Think carefully, the answer is not as easy as it may seem. And despite soaring inflation, President Biden still predicts them by the end of the year.
The odds of rate cuts plunged yesterday on a hotter than expected CPI reading.
President Biden made a prediction that is not his to make because it puts political pressure on the Fed. He did so anyway.
Biden Predicts Fed Will Cut Rates
Bloomberg reports Biden Predicts Fed Will Cut Rates Despite High Inflation
President Joe Biden said he stands by his prediction that the Federal Reserve would cut interest rates by the end of the year, despite a new report showing stubbornly high inflation.
“Well, I do stand by my prediction that, before the year is out, there’ll be a rate cut,” Biden said Wednesday at a White House press conference alongside Japanese Prime Minister Fumio Kishida. Biden said Wednesday’s report could delay a rate cut by at least a month but was ultimately unsure how the central bank would act.
“Look we have dramatically reduced inflation from 9% down to close to 3% we’re in a situation where we’re better situated and we were we took office, where we inflation was skyrocketing,” Biden added.
By tradition, the White House typically does not comment on Federal Reserve decisions and the president has previously pledged to respect the bank’s independence.
Voters said their personal financial situation was better off under Trump by a 16-point margin in last month’s Bloomberg News/Morning Consult poll of swing states. More than a third of voters said the economy was the single most important issue to them, while less than a third said the economy was on the right track.
Question of the Day
If the Fed cuts interest rates, who benefits more?
I will post the answer below. But first let’s discuss WSJ the poll.
Why Inflation Is Biden’s Most Stubborn Political Problem
The Wall Street Journal explains Inflation Is Biden’s Most Stubborn Political Problem
Inflation has emerged as the most intractable domestic policy issue facing President Biden less than seven months before the election—but there isn’t a whole lot the White House can do to fix it.
The economy—particularly inflation—has long been Biden’s biggest weakness compared with his predecessor, whose presidency is remembered by many voters as a time of stable prices. The economy took a significant hit during the Covid-19 pandemic in 2020, but prices didn’t rise significantly until Biden’s first year in office.
In a Wall Street Journal poll of voters in seven swing states last month, 74% of respondents said inflation has moved in the wrong direction in the past year, despite inflation falling in that time, though to a rate that is still higher than before the pandemic. Lower inflation means that prices are still rising, just more slowly.
On Wednesday, Biden predicted that the Fed would cut rates before the end of the year, though he acknowledged that the recent inflation numbers could delay the effort. And he sought to shift blame to Republicans.
“We’re better-situated than we were when we took office, when inflation was skyrocketing, and we have a plan to deal with it,” Biden said during a press conference at the White House. “They have no plan. Our plan is one that I think is still sustainable.”
The Republican National Committee, for its part, said Wednesday that this week’s inflation numbers showed Biden was trying to “gaslight the American people” by claiming prices were under control, and that his economic policies were “a disaster for families across the country.”
In a survey of business and academic economists by the Journal conducted April 5-9, 49% of respondents said Biden will benefit more than other candidates if the Fed cuts rates before the election. Only 7% said Trump, while 44% said neither.
The Correct Answer
The correct answer as to who benefits more is unknowable as presented.
To understand why, ponder this question: Why would the Fed cut?
If it’s because the unemployment is surging and the Fed is more concerned about that portion of its dual mandate than inflation, Trump would be the beneficiary.
If the Fed cuts because the rate of increase in inflation suddenly dives, that would benefit Biden.
Most have already decided, but some 10-15 percent haven’t. How the undecideds break could matter, and that will depend “why” the Fed would be cutting.
Real Hourly Earnings
President Biden said “We’re better-situated than we were when we took office, when inflation was skyrocketing, and we have a plan to deal with it.”
On average the first half of Biden’s sentence is true. But the second half is a joke.
The problem for Biden is averages will not win the election.
Wait a second you say, the chart shows the average person is worse off than four years ago because real (inflation-adjusted) wages are lower.
That’s true, but the average person owns a home. The percentage of renters, is about 36 percent. And they have been clobbered.
Please note The CPI Rose Sharply in March Led by Shelter and Gasoline
Rent is up another 0.4 percent in March with gasoline up 1.7 percent. Together, the pair was about half of the total rise.
Are You Better Off Now Than Four Years Ago?
For discussion, please see Fact Check: Are You Better Off Now Than Four Years Ago?
