump administration’s pressure to lower interest rates, would make the Fed be seen as being influenced by political issues. But that year, the Fed still lowered interest rates. “We never take into account political considerations. We also do not operate monetary policy with the purpose of proving our independence,” Mr. Powell said at that time.

Economists say the Fed’s interest rate cuts in an election year require clear messaging: By explaining what it is doing, the Fed can allay concerns that any decision or move will No matter what your situation is, it is not influenced by political factors. “The crux of the issue is that the Fed must act clearly and reasonably, must answer the question of why it is doing what it is doing,” Deutsche Bank’s chief US economist, Matthew Luzzetti, emphasized. …

The content of the article was published in Vietnam Economic Journal No. 03-2024 published on January 15, 2024. Dear readers, we invite you to read here This: Kinh-te-viet-nam

US Presidential election and Fed policy - Photo 1

Trả lời

Email của bạn sẽ không được hiển thị công khai. Các trường bắt buộc được đánh dấu *