Lawmakers from both parties made something abundantly clear this week to Jerome Powell: The Fed is likely to be criticized no matter what it decides to do at its last meeting before the November election.
What parties signaled this week is that they would criticize the central bank if this key September decision doesn't go their way.
If Powell and his colleagues choose to keep rates at a 23-year high, a growing chorus of Democratic critics calling for cuts may reach a crescendo. But if policymakers do indeed cut, Republicans from Donald Trump on down will be sure to cast the move as caving to election-year pressure.
"Gosh, you are under a lot of pressure from all sides," Rep. Young Kim, a California Republican, said Wednesday as Powell neared the home stretch in his two days of congressional testimony across a wide array of issues.
Federal Reserve Chair Jerome Powell arrives to testify before senators on Capitol Hill on July 9. (CHRIS KLEPONIS/AFP via Getty Images) ·CHRIS KLEPONIS via Getty Images
Powell had to confront interest rate concerns coming from both sides of the aisle. From the left was Senate Banking chair Sherrod Brown, who told Powell Tuesday, "I’m concerned if the Fed waits too long it could underdo the progress we’ve made."
The Ohio Democrat, who is currently locked in a tight reelection campaign, said, "Workers have too much to lose if the Fed overshoots the inflation target and causes a completely unnecessary recession."
The pressure from the right was equally clear. House Financial Services chair Patrick McHenry, a top Republican, told Powell Wednesday that "you must not allow politics to cloud the Fed’s monetary policy."
Rep. Andy Barr, a Kentucky Republican, put an even finer point on it, telling reporters earlier this week that "I think a September rate cut will not be perceived as apolitical."
'Anything we do will be very well grounded'
Powell’s response to the new wave of political pressure was to echo an independent, apolitical approach he has honed throughout 2024, emphasizing that the only criteria that matters to him is data on prices and jobs.
"Our political independence is critical to our ability to do our jobs and to sustain the faith of people across the political spectrum," he said Wednesday as he defended the central bank’s record of ignoring politics.
"Anything we do will be very well grounded," he added later. "It is just not appropriate for us to get into the business of thinking about election cycles at all."
Federal Reserve Chair Jerome Powell before a Senate Banking, Housing and Urban Affairs Committee on July 9. (REUTERS/Kevin Mohatt) ·REUTERS / Reuters
Before the closely watched September meeting, Powell and his colleagues on the Federal Open Market Committee will also meet at the end of this month on July 30-31.
But traders currently project there is a 91% chance that the Fed stands pat, at least this month.
Such a move would then set up the closely watched Sept. 18-19 gathering where things are very different. As of Thursday evening, markets see only a 7.3% chance that Powell and his colleagues end that gathering with rates at current levels.
"I think the Fed has a very good case to begin a gradual reduction in interest rates," said Claudia Sahm, a former Federal Reserve Board economist, in a Yahoo Finance video interview this week.
But the exact timing remains unclear with Powell facing, as Sahm put it, an economic landscape that was "unimaginable a year ago."
The same could be said of the politics.
Wave after wave of pressure
Powell’s back-and-forth with lawmakers this week covered a wide array of topics, from a controversial set of proposed banking capital measures known as Basel III to bank executive bonuses to the national debt to the Independence of the Federal Reserve itself.
But again and again, lawmakers sought to nudge Powell on the interest rate question.
In one notable exchange, Republican Sen. Kevin Cramer offered supportive words for the Fed’s independence but then couldn’t help adding that "any move to lower interest rates or move interest rates either direction before November 5 could certainly be bad perception."
From the other side, Sen. Mark Warner, a Virginia Democrat, brought up interest rates in the context of high mortgage rates and said of cuts: "I hope it's sooner than later."
Rep. Mike Lawler, a New York Republican, asked Powell whether he would acknowledge that a rate cut in September "could be viewed as political just 30-60 days before an election."
Even that didn't work, with Powell reiterating his point that any decision would be made independent of politics.
"This is my fourth presidential election at the Fed, and I can tell you we come to work the next day and do our jobs," Powell said at another point.
That will literally be true. The Fed's November gathering is scheduled to kick off on the morning of Nov. 6, just hours after the election voting sites close.
Ben Werschkul is Washington correspondent for Yahoo Finance.