Private workers make 7 cents more per hour than a year ago, but 61 cents less per hour than four years ago.
Production and nonsupervisory workers make 7 cents more per hour than a year ago, but 37 cents less per hour than four years ago.
From an hourly earnings standpoint the average person is worse off than four years ago and they know it, even if clueless economists don’t.
But asset holders are much better off financially as the stock market and home prices have soared.
Do You Own a House?
Things change greatly if you own a house or invested in the stock market or land.
Home Prices Hit New Record High
I discussed home prices on March 29, in Case-Shiller National Home Price Index Hits New Record High
The Case-Shiller national home price Index was 338.4 in March of 2020. As of January 2024 (the latest data), it is 493.0.
That’s an increase of 45.7 percent in just under for years. And you were able to refinance at or under 3.0 percent too.
Refinancing put extra money in your pocket every month since. That supports consumption and inflation.
Add it all up and the “average” person is ahead. But the average renter isn’t.
If Biden Loses the Election, What Will Be the Top Reason?
I discussed the economic aspects in If Biden Loses the Election, What Will Be the Top Reason?
I keep returning to the idea that the economy, specifically housing, will determine the election.
Blacks and those under the age of 35 have been priced out of buying a home. They may vote for Biden anyway, but not in the same percentages as in 2020.
When I made that statement the other day, someone accused me of racism. What a hoot. Here’s the deal according to the National Association of Realtors.
While the U.S. homeownership rate increased to 65.5% in 2021, the rate among Black Americans lags significantly (44%), has only increased 0.4% in the last 10 years and is nearly 29 percentage points less than White Americans (72.7%), representing the largest Black-White homeownership rate gap in a decade.
People are upset about immigration nationally, but this is not an national election. What are voters in Pennsylvania, Wisconsin, Michigan, Nevada, North Carolina, and Arizona most concerned about?
In those states, Immigration is only a big issue in Arizona.
For all the talk and anger over immigration, and it’s justified, immigration will not seal Biden’s fate. The surging price of rent will.
Trump Ahead in Swing States
For discussion of a recent WSJ poll, please see Trump Leads Biden in 6 of 7 Swings States, Pennsylvania is Key
There has not been a single poll suggesting housing specifically.
But call it housing, the economy, or inflation, it all boils sown to the same thing: The economy, in some sense (inflation, real wages, or housing), will decide the outcome, not immigration.
You might be better off than four years ago, and if you own a house you probably are (and then probably view immigration as the top issue).
But it’s the economy that will decide the election in the states that matter.
So who will rate cuts help? Tell me why the Fed would cut and I’ll answer.
Bur another Fed cut was priced out in response to hot CPI data.
We are close to the point of no return. The Fed will not want to face charges of election interference, and the market went from pricing in 6+ rate cuts to 1+ by December.
As discussed in Fed Interest Rate Cut Odds Decline Due to Hot CPI Data no rate cuts are priced in through September, and there is no meeting in October.
Re your being against supporting the Ukranians…While we have admitted debt and interest coverage rate problems, we still should support with money/weapons the Ukrainian resistance against the Russian invasion.
This situation involves the armed incursion of a soverign nation by our age old adversary, Russia, now being run by a man with a Stasi/KGB heritage. Putin has been shown to be a tyrant of the worst order.
We’d not be commiting US soldiers here, but only weapons and money. This is unlike situations whereby our troop involvements in Vietnam, Afghanistan, the second war involving Iraq (the WOM phase against Hussein), and Syria incurred hundreds of thousands of American soldier wounded and fatalities.
I’ve spent much of my life, or over 30 years, in active/reserve US Army service. The main thrust of this time was directed in a cold war situation against the Soviet Union/Warsaw Pact – which Gorbachev eventually dismantled due to the excessive economic/control burden.
Now we have an attempted return to the Soviet days of old.
While some may postulate that the Ukraine will lose out in this war of attrition, this postulation is by no means certain.
Recently the premier of Japan spoke before Congress, asking for our support of the Ukraine resistance. Japan, itself – what with the China and N. Korean threats – has sent over $3B to the Ukranians.
Politically, the US must “show its stripes” in supporting its allies and preserving moral uprightness in the world. We are the prominant nation in the world to do so. While the US itself has had several historical instances of mal-involvement in civil war situations, such is not the situation here.
We were fast enough to wrest Hussein’s invasion/occupation of the soverign country of Kuwait – via the success “Desert Storm” campaign.
