WASHINGTON — The Federal Reserve’s decision Wednesday on whether to raise rates at a critical juncture carries risks not only for the central bank but also for President Biden.
Mr. Biden has already relied on the central bank to maintain a delicate balance with its interest rate decisions while curbing rapid price growth while avoiding tipping the economy into recession. Now, he has Federal Reserve Chairman Jerome H. Powell and his colleagues are also required.
Economists and investors are closely watching Wednesday’s decision after the central bank and the administration intervened this month to shore up a shaky regional banking system following the failures of Silicon Valley Bank and Signature Bank. Mr. Administration officials who publicly express support for Powell have also, at times, clashed privately with Fed officials over bank regulation and supervision amid their joint financial rescue efforts.
Forecasters generally expect central bank officials to continue their months of rate hikes, which are too high for the central bank’s discretion in an effort to cool inflation. But policymakers expect to raise rates by only a quarter of a percentage point, above 4.75 percent — a smaller move than what markets were pricing in before the banking troubles began.
Some economists and former central bank officials have criticized Mr. Powell and his colleagues have urged continued rate hikes to project confidence in the system. Others have called on the central bank to pause its efforts, at least temporarily, to avoid further losses for financial institutions holding large amounts of government bonds and other devalued assets amid last year’s rapid rate hikes.
Hung Tran, a former deputy director of the International Monetary Fund who is now at the Atlantic Council’s Geoeconomics Center, wrote in a blog post this week.
“Disappointing market expectations could lead to additional selling in financial markets, particularly bank stocks and bonds, and further bailouts,” he wrote. “On the other hand, the central bank needs to communicate its intention to bring inflation back to its target – which is difficult but not impossible.”
Mr. Trump said the central bank could engineer a so-called soft landing by raising interest rates, slowing the pace of job creation and reducing inflation but pushing the economy into recession. Biden has been expressing his hopes for nearly a year. This will complement the President’s frequent calls for “steady and sustainable growth”.
Mr. This will help Biden as he prepares for his widely expected announcement that he will seek re-election: History suggests the president will be buoyed by an economy with low unemployment and historically normal inflation in 2024.
Earlier in the year, data suggested a soft landing might be in the works. But prices have risen again in recent months. Last year Mr. The economy is creating jobs much faster than Biden claimed. Prior to the banking crisis, central bank officials were maintaining a more aggressive inflation-fighting stance.
The central bank may raise rates by up to half a percentage point at its two-day meeting ending on Wednesday, Mr. Powell made the suggestion in congressional testimony this month. A few days later, Silicon Valley Bank failed, followed by Signature Bank. The central bank, the Treasury Department and the Federal Deposit Insurance Corporation announced emergency measures to ensure banks have access to all their depositors’ money, and other regional banks can borrow from the central bank to prevent a rapid flight of perishable deposits. Silicon Valley Bank.
If more bank failures or other events threaten a full-scale financial crisis, Mr. Biden will need more cooperation from central bank officials. Republicans control the House and are unwilling to sign off on a major government bailout of the financial system, like the bipartisan bank bailouts during the 2008 financial crisis.
said Harvard economist Jason Furman, who led the White House’s group of economic advisers under President Barack Obama. “We’re going to see the only game in town when it comes to financial stability is the White House and the Fed.”
Since the failure of Silicon Valley Bank, the executives Mr. Karine Jean-Pierre, the White House press secretary, told reporters this week that Mr. He said Powell’s job as Fed chairman was in no danger because of his handling of financial controls.
“The president has confidence in Jerome Powell,” he said.
Ms. Jean-Pierre also emphasized the administration’s long-standing refusal to comment on the central bank’s interest rate decisions. “They’re independent,” he said, adding: “They’re going to make their decision — their monetary policy decision, which has to do with interest rates, dealing with inflation, and the two are clearly linked. But I’m not going to — we’re not going to comment on that from here.”
What interest rate announcement on Wednesday afternoon Mr. There is wide debate over whether Biden should listen.
Some economists and commentators have pushed the central bank to hold off on raising interest rates altogether, arguing that another increase would risk further straining the banking system — and consumer confidence.
Liberal senators Elizabeth Warren, D-Mass., and progressive groups in Washington have been pushing the same for months, but for a different reason. They argue that continued rate hikes could stifle economic growth and put millions of Americans out of work, and that the real drivers of inflation are corporate profits and supply chains, not controlled by high borrowing costs.
“I don’t think the Fed should be touching interest rate hikes with a 15-foot pole,” said Rakeen Maput, chief economist at the Groundwork Collaborative, a liberal policy group in Washington.
“Bending our labor market is not the way to a healthy economy, nor is it the way to stable prices,” Ms Maput said. “We have an additional imperative this month, which is aggressive interest rate hikes that have created some of the instability we’re seeing in the financial system.”
Other economists, including some Democrats, have urged the central bank to raise rates more quickly to beat inflation sooner.
“The whole reason we have independent central bankers is that they think about things on a longer-term horizon than a typical White House can,” Mr. Furman said. “So I think the Fed, even if it did anything to hurt Biden, it raised rates very slowly.”