The US economy is doing well. Federal Reserve Chairman Jerome Powell made this clear on Wednesday after the last monetary policy meeting before the presidential election on November 5. The central bank lowered rates by half a point, an aggressive move to avoid an excessive weakening of the labor market, but the unemployment rate remains low (4.2%) and inflation has fallen sharply (2.5%). US President Joe Biden is no longer a candidate for re-election. Nevertheless, he gave a speech at the Economic Club of Washington on Thursday to boast about the economic situation and celebrate the Fed’s decision. Price increases from 2021 to 2023, however, continue to weigh heavily on citizens’ mood.
“Two and a half years after the Federal Reserve started raising interest rates, it announced that it is starting to lower them. I think that is good news for consumers, and that means that the cost of buying a house, a car and many other things will go down. And it is good news, in my opinion, for the economy in general,” said Biden in his speech, which became a review of his entire administration, including the promotion of laws such as those on infrastructure, investments in microprocessors or those promoting green energy.
The president recalled that he inherited an economy mired in the pandemic crisis. In fact, he stressed that Donald Trump is one of the two former presidents who left office with fewer jobs in the country than when he took office. Under Biden, the United States has broken records for job creation, but the figures are in both cases distorted by the pandemic, just as inflation was conditioned by it, by bottlenecks in the supply chain and by the war in Ukraine, mainly. Biden, in any case, also attacked his predecessor for his response to the health crisis: “His failure to manage the pandemic led to the deaths of hundreds of thousands of Americans,” he said.
Polls, however, consistently show citizens’ discontent with the economic situation. Inflation has come down, but prices have not. They remain much higher than when Biden was sworn in as president. “People are experiencing high prices instead of high inflation, and we understand that that is painful,” Powell said at Wednesday’s press conference.
Perhaps that is why Biden is not entirely convincing when he talks about the decline in inflation. “At its peak, as you all know, inflation was 9.1% in the United States. Today it is much closer to 2%. That does not mean that our work is done. Far from it, no one should confuse why I am here. I am not here to take a victory lap. I am not here to say: ‘A job well done.’ I am not here to say: ‘We don’t have much more work to do.’ We do have work to do,” said the president.
“Lowering interest rates is not a declaration of victory. It is a declaration of progress, to signal that we have entered a new phase of our economy and our recovery,” he argued.
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Powell’s independence
Biden defended the Fed’s independence, which could be threatened by Trump if he is elected to another term. Trump publicly pressured the central bank to lower rates during his presidency and has threatened to intervene more actively if he wins a second term. “It would do enormous damage to our economy if that independence is ever lost,” said Biden, who in his remarks wrongly claimed that he had never met with Powell while he was chairman.
Yes, he did, although the outcome of that meeting was impeccable: Biden acknowledged that the central bank plays a central role in fighting inflation. The president received Powell on the same day that he made clear the promise to respect his independence in a an article in The Wall Street Journal in which he wrote that the Federal Reserve has primary responsibility for controlling inflation: “My predecessor demoted the Fed, and previous presidents have sought to influence its decisions inappropriately during periods of high inflation. I will not do so,” he said then. He has kept his promise.
Trump was relatively restrained in his response to the Fed’s rate cut on Wednesday. The former president, who has a grudge against Powell for defending his independence, was not pleased that the Fed cut rates at the last meeting before the election. And that it did so with a message of economic optimism that any member of Kamala Harris’ campaign would subscribe to. He tried to ignore that positive message.
“I guess it shows that the economy is too bad to cut them that much, assuming they’re not just playing politics,” Trump said at a cryptocurrency-related event in New York. “Either the economy is too bad or they’re playing politics, one or the other. But it was a big cut,” he added, trying to turn the heat to his own advantage.
The vice president, however, welcomed the decision of the Federal Reserve. “While this announcement is welcome news for Americans who have borne the brunt of high prices, my focus is on the work ahead to continue to lower prices. I know they remain too high for many middle-class and working-class families, and my top priority as president will be to reduce the costs of everyday necessities like health care, housing, and groceries,” she said in a statement released by her campaign.
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