The Republican Party doesn’t have a clear path to victory anymore. And there is one thing that could make it lose.
With 3 months before a historic US election, the path to victory for Republican candidate Donald Trump looks more uncertain. Just a few weeks ago, it seemed like Trump had the election in the bag, but with President Joe Biden dropping out of the race, the Republican Party has to start from ground zero.
However, things may go from bad to worse for Donald Trump, as there is one element that could further boost Democrats to victory.
Yesterday, the US Federal Reserve met for its meeting on monetary policy. Although the committee left interest rates unchanged, Chairman Jerome Powell gave a strong case for a rate cut in September.
Interest rates on the US dollar reached their 23-year peak last July at 5.25%. Since then, the US Federal Reserve kept them stable as inflation slowly numbed down.
With a stronger-than-expected US economy, however, inflation remained sticky for the first half of 2024, hovering around 3% without dropping down. Inflation finally conceded defeat this summer, decreasing for the first time since the pandemic.
Conversely, the US economy showed small signs of malaise, which was not significant enough to cause a recession but sufficient to prove the Fed’s strategy right.
What happens if the Fed cuts interest rates
Yesterday, Powell confirmed that, if August inflation follows expectations, the Fed may finally cut interest rates in September. “A rate cut could be on the table in the September meeting,” Powell said, sending US markets on the rise.
A rate cut in September would mark a psychological victory against inflation, which has perturbed the US economy since 2021. Though inflation won’t likely hit the Fed’s target of 2% until 2025, a rate cut would show it’s on the right path.
Unfortunately for Donald Trump, a September cut would significantly increase the Democrats’ chances at reelection. It would signal that the Biden administration tamed inflation whilst keeping a strong economy, something US peers in Europe and Asia couldn’t do as successfully.
The Federal Reserve is an apolitical body, and Powell confirmed yesterday a September cut would not serve any party. It would mean it’s the right moment to bring interest rates down and nothing more.
But Donald Trump recognized the danger for his party in a September cut and threatened the Fed to postpone it until after the election. Even if that goes against US economic growth.
Trump promised his next administration would see low inflation and low interest rates. Some economists have pointed out that his policies would, in fact, bring inflation up again.
Jerome Powell’s job is on the line. If elected, Donald Trump could attempt to remove him as chairman. Presidents technically don’t have the power to fire the Fed’s chairman, although this assumption has never been tested in court.
