The Federal Reserve is not supposed to be a political arm of the government. Like the Justice Department, the Fed needs to be apolitical because its only concern is the health of the economy and never to make decisions to impact either party. So, how do you explain the gift the Fed gave Kamala Harris this week? We can call this surprise move by Jerome Powell, Chair of the Federal Reserve, a 50/50 bonus- a 50-point drop in interest rates at 50 days until November 5, Election Day.
Powell’s move is mysterious at best. If you believe the White House (that’s a challenge), then the Biden Economy is on a roll, inflation is falling, growth is up, employment numbers are strong, and unemployment is low, so why do we need any action from the Fed? The answer is, we don’t, unless the White House has cooked the numbers, which they have been doing for nearly four years. The Fed either sees the numbers and state of the economy differently than Biden/ Harris do, or they are interfering in the election. Neither scenario is good for the country.
The rate drop is more psychological than impactful this close to the election. The lower rates will boost Wall Street, and you may see a softening of mortgage rates and auto loans, but any other effects will take six to eighteen months to realize. If anyone is expecting a drop in their weekly grocery shopping or lower prices of gifts for the holidays, they will be disappointed.
The other situation that is welcome but difficult to explain is gasoline prices. The cost per gallon is dropping daily, but there is no market influence to explain the precipitous drop. Part could be a slowdown in leisure driving because of the end of summer or people not being able to afford the leisure trips of yesteryear. The savings is great, but it would be nice to understand why rather than think the petroleum industry is in cahoots with Harris and Democrats, lowering fuel prices to influence the election.
These events make for great headlines and applause lines at rallies, but few really understand how they happen and the extent of their impact. The fuel prices will have a more significant impact, but probably more on restaurant pricing and dry goods such as building suppllies. It will not have much of an effect on food prices, hurting every American. The high prices will be rigid to get back down to previous levels. When prices go up, especially on a wide scale like we have seen under Biden, the prices get “sticky.” They reach a new level, and that level becomes the new norm. If people understand this, they will not be so excited about the Fed dropping rates.
The other problem is credibility. In four years, we have seen almost every number reported by the Biden Administration be revised, usually in the negative direction. So, Americans do not get very excited when the first round of results is announced. We are patient and wait for the corrected numbers. The Democrats will not be patient. They will play up these numbers as if they were responsible. On the flip side, we need to make sure the truth gets out to temper the lies.
