Fed's Rate-Cut Favors Candidate Harris but May Pose Challenges for President Harris (Or Trump)

The Federal Reserve's first interest rate cut since March 2020 has been welcomed by many investors, businesses, and consumers. The 50 basis points reduction was larger than expected and was followed by hints of more rate cuts in the future.

Impact of Rate Cut on the Economy and Presidential Race

The decrease in borrowing costs resulting from the Fed's rate reduction could boost optimism about the overall economy and individual financial situations. This surge in consumer sentiment could benefit Democratic presidential nominee Vice President Kamala Harris, who has been trailing behind Republican nominee former President Donald Trump regarding economic issues. Before the rate cut, President Trump and his supporters suggested that the cut would serve as a "September surprise" intended to favor Vice President Harris. This allegation was dismissed by mainstream media as an unfounded conspiracy theory. However, those familiar with the Federal Reserve's history of adjusting monetary policy for political purposes might find it plausible that the Fed would lower interest rates to support its preferred candidate.

The Federal Reserve's Incentive

Federal Reserve Chairman Jerome Powell has a reason to prevent Trump's return to the Oval Office. During his presidency, Trump frequently criticized Powell for not reducing the already historically low interest rates further. Trump has also suggested that, if re-elected, he would urge Congress to allow the president to directly influence monetary policy. On the other hand, Vice President Harris has pledged not to interfere with the Fed's monetary policy conduct. It's not hard to see why Powell and his Fed colleagues might favor Harris.

Concerns about Inflation and Unemployment

Despite the Fed's claims of having conquered price inflation, anyone who has visited a grocery store knows otherwise. Even official government data reveals a weakness in the labor market. The Fed's rate cut is likely more related to worries about rising unemployment than its assertion that inflation will soon hit the Fed's two percent target. The Fed is in a difficult position. If it doesn't lower rates, there's a risk that unemployment will rise as the economy slips into a recession. Conversely, maintaining low rates could lead to hyperinflation and a collapse of the dollar's value. The most probable outcome is a return of stagflation, where high unemployment coexists with rampant price inflation.

Pressure on the Federal Reserve

This year, interest payments on the national debt will surpass one trillion dollars, adding more pressure on the Federal Reserve to monetize the debt and create more inflation. The Fed's interest rate reduction may have boosted Kamala Harris's chances of winning the presidency. However, it also increases the likelihood that the next president will face a significant economic crisis. This crisis could either be caused by or result in a rejection of the dollar's world reserve currency status.

Recommendations for Politicians

The best course of action for politicians during this crisis is to resist the urge to stimulate the economy. Instead, they should allow the recession to take its course and start dismantling the welfare-warfare state and the fiat money system.

Bottom Line

The Federal Reserve's rate cut may be a double-edged sword. While it could potentially boost the chances of Vice President Kamala Harris in the presidential race, it also raises the risk of a significant economic crisis for the next president. The question remains: Is this a calculated risk worth taking? What are your thoughts on this matter? Share this article with your friends and let's get the conversation started. Don't forget to sign up for the Daily Briefing, which is available every day at 6pm.