Fed's Powell signals inflation fight is nearly over, in boon to Harris

Federal Reserve Chair Jerome Powell on Wednesday said the central bank might cut interest rates as soon as September, signaling the fight against elevated inflation is close to over.

That timing would be especially fortunate for Vice President Kamala Harris.

The Biden administration has struggled to convince voters that the economy is doing well, despite low unemployment and rising pay. That's largely because Republicans have hammered the Democrats over consumer prices, which are up roughly 20 percent since President Joe Biden took office, outpacing wages.

Now, with the prospect of a rate cut in the coming months, Harris and Democrats can at least argue that the economy is finally turning the corner on inflation.

“Lower interest rates will be doubly positive news to consumers,” said Ernie Tedeschi, a former Biden White House official. “They’re welcome news in their own right, but lower rates will also punctuate the better inflation data throughout the economy.”

“That’s the same victory over inflation that Democrats will also be touting,” added Tedeschi, now director of economics at Yale Budget Lab.

The Fed’s preferred measure of inflation has fallen within striking distance of the central bank's 2 percent target, while the job market has stayed relatively strong. That’s giving Powell more confidence that he can ease off the economy after holding borrowing costs at high levels for the past year.

Powell said at a press conference on Wednesday that policymakers have made no firm decision on what they will do when they meet next on Sept. 17-18. But he said if economic indicators stay on a similar path, a rate cut is "on the table."

The statement merely ratified widespread expectations among investors heading into the Fed announcement, but his words will buoy markets and businesses that have been hoping for a reprieve from higher borrowing costs in the coming months. Stocks jumped after Powell's press conference.

Optically, a September rate cut would be awkward for Powell, however, as it would come less than two months before the presidential election.

Both former President Donald Trump and congressional Republicans have warned the central bank against taking any action before the election, saying that would suggest political interference.

But Powell reiterated that the central bank takes only economic factors into account in its decisions — not political ones.

“Congress has ordered us to conduct our business in a non-political way at all times, not just some of the time,” he told reporters. “We never use our tools to support or oppose a political party, a politician, or any political outcome. The bottom line is, if we do our very best to do our part and we stick to our part, that will benefit all Americans.”