Activating "Hell Mode"? Powell may get criticized for whatever he does next!

This week, legislators from both parties made it clear to Federal Reserve Chairman Powell: No matter what decision the Fed makes at its last meeting before the November election, it will face criticism.

Powell stated that the Fed is gradually approaching a rate cut, and market observers are now betting on a rate cut in mid-September, provided that another inflation data continues to improve. The Fed's September meeting is less than 7 weeks away from the US presidential election day.

Both parties stated this week that if this key decision in September does not develop in the direction they expect, they will criticize the Fed.

If Powell and his colleagues choose to keep rates at a 23-year high, the voices of Democratic critics calling for a rate cut may peak. But if policymakers do cut rates, Republicans led by Trump will undoubtedly see this move as the Fed succumbing to election year pressure.

Powell has to deal with concerns about rates from both parties. Sherrod Brown, the Democratic chairman of the Senate Banking Committee from Ohio, told Powell on Tuesday, "I'm worried that if the Fed waits too long, it may undermine the progress we've made."

This Democrat from Ohio, currently in a tight reelection campaign, said, "If the Fed focuses too much on inflation targets and causes completely unnecessary recessions, workers will lose too much."

Pressure from the right is also evident. Patrick McHenry, the Republican chairman of the House Financial Services Committee, told Powell on Wednesday, "You cannot let politics interfere with the Fed's monetary policy."

Republican Congressman Andy Barr of Kentucky was more explicit, telling reporters earlier this week, "I don't think a rate cut in September will be seen as apolitical."

Powell's response to this wave of political pressure is to reiterate his independent stance formed in 2024, emphasizing that the only important criteria for him are inflation and employment data. He defended this on Wednesday:

"Our political independence is crucial for us to fulfill our duties and maintain the trust of people from all political parties. Everything we do will have a solid foundation, and we don't even consider the election cycle."

Before the highly anticipated September meeting, Powell and his FOMC colleagues will also meet at the end of this month on July 30th and 31st. But traders currently predict that there is a 91% chance that the Fed will remain on hold this month.

This sets the stage for the much-anticipated September meeting, where the situation will be very different. As of late Thursday, the market believes there is only a 7.3% chance that Powell and his colleagues will keep rates at their current levels at the end of this meeting. Former Fed economist Claudia Sahm said this week, "I think the Fed has good reasons to start gradually lowering rates. But the exact timing is still unclear, and Powell is facing an economic situation that was unimaginable a year ago, as is the political situation."

Wave after wave of pressure

This week, discussions between Powell and lawmakers covered a wide range of topics, from the controversial bank capital proposal known as Basel III to bank executive bonuses, national debt, and the Fed's own independence.

Lawmakers repeatedly tried to push Powell on interest rate issues.

In a significant exchange, Republican Senator Kevin Cramer expressed support for the Fed's independence, but then couldn't help adding, "Any move to lower rates or move rates in any direction before November 5th may be seen as a bad impression."

On the other hand, Democratic Senator Mark Warner of Virginia mentioned high mortgage rates in the context of interest rates, saying he hoped for a rate cut "sooner rather than later."

New York Republican Congressman Mike Lauletta asked Powell if he recognized that the rate cut in September "could be seen as a political factor 30 to 60 days before the election." Nevertheless, Powell reiterated his view that any decision would be independent of politics.

Powell said, "This is the fourth presidential election I've experienced at the Fed, and I can tell you, we will continue to work the next day and fulfill our duties."

Indeed, the Fed's November interest rate meeting is scheduled to take place on the morning of November 6th local time, just a few hours after the end of the U.S. presidential election voting