Alas, we are in a Congressional/political standoff whereby we have to trade off a Ukranian $60B aid package relative to the refugee/Mexican border circumstance.
– – – – – – – –
The Fed can’t cut rates and retain credibility when inflation is spiking by all measures (oil prices, food prices, healthcare costs, education costs, transportation costs).
CPI doesn’t matter, its a made up index about as reliable as network news, but even that says we have a problem.
There is historically a six month delay between a central bank action and effect on the economy; but that assumes the central bank is considered credible (which is not a given for any G7 central bank right now). If a politician (doesn’t matter who or which party) starts meddling, it will make the situation worse.
Central planners are always a bad idea, and central banks are no exception
Trump benefits…
…because Trump benefits from EVERYTHING the establishment tries (but backfires).
You do see the infallible pattern, yes?
“The Fed will not want to face charges of election interference”
All pretenses have been dropped, so this is not the situation. The fed has already interfered. Rates are lower than they would be at the behest of the Biden regime.
Seems like a catch 22 if unemployment rises and the fed lowers rates. The unemployed are the least able to handle the increase in prices from the resulting inflation. Seems the fed has painted its self into a corner.
The Fed follows the bond markets. When bond yields fall, rates are cut. Nothing to do with “inflation”, because there isn’t any. Price rises in a contracting economy can’t be due to inflation, they are to do with real and artificial scarcity created by governments policy.
The FED cuts rates when the economy goes off the rails so it’s hard to say how this will affect the election I think it is bad already, and will only get worse the longer the FED delays. So I say “Out with the pumpet and in with the businessman”
Elliott Wave has pointed out the stock market is good predictor of a party being re-elected. Biden has the statistical advantage based on the stock market, even though he polls slightly behind Trump.
You can’t use words like “statistical” when “N” = 46 and “n” is probably 5 or at most 10.
Nothing is more likely to bring out the nutters than a thread about Fed policy in an election year. LOL
It won’t matter if they cut interest rates. Lower interest rates won’t reduce the price of food, gas, rent, medical insurance, homeowners insurance, auto insurance, utilities, gas and services.
Trump belittles Powell and will try to remove him while Powell surely dislikes Trump for that and more professional reasons.
Therefore, Powell will reduce interest rates to defeat Trump?
Far from implausible. Of course, Powell would deny any such insinuation. Plausible to me.
Is anyone here interested in a tax-free guaranteed return of 8% between now and July 14, 2024? Buy yourself a sh!tload of forever stamps. The post office is raising prices from current $0.66 to $0.73 each in July. This represents the second price increase THIS YEAR so far. Of course, this action will trickle down to shipping packages, too. Guess they didn’t get the memo that inflation is only running 3%?
Mike Johnson = Dennis Hastert
There won’t be a cut the way energy prices are going. That gets imputed into everything.
If they cut rates symbolically, as there is no valid reason to do so now, it will reignite inflation. Massive deficit spending into a strong economy, labor shortage along with elevated wage hikes, commodity inflation etc, all will keep perpetuting inflation. If the inflation numbers that the economic politburo publishes allow them to have the excuse to cut it will be a smoke an mirrors illusion. The only reason for cutting is to please their money masters, the banks and the govt itself from going into a debt death spiral due to interest rate servicing costs. True inflation is much higher than the politburo publishes. Eg. home prices not included in cpi and it even deletes the increased cost of consumer debt services due to doubling or more of their interest rate expense. Eg, home prices are higher but the mortgate payments much higher due to the mortage interest rate being about double, 3.5% vs7%. This stuff used to be in the “old” cpi. This will lead to more discontent in the bottom half of the economic ladder even though they are being told things are great. All part of the fourth turning. The storm clouds are gathering and neither party is capable or having the balls to fix things.
Also, another nail in the coffin is the permanent loss of purchasing power that inflation has produced. Even if inflation goes to 0 the purchasing power lost will not be recovered.
Outside of a dire emergency, FED interest rate changes should not occur during a Presidential election year. There is too much risk of influencing the election one way or the other.
I think you can cut early (Jan-Mar) or after (Nov-Dec) and not influence the election.
Soaring inflation is locked in regardless of interest rates or even crushing depression due to endless fed panic ‘printing’.
Libtards and their masters generally prefer inflation and believe lower rates are good for that and warding off the big “R’, recession that could annoy their bloated masters.
