Powell demands respect for the independence of the Federal Reserve in the middle of an election year

In the crossfire of political pressures, the president of the United States Federal Reserve, Jerome Powell, is being forced to emphasize the obvious: the independence of the central bank. It is a topic that he recently addressed at an event in San Francisco and on which he focused a good part of his speech this Wednesday at Stanford University. The turning point of monetary policy overlaps with the electoral year, which places the presidential elections on November 5. By demanding respect for his independence, Powell wants to make it clear that he will not be guided by political calculations when starting to lower interest rates.

“In the case of the Federal Reserve, independence is essential to our ability to serve citizens. “History shows that independent central banks produce better economic results,” Powell said. The president of the central bank recalled that to achieve the double objective of maximum employment and price stability, Congress granted the Federal Reserve a high degree of independence in the execution of monetary policy.

“Federal Reserve policymakers have long tenures that are out of sync with election cycles. Our decisions cannot be revoked by other levels of the Government, except through legislative means. This independence allows and forces us to make our monetary policy decisions without taking into account short-term political issues,” Powell stressed.

Democrats want Powell to lower rates as soon as possible, although the president, Joe Biden, has been exquisitely respectful of his independence. Opposite, Donald Trump has accused Powell without any basis of seeking Biden's re-election: “I think he is going to do something to probably help the Democrats, if he lowers interest rates,” Trump said in February, who has warned that, If he returns to the White House, his mandate will not be renewed. Powell took over as chairman of the Federal Reserve in 2018 after being appointed by Trump. Then, in 2022, under President Biden, he was sworn in for a second term, which expires in May 2026.

The president of the Federal Reserve admitted this Wednesday that independence is an exceptional concession and that, therefore, it needs to be earned day by day. “We do this by carrying out our work with technical competence and objectivity, in a transparent and responsible manner, and by sticking to our work,” said the president of the Federal Reserve, who has made it clear that he should not act on issues that could be relevant. for the economy, but that do not fall within its mandate, such as certain tax and spending policies, immigration policy, trade policy or climate policy.

No hurries

While doing his job, Powell has not added anything new to his message regarding recent interventions. “The task of sustainably reestablishing 2% inflation is not yet over,” he insisted, reiterating the message that the central bank does not believe it is appropriate to lower the official interest rate until it has greater confidence that inflation descends sustainably towards that goal.

“Given the strength of the economy and the progress made so far on inflation, we have time to let the data that comes in guide our decisions on economic policy,” said this Wednesday the president of the Federal Reserve, who on Friday He made it clear that there was no rush to lower rates. “If the economy generally develops as we expect, most participants in the FOMC [the committee in charge of monetary policy] think it is likely to be appropriate to start lowering the official interest rate at some point this year.”

In his speech, he noted that the latest data does not “substantially change the overall picture” and that, “as for inflation, it is too early to say whether the recent readings represent anything more than a simple rebound.”

Members of the Federal Reserve's open market committee expect interest rates to drop 0.75 points through the end of the year from the current 23-year high of 5.25%-5.5% to reach 4.625% (that is, in the 4.5%-4.75% range), according to forecasts updated two weeks ago. However, 9 of the 19 members of the committee expect a somewhat smaller reduction, so the three cuts that the market mostly expects are by no means guaranteed.

In fact, recent messages leave a movement for May 1 almost ruled out and the doubts are carried over to the last meeting of the spring, that of June 11 and 12, but without any certainty in this regard. The Federal Reserve chair has insisted again and again that it will depend on additional data. “Given the strength of the economy and the progress made so far on inflation, we have time to let emerging data guide our monetary policy decisions,” he said Wednesday.

Although Powell is under pressure in the polarized political environment of the United States, it is not unusual for the Federal Reserve to raise or lower rates during an election year if it sees it necessary. It lowered them in 2020 due to the pandemic and in 2008 due to the financial crisis. There were increases in 2000 and 2004 to stop the technology and real estate bubbles, respectively.

This Wednesday, he once again defended that the Federal Reserve will be guided strictly by economic criteria. “Internally, we have peace of mind in this because everyone who works at the Fed knows that we are going to do what we are going to do and we are going to do it for economic reasons,” he stressed in the questions after his initial intervention. “If you look at the modern historical record, you will see that the Fed has been willing to move or not move and do what it believes is right for the economy in the medium and long term without taking into account external considerations. It's important for people to know, which is why I mentioned it. I'm not worried that it's going to be a problem for us, because we're going to do what's right for the economy over time. My colleagues and I are very focused on that.

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