Inflation has cooled dramatically since the U.S. Federal Reserve began hiking interest rates in 2022, but the central bank announced Wednesday that it would keep rates pegged at a two-decade high for the 12th consecutive month, intensifying concerns that the chair of the powerful body is acting on political rather than economic reasoning.
The Revolving Door Project (RDP), an anti-corruption watchdog group, accused Federal Reserve Chair Jerome Powell of "trying to get Donald Trump elected," noting that the former president and 2024 GOP nominee warned Powell against cutting interest rates before the November contest—a message Republican lawmakers have echoed.
Trump originally nominated Powell to serve as the central bank chair, and President Joe Biden renominated him in 2021 despite significant pushback from progressives.
Jeff Hauser, RDP's executive director, said in a statement Wednesday that "while lower rates would provide much-needed economic relief to the American people, Powell has instead chosen to stick it to the people and give an electoral boost to Trump."
"That Powell's Fed still refuses to lower interest rates—after Trump said that rates shouldn't be lowered before the election—raises questions about the central bank's independence," said Hauser. "Whether the Fed keeps rates high or brings them down, one of two presidential candidates will benefit."
Following two days of meetings this week, the Federal Open Market Committee (FOMC)—the central bank's policy-setting group—issued a statement saying it "does not expect it will be appropriate to reduce" borrowing costs "until it has gained greater confidence that inflation is moving sustainably toward 2%"—the Fed's arbitrary inflation target.
Powell delivered the same message during a press conference Wednesday, saying that "we're not quite at the point" of cutting rates while leaving open the possibility of a reduction at the FOMC's September meeting.
Kenny Stancil, a senior researcher at RDP, said that "the FOMC's decision to maintain high interest rates despite all evidence showing the need for an immediate cut doesn't preserve the Fed's independence or make Powell apolitical; it makes him a shill for the Republican Party's anti-worker, pro-Wall Street priorities."
"Refusing to follow the economic data and succumbing to political threats would be a subversion of your mandate."
Progressive economists also voiced frustration with the Fed's reluctance to slash rates in the face of recent data showing that inflation is continuing to cool. In June, inflation fell faster than expected to 3% compared to a year earlier.
"Delaying rate cuts to September leaves the door open for an economic slowdown and more misery for hard-working families," Rakeen Mabud, chief economist at the Groundwork Collaborative, said Wednesday. "The Fed's sky-high interest rates are causing more economic pain than the inflation it's trying to combat."
While the overall economy has remained strong despite the Fed's insistence on keeping rates elevated, some recent data has experts concerned that high borrowing costs are taking a growing toll on the labor market.
"The labor market remains strong by historical standards," Elise Gould of the Economic Policy Institute wrote earlier this week in response to fresh jobs figures, "but the recent softening in hires and unemployment is concerning."
"High interest rates are stifling the economy—the Fed should lower rates to allow the labor market to continue toward full employment," Gould added.
Democratic lawmakers issued a similar call ahead of the FOMC's gathering this week, reiterating concerns that high interest rates are worsening the U.S. housing crisis, hindering wage growth, and threatening to push the nation's economy into recession.
In a letter to Powell on Tuesday, Sens. Elizabeth Warren (D-Mass.), John Hickenlooper (D-Colo.), and Sheldon Whitehouse (D-R.I.) wrote that "the economic data suggests that the federal funds rate should already be lower than it is now."
"A rate cut at your meeting this week would represent the polar opposite of a 'political' intervention," the Democratic senators wrote, pushing back against warnings from their Republican counterparts. "Indeed, given that the data appears to clearly justify cutting rates, the failure to do so would indicate that the Fed is giving in to bullying, and is putting political considerations ahead of its dual mandate to 'promote maximum employment and stable prices.'"
"One of the most widely-followed monetary policy guidelines suggests the rate should be cut by 150 basis points, to 4%, in July," the senators continued. "Refusing to follow the economic data and succumbing to political threats would be a subversion of your mandate. We urge you to make monetary policy in the interests of the American public, not a particular political party."
