The focus of the country is about to switch to 24/7 wall-to-wall coverage of the presidential election, including primaries, debates, campaign-spending totals, and poll results.
It is not unusual for an incumbent president to look for assistance from the U.S. central bank. In fact, several Fed chairs and presidents seeking re-election have squared off in the past While the economy is heading into 2024 with momentum, which is good for Biden, there is a lot of inflation and a lot of risks. Instead of seeing inflation licked and the economy at a steady, sustainable pace, consumer-price inflation is running at a 3.7% rate and the economy is running close to a 5% rate, strong enough to keep inflation percolating.
“The Fed wants to duck out of the wind and not be front and center in an election year. They don’t want to be seen as their policies putting a thumb on the scale for one candidate,” Binder said. ‘If there was not an election in 2024, they might not have raised rates in July’ Jay Powell still hopes that the economy evolves in a way that allows the Fed to step back behind the curtain — or at least away from center stage. Inflation could continue on its downward trend seen since the summer that has brought consumer inflation to a 3.7% annual rate from 9.1% a year earlier. Many economists see inflation pressures continuing to ease.
The strong labor market could put renewed pressure on prices or Congress might be tempted to increase spending ahead of the election, if it can end its current paralysis, he added. “We avoided a recession in 2023 but the cost of that is the breaking point is going to be with yields higher, and more risk that the recession will be accompanied by financial credit events due to leverage,” Tzitzouris said.
It’s important to note that Biden and Powell are not at loggerheads and do share a common aim. They both want to see inflation soften, said Binder. In other words, how Powell reacts as the election approaches could impact the economy, markets, and the perception of voters, throwing him into the political arena.