Jerome Powell is preparing to reduce rates in the US in the middle of the election year. Business

Jerome Powell is a man of seriousness. Like a poker player, the Chairman of the Federal Reserve does not let his emotions show. In his press conferences after monetary policy meetings, he adopts a dull tone and barely makes any gestures, much to the frustration of the photographers covering him. Powell has faced the highest inflation in four decades and that’s no joke for a central banker. Now it appears to be reaching its goal and in the middle of an election year, it is preparing to lower interest rates for the first time in more than four years. He is not claiming victory, but after the last meeting of the Monetary Policy Committee it was clear that he is in a good mood.

Under the mask, there were a few moments when he was on the verge of half-smiling and even generated some laughter in the room. First, he asked her to clarify what she meant when she said in her opening intervention that the central bank would start slowing the pace of its balance sheet reduction “very soon.” That’s what he was referring to. May meeting: “‘Soon’ are the words we use to refer to very soon,” was his response. Second, when they asked him whether he ever regretted his decision to hold a press conference after each monetary policy meeting, as his predecessors had done so on rare occasions: “Of course… no,” he replied knowingly. Gave.

Members of the Federal Reserve’s Federal Open Market Committee (FOMC) updated their forecasts this Wednesday that they believe will meet their dual mandate of promoting maximum employment over the long term with inflation at 2%. What would be the appropriate interest rate? The goal of price stability. Their forecasts, which do not commit them, maintain a path to three cuts of 0.25 points in interest rates by the end of the year, although just barely, as 9 of the committee’s 19 members expect somewhat smaller cuts. . This would mean lowering rates before the presidential election on November 5. Analysts and investors actually expect the first cut in June, followed by two more cuts in September and December.

Although Powell is under pressure in the polarized political environment of the United States, it is not unusual for the Federal Reserve to raise or lower rates during an election year if it deems it necessary. It decreased in 2020 due to the pandemic and in 2008 due to the financial crisis. The increases were in 2000 and 2004 to stem the technology and real estate bubbles, respectively. Powell has made it clear that he will not be guided by electoral factors: “We don’t think about politics. “We think about what’s right for the economy,” he said in December.

This is really the hard part: knowing what’s right for the economy. Until a few months ago, Powell was primarily concerned about inflation. Now, he sees risks on both sides: “We are in a situation in which, if we relax too much or too soon, we could see inflation again. If we rest too late or too little, we could be causing unnecessary harm to people’s jobs and working lives. So, we see that the risks are two-way, so it’s important that we remain vigilant,” he said this week. Prudence is one of the favorite virtues of central bankers.

“Overall, we believe the updated projections show that the Federal Reserve remains practically committed to beginning the process of normalizing rates in the coming months, while considering the sensitivity of the US economy to inflation and interest rates. It also faces broader questions about what will determine the pace. The cuts will be made over the next year or two,” says Tiffany Wilding, an economist at Pimco. He added, “We expect to cut by 75 basis points in 2024, starting in June, but we believe the short-term risks outweigh the cuts currently planned by those responsible for the Federal Reserve.” Lean towards.”

At this point, and with the delay with which monetary policy acts, it is difficult for the Federal Reserve’s movements to have a significant impact on the economy before the presidential election. In fact, the opposite could be true: “The election outcome will have a significant impact on the path to the economy and monetary policy,” firm Oxford Economics indicated in a report.

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