Potential political implications of the Federal Reserve rate cut
The Federal Reserve just did something that they rarely do: lower interest rates less than 50 days before an election.
While 3% mortgage rates are still a ways away — because it was a limited cut — questions remain about whether or not there will be any political impacts because of the Fed’s decision.
Wednesday’s announcement was only the fourth interest rate change two months before an election since 1990. Each of the previous times, the party controlling the White House lost.
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Greg McBride is the chief financial analyst at Bankrate and Scripps News asked him how quickly Americans may see an impact on their lives.
“The benefit of this initial rate cut is that it’s just the first step,” he said. “…We have been in a high interest rate environment but we are not going back to a low interest rate environment. We are just going to go from high to not as high.”
McBride says a half of a percentage point rate cut will not dramatically change the affordability of a house or a monthly credit card payment right away. Politically, however, there is a chance it could make people feel differently about the economy.
The Fed initially raised interest rates because inflation was high. Now they are lowering interest rates because inflation has come down.
“The reality for households is that even though inflation pressures have moderated, prices are still high,” McBride said. “Lower inflation doesn’t mean lower prices. It just means prices aren’t going up as fast.”
RELATED STORY | The economy remains a top concern for US voters ahead of the presidential election
Any economic news matters this election because the economy consistently ranks as the top issue on the minds of voters. A Scripps News/Ipsos poll found that 57% of people identified inflation as the top issues for them heading into the election.
Vice President Harris and former President Donald Trump have reacted differently to the news.
Trump has called the Federal Reserve’s actions an indicator that the economy is not doing well. Harris, meanwhile, called it “welcome news,” but added that there is still more work to be done.
