As the 2024 election approaches, pressure on Federal Reserve Chairman Jerome Powell is mounting. President Trump has suggested that Powell could lower interest rates to aid the Democrats in the upcoming election. Discussions are ongoing about potentially undermining the central bank’s independence if Trump wins the election in November. However, Powell reiterated that political considerations do not influence the Fed’s decisions and that their focus is on fulfilling their mandate.
Despite a strong labor market, with an addition of 303,000 jobs in March and unemployment below 4 percent, economic growth fell short of expectations in the first quarter. This was due to a lack of further progress towards the inflation target of 2 percent. The Federal Open Markets Committee (FOMC) responsible for determining monetary policy decided to maintain the federal funds rate between 5.25 percent and 5.5 percent, a level that has been constant since July.
Inflation increased to 3.5 percent year-over-year in March, according to the latest consumer price index (CPI). Chairman Powell expressed that gaining greater confidence in meeting the inflation goal may take more time than initially anticipated. The anticipation in the market is that rate cuts may not occur until November, as indicated by the CME FedWatch Tool.
Powell emphasized that it will take longer to gain the necessary confidence to reach the target of 2 percent inflation despite a strong labor market and an addition of jobs in March
