Jay Powell gives next US president an early boost

A cut above. Jerome Powell has given next occupant of White House an early boost. Federal Reserve chair’s double-sized rate cut on Wednesday shows central bank has shifted from battling rising prices to second part of its dual mandate: pursuit of full employment. Fed’s actions come with a lag, meaning expected increase in home sales, stock purchases, and capital investment will probably only kick in following November’s U.S. presidential election. But whoever wins has a better chance of inheriting a soft landing.
Fed’s long-term projections are closest central bank is likely to come to formally declaring victory. y project low inflation and low unemployment for next several years as pandemic’s disruptions fe furr into past. risk of a recession is minimal and gross domestic product will grow at around 2% a year. central bankers also penciled in, on average, two more quarter-point cuts to interest rates this year, followed by reductions amounting to a full percentage point in 2025.

Powell me clear that se are not crisis moves, when Fed acts fast to stem a rapid slowdown that’s alrey visible in data. Rar, he committed to not allow high interest rates to suffocate an orwise healthy economy which faces few inflation risks.

For now, U.S. economy is still showing signs of weakness. Lower-income consumers are struggling with price increases of recent years, ding credit card debt, and spending far too much of ir take-home pay on housing. Slightly lower borrowing costs will not help m much. But housing market should see a boost in construction and transaction activity as lower mortgage rates help first-time home buyers.

Equity markets, meanwhile, should benefit as investors shift some of $6.5 trillion parked in money market funds into riskier investments. That’s virtuous cycle of lower interest rates: looser financial conditions beget even looser financial conditions.

Even political fallout of announcing a large cut in interest rates less than two months before election seems muted. Republican complaints that Fed’s action is a form of interference make little sense, and even those making argument do not seem to fully believe it. speaker of House of Representatives, Mike Johnson, called Fed’s timing “curious” but also noted that it would help consumers. In any event, delayed effects of lower interest rates will ensure that primary benefits will be felt by next president, be it Kamala Harris or Donald Trump.