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Fed Rate Cut Delay Could Spell Trouble for Biden’s Reelection Hopes

Investors now think there’s a good chance interest rates won’t go down at all until after the November election, and that could cause some headaches for President Joe Biden’s reelection campaign. Just a few months back, investors were betting the Federal Reserve would slash interest rates up to six times in 2024, with the first cut possibly happening in March. However, now they believe the Fed will wait until at least November. 

 

There’s about a 52% chance that the Fed will keep rates the same in September and then cut them in November, conveniently right after the highly political presidential election. Some investors are even less optimistic, putting the odds at 1 in 4 that the Fed won’t lower rates at all this year. Last week, there was a 10% chance of no rate cuts, and a month ago, it was only 1% – showing how recent economic data are shaping perceptions.

For years, inflation has been too high, causing interest rates to now rise. In 2022, the inflation rate peaked at over 9% but has since dropped. However, it hasn’t fallen as much as experts hoped, lingering between 3% and 3.7% since June 2023, and hasn’t fallen into the 2%-3% range at all. This stubborn inflation is bad news for the economy and for President Biden’s image.

If interest rates stay high, it could have a big impact on the election. Republicans will use this as ammunition against Biden, blaming Democrats for the high inflation resulting from excessive government spending. On the other hand, Democrats say inflation comes from supply problems during the pandemic and corporations unfairly raising prices, shifting blame away from themselves.

Voters worry about the economy more than anything else, and high inflation hurts Biden’s popularity because it makes life more expensive for everyone. Interest rate cuts would help Biden by boosting the stock market and encouraging people to spend money, making loans cheaper.

Former President Donald Trump, who appointed the head of the Fed, has claimed he’ll reduce interest rates before the election, suggesting political motives. However, the Fed chairman has been taking a more cautious approach because inflation hasn’t slowed down as he expected. The Fed is meeting this week, and their decision is going to be closely watched by investors.

Written by Staff Reports

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