Powell Wants Fed To Stay Out Of Election Crosshairs. Good Luck With That

(Bloomberg Businessweek) -- Federal Reserve Chair Jerome Powell would no doubt prefer that the central bank not be dragged into the middle of what is likely to be a highly contentious presidential election campaign. But he's finding that may be near impossible.

In a rare interview on CBS's aired on Sunday, Powell insisted that the Fed wouldn't take politics into account in deciding when to reduce interest rates as inflation ebbs. “It just doesn't come up in our thinking,” he said.

But such assertions didn't stop former President Donald Trump from accusing him of doing just that. 

“I think he's political,” the likely Republican presidential nominee said in an interview on that aired on Fox Business also on Sunday. “I think he's going to do something to probably help the Democrats, I think, if he lowers interest rates.”

What's more, even as Powell emphasized the Fed's nonpartisan bona fides, he ended up commenting in the interview on issues that will be hotly debated in the campaign, such as immigration, though he stopped well short of offering specific policy prescriptions.

“It underscores just how treacherous the road is in an election year for the Fed,” says Diane Swonk, chief economist at KPMG LLP. “It's hard for them not to accidentally stumble on political land mines even as they're trying to do the best economic policy.” 

Trump elevated Powell to Fed chair in February 2018. He then spent much of the rest of the year and 2019 castigating him for keeping interest rates at levels he considered too high. “The only problem we have is Jay Powell and the Fed,” Trump groused in a tweet from August of that year. “He's like a golfer who can't putt, has no touch. Big U.S. growth if he does the right thing, BIG CUT - but don't count on him!”

At one point, Trump even explored the possibility of firing the Fed chair. He told Fox Business on Sunday that he wouldn't reappoint Powell if elected in November.

President Joe Biden, who backed Powell for a second four-year term in 2022, has refrained from giving the Fed public policy advice, though some of his Democratic colleagues haven't been so shy.  

Several prominent Democratic lawmakers, including Senate Banking Committee Chair Sherrod Brown and Massachusetts Senator and former presidential candidate Elizabeth Warren, wrote separately to Powell last month urging him to lower interest rates.  

In his appearance, Powell pushed back on pressure for a quick turn to easier credit, even though inflation is cooling quickly. 

The “danger of moving too soon is that the job's not quite done, and that the really good readings we've had for the last six months somehow turn out not to be a true indicator of where inflation's heading,” Powell said.

That didn't come as a surprise to Fed watchers. After all, Powell had said as much at his press conference last week after policymakers held rates steady for the fourth straight meeting.

What did take some analysts aback was Powell's willingness to comment on some potentially highly charged political issues not directly tied to monetary policy. 

The Fed chair extolled the advantages of America supporting global democracy and the economic and security framework behind it. He called the federal government's debt unsustainable in the long run and urged lawmakers to tackle the issue. And while he said that immigration policy isn't the Fed's job, he did argue that immigrants have benefited the US economy over time.

“I don't think I've ever seen Powell so forcibly insist the Fed stays in its lane and then make strong pronouncements” like those, Brookings Institution senior fellow Sarah Binder said in a post on the social media platform X, formerly Twitter.   

Powell though stuck to broad principles and eschewed specific policy recommendations.

The Fed is no stranger to feeling the political heat in an election year. In 2016, then Republican presidential candidate Trump repeatedly accused former Fed Chair Janet Yellen of keeping interest rates low to help Hillary Clinton win the White House.

But several things set the coming campaign apart. The post-pandemic surge in inflation—and the Fed's big rate increases to contain it—has meant that voters are more aware of Powell and the Fed. And they don't like what they see. 

Just 43% of Americans in a Gallup poll in December gave Powell a favorable job rating, down from 53% in 2021, the last time the company asked that question.

The election is also coming at a particularly delicate time for the economy and the Fed. Powell told reporters last week that the Fed is trying to navigate two competing risks. If it cuts rates too soon, it runs the danger of allowing inflation to settle at levels well above its 2% goal. If it delays reducing rates too long, it could end up driving the US into a recession.

“Powell was trying to get ahead of a presidential campaign in which he and the Fed will be in the cross hairs,” says Mark Spindel, chief investment officer at Potomac River Capital. 

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