Politics Makes the Fed’s Job Trickier, but Doesn’t Drive Its Decisions

Federal Reserve officials are widely expected to embark upon a rate-cutting campaign in the coming months, bringing borrowing costs down from elevated levels as cooling inflation allows policymakers to stop squeezing the economy so much.

But they will most likely do that against a fraught political backdrop.

The Fed is expected to start cutting rates in mid-September, not long before voters in the United States head to the polls to elect a new president. Central bankers will meet about rates again on Nov. 6-7, just days after the election.

If they lower interest rates before the vote, there is a risk that Republicans will cast it as a politicized move meant to help Democrats: Lower borrowing costs can bolster the economy and markets. Former President Donald J. Trump, the Republican nominee, has already said the Fed should not be cutting rates leading up to November.

But central bankers have been clear that they plan to set interest rates with an eye on inflation and job market data, while trying to ignore the election entirely. Fed officials have been keeping interest rates high to bring inflation under control, and now that price increases have come down notably and the job market is cooling, they are slowly pivoting toward rate cuts to make sure they don’t slow the economy too much and cause a recession.

“Their actions are going to be guided by the right thing to do from the perspective of monetary policy,” said Karen Dynan, a professor at Harvard who was the chief economist at the Treasury Department during the Obama administration.

Incumbent politicians would generally prefer to have low interest rates, which can help the economy grow more strongly. President Biden has mostly avoided commenting on monetary policy out of respect for the Fed’s independence from the White House, and Jerome H. Powell, the Fed chair, recently said he had not met with the president in the past two years. But other prominent Democrats have been publicly urging Fed officials to cut rates.