The political battle over the Federal Reserve’s interest rate policy has intensified, with Kevin Hassett, a potential nominee for the central bank under President Donald Trump, defending the recent rate cut despite the president’s criticism.
Hassett, a former Trump economic advisor, justified the half-point rate reduction citing a weakening jobs market, according to a Friday report by the Financial Times. In an interview with the FT’s Unhedged newsletter, Hassett stated, “The latest move to start reducing rates is something that made a great deal of sense based on the data that they had at the time.”
This stance stands in stark contrast to Trump’s comments at the Detroit Economic Club, where he labeled the rate cut as a political maneuver aimed at benefiting his Democratic opponent, Kamala Harris. Despite agreeing with Trump that the Fed has acted politically in the past, Hassett dismissed concerns about undermining the Fed’s independence if Trump returns to power. He emphasized that Trump supports central bank independence but wants his voice heard.
The Fed, which plans smaller rate cuts in the coming months, has consistently denied setting monetary policy based on political considerations. However, the recent rate cut has sparked significant market reactions and amplified concerns about the Fed’s independence.
Hassett, currently at Stanford’s Hoover Institution, remains a key figure in Trump’s circle and could lead the Fed if Trump wins the upcoming election. This prospect has raised questions about the potential for political interference in the Fed’s decision-making process.
The Fed’s decision to cut interest rates by 0.5% marked the first rate cut since March 2020, bringing the target fed funds rate to a range between 4.75% and 5%. This move has led to a surge in the S&P 500 and gold prices, while small-cap stocks have also rallied.
The political debate surrounding the Fed’s interest rate policy is likely to continue as the US election approaches. The potential for political influence on monetary policy remains a major concern, especially given the close connection between the Fed and the White House.