Kudlow: Fed Is Playing Politics With the Economy

Federal Reserve Chairman Jerome Powell is playing politics with the economy, says the former Director of the National Economics Council during Trump's presidency and long-time political and financial media commentator.

"Almost every new economic number coming out of Washington shows just how political the Fed decision was to launch their 50 basis point jumbo-sized rate reduction in mid-September," writes Larry Kudlow in the New York Sun.

That half percentage point cut in interest rates has pros and cons. On the one hand, the cut will likely stave off any recession that was headed our way. On the other hand, the cut could very well reignite inflation.

That might be what's in store for us because contrary to the Biden administration and many left-wing economists saying that inflation is under control, it's not. The recent CPI report shows that inflation is still 20% above the Fed's target of 2% inflation. And core inflation — with food and energy prices removed — is 65% above that 2% number.

"With an appropriate dialing back of policy restraint, there is good reason to think that the economy will get back to 2 percent inflation while maintaining a strong labor market," Powell said in an August speech at the Fed's annual retreat at Jackson Hole, Wyo. Many economists say that a cut of 25 basis points instead of 50 would have been far more prudent, given the inflation numbers.

All this invites the question: Why did the Fed launch its uber rate cute a little over 6 weeks before the election? That’s unheard of during a presidential cycle. 

The Fed was being political. No matter what side of the aisle you’re on, an objective look at the numbers shows the Fed was being political. 

That Fed head Jay Powell went out of his way at his last press conference to deny that the central bank would ever play politics — was, in fact, another clear proof point that the Fed was indeed playing politics.

Powell claims that the reason for the larger rate cut was a collapsing jobs market and confidence that the Fed would hit its 2% inflation target soon.

The labor market is holding up very well, but inflation remains "sticky."

Inflation is stickier, though, the Fed has not hit its 2 percent target, and the labor market is holding up very well — for whatever reason. 

So, Mr. Powell, in all of his wisdom, has done what the Fed is not supposed to do: interfere with the election. Trying to give the Kamala economy some last-minute juice. Literally, just before Election Day.

In the world of monetary politics, Mr. Powell has just dragged the central bank to a new low.

The Fed is as political an institution as any in Washington, although it pretends not to be. There was clearly some political calculus to this rate cut, at least in terms of the size of the cut. Powell had better hope his magnanimous gesture for Harris doesn't come back and bite him.