The Federal Reserve may maintain interest rates unchanged before the end of the year to avoid intervening in the U.S. presidential election. The Chief Investment Officer of American World LLC stated that although it is expected that the U.S. will cut interest rates twice before the end of the year, if the economic conditions are good and there is no excessive policy pressure, the Federal Reserve may keep the status quo. President Trump hopes for low interest rates, but the Federal Reserve sets rates independently of the White House. Trump mentioned that he may let Powell continue in office, but it is unclear whether he can legally dismiss Powell. Trump hopes that the Federal Reserve will not take any action before the election
Hooman Kaveh, Chief Investment Officer of Mercer LLC, stated that the Federal Reserve is increasingly likely to maintain interest rates unchanged by the end of the year, rather than getting involved in the increasingly intense U.S. presidential election competition.
Kaveh, in an interview with Bloomberg TV in Melbourne on Tuesday, said, "If you are a Fed governor, you would really want to say 'Let's stay put and not make any moves before the presidential election'."
He mentioned that he still expects the U.S. to cut interest rates twice before the end of the year, but with U.S. President Biden withdrawing from the race and Republican nominee Trump possibly facing off against new opponent Harris, this situation could change.
He said, "Economic growth is robust, employment conditions are good, and inflation is also performing well, albeit slightly off trend. As long as things look good and the Fed's current policies are not putting undue pressure on any specific domestic or international factors, then I think they may stay put."
Mercer is part of consulting and insurance company Marsh McLennan, managing $379 billion in assets globally, and will host clients at its Pacific Global Investment Forum in Melbourne this week.
Kaveh said, "The Fed wants to minimize any interference in the election as much as possible, as taking action during the election period would clearly be controversial."
Trump previously stated in an interview that if he is re-elected, he will allow Powell to serve as Fed chair until May 2026. However, he also added some conditions in his statement, saying "especially when I think Powell is doing the right thing," he will let Powell continue in office. In other words, even if Trump wants to dismiss Powell, it is unclear whether he can legally do so, but Trump's wording seems to suggest that he believes he has some leeway.
Ultimately, Trump still prefers low interest rates. When asked about his economic philosophy, Trump mentioned "low rates and low taxes." But there is one problem: the Fed sets rates independently of the White House. Some conservatives believe that Trump may try to bring the Fed's policies under White House control, but Trump did not mention this in the interview. Instead, he talked about reducing inflation, which would in turn allow the Fed to cut rates. However, Trump does not want the Fed to take any action before the election. He referred to rate cuts before the election as "something they know they shouldn't do."