Federal Reserve expected to cut rates, lift Joe Biden’s re-election prospects

The U.S. Federal Reserve's potential interest rate cuts could impact the economy and President Biden's re-election prospects.

The U.S. Federal Reserve looks on track to cut interest rates as the Presidential- campaign season heats up, potentially delivering President Joe Biden a boost as polls show Americans dislike his handling of the economy.

The Fed could play an outsized — and potentially uncomfortable — election-year role by helping shape attitudes about stubbornly high inflation and mounting housing costs that have been a drag on Mr. Biden’s re-election efforts. Rate cuts will also invite critics — Republican challenger Donald Trump chief among them — to argue an agency set up to be an independent monetary authority is tipping the political scales toward Mr. Biden.

Indeed, Mr. Trump isn’t even waiting for the first rate cut to happen before making that claim, telling Fox Business last month he expects Fed Chair Jerome Powell — whom Mr. Trump installed as central bank chief in 2018 and soured on soon afterwards — “to do something to probably help the Democrats ... if he lowers interest rates.”

Mr. Trump’s angst — and Mr. Biden’s likely optimism - over the matter is understandable given the hefty mindshare interest rates have come to claim among consumers fatigued and angered by enduring the steepest inflation since the Reagan administration.

“Rate cuts are massively popular with people. It will really help build confidence in the economy just as people are paying closer attention to the election,” said Celinda Lake, a top Biden pollster in his 2020 campaign who has recently done private polls on the Fed for a client. “People are really feeling like they are being gouged every way to Sunday.”

Americans in poll after poll rank the economy at or near the top of their most important election-year issues, and the outlook U.S. central bankers sketched at last week’s meeting is rather a rosy one for Mr. Biden. Officials’ projections suggest he will ride a growing economy, low unemployment, moderating inflation, and also cheaper credit into Election Day on November 5.

Investors now anticipate rate cuts at two of the four Fed meetings between now and then, in mid-June and again in mid-September, decisions that Mr. Biden could then point to as evidence the worst of inflation has passed and that could influence voter perceptions of the economy.