The Federal Reserve's decision to cut benchmark interest rate by 50 bps has prompted quick, political reactions ahead of the US Presidential election, with Joe Biden claiming victory in lowering inflation as well as creating jobs.
"Inflation and interest rates are falling while the economy remains strong. The critics said it couldn’t happen – but our policies are lowering costs and creating jobs," said Biden.
Republican nominee Donald Trump has alluded to a possible political motivation behind the decision, calling it a 'very unusual number'.
"I guess it shows the economy is very bad, to cut it by that much, assuming they’re not just playing politics," said Trump, adding that the economy "would be very bad, or they’re playing politics, one or the other, but it was a big cut."
Democrat nominee Kamala Harris said the 50 bps rate cut was a "welcome news for Americans who have borne the brunt of high prices." Harris has been pitching lower prices as one of her key election agenda in recent speeches. "My top priority as President will be to lower the costs of everyday needs like health care, housing, and groceries," she added.
Harris gunned for Trump's policies that have proposed tax cuts for billionaires and big corporations. "Trump's plan would increase costs on families by nearly $4,000 a year by slapping a Trump Tax on goods families rely on, like gas, food and clothing", she added.
The US Fed has traditionally not lowered interest rates so close to a US election, except during the 2008 financial crisis. Hedge fund billionaire John Paulson questioned the motivation behind the decision, adding that Fed should have 'stayed out of presidential politics.'
Paulson's statement said, “This decision begs the question if the timing was intended to boost Vice President Harris’ campaign. The Fed claims to be above politics, but the timing of today’s actions today cast doubt on its claims.”
The rate cut is definitely expected to help home buyers as interest rates on mortgage are poised to drop, so will borrowing for personal loans.
Read More: Indian markets may react to Fed rate cut with caution
The US stock market meanwhile settled in the red, with Dow falling 0.25% as it digested the rate decision. The likely sell on news may have been precipitated by the fact that Fed officials had been sending out feelers of a rate cut in recent speeches, and a section of the market had factored in a 50 bps rate cut. With talk of a 100 bps rate cut by the end of the year already in the investing circles, this move may frontload further US Fed action for the rest of 2024.
With just a month and a half to go for the US election, it remains to be seen how this decision influences voters on both sides of the fence.
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