"Luxiang" faces dual political pressure, Powell is "squeezed"!

Democratic pressure on Powell to lower interest rates, but he did not do so at this week's Fed meeting. Meanwhile, Republicans do not want Powell to take any action before the election. However, the Fed is expected to continue to maintain strict independence, ensuring that its decisions are based solely on economic data and market conditions, free from any political considerations.

At this week's meeting, Powell stated that he "absolutely" believes that even the widely anticipated rate cut in September can be achieved without involving politics. He told reporters, "We will not change our approach to address other factors, such as the political agenda."

However, according to Brett House, an economics professor at Columbia Business School, even as the Fed tries to maintain its crucial independence, it still has to deal with political pressures in an election year. "While the Fed is not immune to political influence, it is also not a political appendage."

In the days before and after the Fed meeting, political voices grew louder.

Progressive Democratic senators, including Elizabeth Warren, John Hickenlooper, and Sheldon Whitehouse, wrote to Powell accusing him of delaying rate cuts due to Republican political pressure. The senators wrote, "The data seems to clearly indicate that a rate cut is warranted, and failing to do so would suggest that the Fed is yielding to threats."

Warren, Hickenlooper, and Whitehouse did not respond to requests for comment.

Recent months have seen a gradual decline in inflation data. The Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, has fallen over the past three months. In his post-meeting remarks, Powell expressed satisfaction with the labor market conditions, stating that the market has finally returned to a proper balance after overheating during the post-pandemic recovery. However, despite the optimistic outlook on these trends, the Fed chair still insists on needing to see "more good data" to indicate that these trends are not temporary before making a final decision.

Democrats believe Powell's reasons for waiting are unnecessary and wrong. "Refusing to follow economic data and yielding to political threats would be a dereliction of your duty," three Democratic senators told Powell. "We urge you to formulate monetary policy in the interest of the American public, not a specific political party."

On the other hand, Republicans do not want any rate cuts before the election. Senator Kevin Cramer told earlier this month, "I personally don't think they should cut rates. Any action they take before November will raise questions about their independence."

Republican members believe that boosting the economy would undermine their campaign message that the economy is in recession. Former President Trump, the current Republican candidate, has been one of the voices pushing for the Fed to stay put. In a February interview, he accused Powell of seeking rate cuts before the election "possibly to help certain people get elected."

However, some Republican politicians leave room for rate cuts, provided they believe it is justified. Representative Andy Barr said, "If a rate cut is reasonable, then it's fine."

Meanwhile, as Democrats and Republicans continue to debate whether the Fed is too politicized and whether September is the right time for a rate cut, Powell reminds everyone that the Fed has not made a final decision. Jerome Powell said: "I don't know what the data will show."