By Investing.com — Republican presidential candidate Donald Trump has argued that the Federal Reserve’s decision to roll out a super-sized 50-basis point interest rate cut is a sign that the US economy is either “very bad” or the central bank is “playing politics.”
The Fed slashed borrowing costs to a range of 4.75% to 5.0% on Wednesday and indicated that it would announce further cuts this year, signaling the beginning to an easing cycle aimed at shoring up the economy following a prolonged battle against surging inflation. Rates had previously been at a more than two-decade high for over a year.
Speaking to reporters at a Bitcoin bar in New York City following the decision, Trump said the reduction, which was the Fed’s first since 2020, shows that “the economy would be very bad, or they’re playing politics, one or the other.” He added it was a “big cut.”
At a closely-watched press conference, Fed Chair Jerome Powell downplayed concerns about a recession, pointing to resilient economic growth, cooling price gains and a “solid” labor market.
“The US economy is in a good place and our decision today is designed to keep it there,” Powell said.
He also stressed that the Fed was only carrying out a “recalibration” of its rate policy and is not instituting a “new pace” of cuts. He added that the rate-setting Federal Open Market Committee (FOMC) was not in a “rush” to slash borrowing costs.
Along with the drawdown, an updated “dot plot” of officials’ policy forecasts indicated that policymakers now expect the benchmark fed funds rate to dip to 4.25% to 4.5% by the end of 2024. This would suggest either another jumbo half-point rate cut or two smaller quarter-point cuts at the Fed’s two remaining gatherings this year.
Powell, who was nominated to his current position by Trump in 2017 and is a registered Republican, also responded to claims that the 50-basis point cut was politically motivated. He said the FOMC only concerns itself with doing “the right thing […] for the people we serve.”
“[W]e do that, and we make a decision as a group, and then we announce it. And that’s always what it is. It’s never about anything else. Nothing else is discussed,” Powell said.
Powell was a target of criticism during Trump’s previous term in the White House, particularly after the then-President called on the Fed to cut rates during a time of rising global trade tensions. In one instance, Trump lashed out at Powell, questioning whether he was a “bigger enemy” to the US than Chinese President Xi Jinping.
Brad Case, Chief Economist at Middleburg Communities, suggested that other Republicans would rally to support Trump’s claim, and potentially encourage some GOP members in Congress to purpose legislation reducing the Fed’s independence.
For its part, the Fed has said that it was created as an independent and non-partisan central bank — a position that Powell reiterated again on Wednesday.
“Our job is to support the economy on behalf of the American people. And if we get it right, this will benefit the American people significantly. So this really concentrates the mind,” Powell said. “And, you know, it’s something we all take very, very seriously. We don’t put up any other filters. I think if you start doing that, I don’t know where you stop.”
Elsewhere, Kamala Harris, Trump’s Democratic rival in November’s all-important presidential election, called the rate cuts “welcome news for Americans who have borne the brunt of high prices.”
Recent polls have pointed to inflation, which has moderated in the US after a post-pandemic surge, as one of the major financial concerns for voters prior to the vote.