Folks who still care about the inflationary depression and social collapse don’t care about interest rates and will not support dem wokery anywhere.
There is no real inflation. Price rises are not inflation.
Just my opinion, but I think most made up their minds months ago if it turns out to be a Biden vs. Trump election. Rate cuts might swing a few people in the investment community (I doubt it) or those seeking mortgages. The student loan forgiveness stunt is pandering to obtain any votes where possible. I think the Biden handlers are reading the polls and are afraid the way things are currently going from their point of view.
Rate cuts or not, Trump will have his hands full come January. He will have to put an end to inflation, debt, illegal immigration and war. I cannot think of another president who has left as big a mess as Joe Biden.
Abraham Lincoln.
Yeah, because Trump was so tough on debt and inflation during his first term. Unecessary corporate tax cuts, adding $8 trillion to the national debt in four years, and browbeating Powell into cutting rates on Twitter. Don’t get me wrong, I despise Biden, but Trump is only very slightly less foul. Oh yeah, if Trump would have been serious about keeping his promise to voters on immigration, we would’ve had a wall and he probably would’ve won the 2024 election, preventing Biden from happening.
I can’t wait to see Trump 2.0
Lame duck who won’t give a…
I wish all of our politicians were lame ducks…1 term and you are done. Most of the politicians in DC probably can’t find their home state.
Don’t forget the Coronavirus Aid, Relief and Economic Security Act (CARES). Yeah, Congress passed it, but Trump could have vetoed it or lobbied against the money from heaven stimunculus.
All tax cuts are necessary, just like wiping your ass. Unless of course you like diaper rash.
All socialists live with diaper rash
All those problems started under Trump. It wasn’t Biden who gave out Covid money to the masses to cause the inflation we are now seeing. Aside from the immigration issue, domestically Biden has effectively been continuance of the Trump admin on most fronts (trade, manufacturing etc). Oil companies everywhere are clearly on Republican side so they are causing the inflation deliberately.
Covid was a black swan. No President regardless of party would’ve vetoed those bills.They also weren’t the root cause of the perpetual runaway inflation we have today. Biden owns that.
Are you nuts?
The third and by far biggest fiscal stimulus was under Biden. It was totally unwarranted along with rent moratoriums in defiance of the Supreme court and various student loan abatement plans.
All highly inflationary.
EV mandates and Green Energy too.
There is no real inflation. Price rises are not inflation.
Possibly, Jimmy Carter
Also, don’t discount that a rate cut might just take equities the opposite direction. Michael Hartnett has a sell on the first cut. Because then its back to the economy stupid. And the air in this balloon is getting rarefied.
If you’re referring to the first rate cut being a “sell the news” event, know that doesn’t exist anymore. Now it’s buy the rumor of rate cuts (like almost every single day, rally mode on rate cuts) AND buy the news when it actually happens. That’s the new process.
Might also take home prices higher as a lower mortgage rate could result in pent up demand outstripping supply.
Absolutely agree. If home prices held up as well as they have in the face of mortgage rates doubling, imagine what’ll happen when rates fall? That’s not to mention the 5,000 “newcomers” per day that will need housing, too. If you haven’t already, buy a home now or be priced out forvever!
Well, it didn’t take long for the rate cut reassurances to come out of the woodwork. Besides crypt-keeper Biden yesterday, Fed officals John Williams and Susan Collins jawboning about cutting rates today and SPX is already green. I hope you doom and gloomers bought yesterday’s dip. Choo choo!
Butter and jam for Uncle Joe, because he is toast. Rate cut or no, the geopolitical environment is fraught and the Admin has already lost major credibility across wide swathes of its base. Buh bye, don’t let the door hit you on the way out!
Yeah, The Angry Orange Mussolini Wannabe’s chances are plummeting faster than his bogus Stock Price. Makes NO Money and everyone watching this orange turd of a Stock crashing in Real Time. This is clearly the fastest he’s ever lost multiple $ Billions of Dollars this quickly.
And with this Valuation crash, so goes his ability to pay off the Court losses and legal fees!
Yeah, Biden is going to win (fortunately or unfortunately) because Angry Orange is going to be broke and on trial.
I agree that most have already decided, but some 10-15 percent haven’t.
How the undecideds break could matter, and that will depend “why” the Fed would be cutting. If recession, there could be a landslide. Adding to my post.
Nobody is undecided on Biden v Trump. We all know which candidate we would vote harder against.
