Rarely Breaking Political "Taboo": Federal Reserve Officials Admit to Being "A Little" Uneasy about Cutting Interest Rates Before the Election

Federal Reserve officials have always avoided discussing political topics and have long adhered to the central bank's independence from any political influence. However, this independence shield of "not caring about politics" was challenged this Friday by Chicago Fed President Austan Goolsbee. As is well known, the Federal Reserve has the dual mandate of full employment and price stability. During a media interview on Friday morning, August 9th, Goolsbee, who will have voting rights at the FOMC meetings of the Federal Reserve's monetary policy committee in 2025, was asked whether he felt uneasy about the timing of a potential rate cut by the Fed being very close to the U.S. presidential election. This is essentially a very common question, which is equivalent to the media asking: Will the Fed's monetary policy makers cut interest rates based on the "political" interests of the election year, weighing their interest-driven rate cut decisions. Ideally, as a Federal Reserve official who advocates central bank independence, Goolsbee should "correctly" answer this question very simply by saying "no." In other words, the Fed will not consider the election cycle but will make decisions based on data. Goolsbee's actual response, however, was not so straightforward and left some "gray areas." First, he admitted that the Fed's potential rate cut before the November election made him "a little" uneasy. Then he quickly added, saying that elections are held regularly. "So no matter what the Fed does, there will be people who say they don't like it. What we can do at the Fed is focus on what drives our decisions - the dual mandate, which is about how employment is doing, how inflation is doing." For Goolsbee's remarks, the financial blog Zerohedge commented that Goolsbee is not the first Fed official to break the taboo on political topics. Former "number three" at the Fed and New York Fed President from 2009 to 2018, William Dudley, publicly released a column in 2019 after leaving office, calling on the Fed to raise rates in the last few months of President Trump's term to disrupt his reelection chances. Coincidentally, the day before Goolsbee's speech, President Trump, who is running for reelection, once again targeted the Federal Reserve in a public speech, revealing his ambition to weaken the Fed's independence if reelected. Trump stated on Thursday that the U.S. president should have some say on interest rates and monetary policy, believing that "in many cases, my gut is better than Fed officials or their chair." Trump also criticized Fed Chair Powell for adjusting rates as "either a little too early or a little too late." Following this, Wall Street News mentioned that as the head of the Federal Reserve nominated during President Trump's term, Powell has repeatedly stated his commitment to defending the Fed's independence and promised not to let political pressure affect Fed decisions. During Trump's presidency, he publicly criticized the Fed's decisions multiple times, criticizing the Fed for raising interest rates which he believed harmed the U.S. economic growth. He claimed that the Fed maintained excessively high policy rates, putting the U.S. at a disadvantage economically compared to countries with lower rates, and even bluntly stated that Powell had "no feel for the economy". During this year's presidential campaign, Trump's attitude towards the Fed and Powell once again became a major focus. Last month, on the eve of the first presidential debate with Biden, Trump stated that if elected, he would allow Powell to complete his current term as Fed Chair until January 2028, and would not seek to remove him from his position before the end of his term, "especially if I think he's doing the right thing". Trump also mentioned that before the November U.S. presidential election, the Fed should avoid cutting interest rates. During his attendance at the National Association of Black Journalists annual conference last week, Trump stated that inflation and high interest rates are "destroying" America, and if elected, he would "substantially cut interest rates"