The decision is whether to vote, and more anti-Trump voters are still deciding whether to bother in November. The anti-Biden voters will show up in mass.
The Fed will cut to protect the economy and incumbents. The Fed is a political organization that operates for the benefit of its’ owners (Biggest banks). They have a bias towards the status quo and not upsetting this. That means big government and the uni-party. The last thing that they want is change.
Why does the economy need a rate cut though? Supposedly it’s trudging along just fine (no recession) where we are now all of which proves we could probably have been at these rates years ago.
If anything, a rate hike is in order. Rates were far too low for too long and we ended up with a housing bubble (along with other asset bubbles). Higher rates would gradually deflate that bubble which is good for younger buyers (and voters). At this point deflating the housing bubble should be a bigger priority than the economy which isn’t suffering.
The Fed isn’t going to cut rates because the economy needs it. They will cut rates to sell the “we have beat inflation” narrative. That helps all of those in power. For the Fed, best with Biden in WH and a split congress – next time Dem House and GOP Senate. Status quo.
I don’t know anyone who looks at interest rates as the deciding factor of whether inflation has been beaten or not.
The just look at what their day to day items cost compared to 6 months or a year ago. Literally no one needs the government to tell them when inflation has been beaten. You just instinctively know it, the same way you know whether you are in love or not.
I posted on X that inflation was not subdued and had may people telling me how it was under control, rates were going down and by May we would be significantly under 2%. They were reciting the narrative that they had been fed. More people than we would hope don’t actually think for themselves and can accept a premise that doesn’t fit with the reality they live.
Price rises are not inflation.
The bond markets decide what happens to interest rates, not the central banks.
China is tanking, that affects the USA.
The US is in a very long yield curve inversion period, with no sign of it ending soon, this is a huge warning sign.
The melt up you see is partly due to policy decisions like unprecedented illegal immigration, but similar to 1928.
A valid question on many levels.
To reverse is also valid: does the FED have a preferred candidate, and will try to help out? It’s a foregone conclusion that the establishment doesn’t like Trump for good reasons, but could hold their collective nose at Biden’s failures (and stumbles and falls).
The question is equally relevant outside US, as the central banking cabal moves like a herd.
I’m with Brian. I think it’s a net neutral as to whom it benefits. I suspect too that the conversation could go the other way: another rate hike!
One observation: there are beneficiaries to higher interests rates and the beneficiaries accrue to a large segment of voters : elderly and retirees. Yes, those on fixed incomes confront a lot of headwinds. But cash actually gets you a reasonable return as do annuities. Not suggesting this is 100% of how you should invest your dollars but just noting that higher interest rates has benefits. Credit card rates were sky high even before the run up in rates. So assuming no mortgage or a low interest mortgage, higher interests rates is a big meh and/or more monthly income.
Rates wont be cut until Biden or Trump are in office in 2025. Biden has no reason to cut CD interest to older voters (nor does he care about inflation as long as he has a second term for history), and Trump has been ok with 0% free money for buying up America from the beginning.
Probably neither. Most people have already made up their mind. People that haven’t typically have their minds made up by early/mid summer. Fed’s unlikely to move in time to have a material affect on opinions.
I agree, a 25bp rate cut will have effectively zero impact on any voter’s direct life, and if it gooses asset prices, it is a positive for only a small percentage of the electorate.
Nah, decrease in Credit Card Rates helps a LOT of the electorate. Don’t have to have a mortgage to have debt.
Problem is credit card rate don’t really move in unison to the interest rate the way mortgages do. Most are set in the 20% range and going from 20 to 19.75 or 20 to 20.25 just doesn’t make enough difference to matter. Plus credit card rates change much more slowly than mortgage rates do.
The first rate cut will signal that the economy is starting to tank, and that layoffs are coming soon, changing the mood.
Nah, As Angry Orange Man keeps losing in court, it gives more plausible reasons for Republicans and Moderates to either NOT vote for him or for Moderate to actually vote for Biden. It’s at this time that the Republicans realize ANYONE else that isn’t an obvious crooked person could win this election easily. Unfortunately nobody in that party has the cohones to to tell off the latest failing Social Media “mogul” as his website value crashes below the opening price.
The Trump Witch Trials only help him. Average people can see what they’re doing to him is purely political persecution.
Would you like to point out where he is losing in court, MINUS the courts that found him GUILTY before trial?
severe TDS & very heavy delusion.
yikes.