After slashing interest rates just weeks out from the November presidential election, the Federal Reserve is now leaving an inflationary “ticking time bomb” for the incoming Trump administration to defuse.
Price increases accelerated in October and November following the Fed’s decision to reduce interest rates by 0.50% on Sep. 18. Following the two consecutive months of hot inflation data, it appears the Biden-Harris administration is leaving President-elect Donald Trump with an “inflation mess,” and that the September rate cut was nothing more than an act of “election interference” intended to boost Vice President Kamala Harris’ November chances, experts told the Daily Caller News Foundation.
“The Fed engaged in election interference by cutting rates right before the election with no empirical justification for doing so,” E.J. Antoni, a research fellow at the Heritage Foundation’s Grover M. Hermann Center for the Federal Budget, told the DCNF.
The September cut strayed from recent Fed precedent, coming after eight straight meetings in which the Federal Open Market Committee (FOMC) chose not to adjust its rate, and marking the first time the FOMC lowered rates in roughly four years. It also came amid an election in which the economy ranked as the number one most important issue to voters, and 54% of voters favoring Trump over Vice President Kamala Harris on the issue, according to an October Gallup poll.
The rate cut lowered the cost of borrowing, increasing access to capital for businesses and consumers alike and potentially boosting gross domestic product (GDP) and the stock market. Since 1928, the incumbent party has won the presidential election 83% of the time when the S&P 500 stock index has had a positive performance in the three months prior to election day.
The September half-percentage point cut exceeded the Fed’s usual 0.25% unit, and comes after previous tensions between Federal Reserve Chairman Jerome Powell and Trump, with the president-elect telling Fox Business host Larry Kudlow in August 2023 he would not reappoint Powell if elected. The rate cut also brought about dissent within the FOMC, with Michelle Bowman, a member of the Federal Reserve System’s Board of Governors, objecting to the decision and calling it a “premature declaration of victory” on inflation.
“A smaller first move in this process [of lowering rates] would have been a preferable action. ,” Bowman wrote in her Sep. 20 dissent. “Although it is important to recognize that there has been meaningful progress on lowering inflation, while core inflation remains around or above 2.5%, I see the risk that the Committee’s larger policy action could be interpreted as a premature declaration of victory on our price stability mandate.”
During the Biden-Harris administration, all the Very Smart People running the U.S. economy have made a habit of quietly revising their optimistic numbers after they come out. After all, it’s only the initial headlines that count. pic.twitter.com/k7LbgJnxxB
— Daily Caller (@DailyCaller) November 1, 2024
“Trump is inheriting an economy with higher-than-average inflation, and at a point where the Fed’s fight against inflation is likely to be the toughest — the ‘last mile’ from roughly 3% back to 2%,” Peter C. Earle, senior economist at the American Institute for Economic Research, told the DCNF regarding the November CPI data.
The last leg of an inflation fight is often the most difficult, as it takes longer for declines in the prices of certain items to show up in data than others. Rents, for example, are typically fixed for the duration of a lease, creating a delay between new lease prices and rental inflation data, so even when new lease prices are stagnant or falling data can show shelter prices continuing to rise.
However, shelter has been comprising an increasingly small percentage of topline inflation, falling from roughly 90% of the monthly increase in July to less than 40% in November, according to data from the Bureau of Labor Statistics (BLS) released Wednesday. Meanwhile, goods inflation — the price increases of tangible items such as cars and food — is back on the rise, with used car and truck prices increasing 2.7% and 2% on a monthly basis in October and November, respectively, up from -2.3% in July.
Groceries have displayed a similar trend, rising 0.5% month-over-month in November after increasing just 0.1% in October, BLS data showed.
“The temporary respite in goods inflation has ended, and we are now once again seeing widespread price increases,” Antoni told the DCNF regarding the recent uptick. “This is extremely concerning and is a shot below the waterline to all of the inflation apologists who previously excused hot inflation numbers as one-time increases in only a few categories.”
President Joe Biden said in July that he wanted his “legacy for Gen Z” to be that he “cured the economy,” after annual inflation fell to 3% in June, down from a peak of 9.1% in June 2022.
Others close to the White House echoed the president’s sentiment, with Bharat Ramamurti, former deputy director of the National Economic Council under Biden, writing in an August X post that “we’ve won the battle against inflation” and “it’s time for the Fed to begin cutting rates.”
However, Earle told the DCNF the economy is far from cured: “The US economy at present is precariously situated. Yes, inflation is down, but prices are still rising faster than the Fed wants them to, and alongside high interest rates they’re creating financial hardship for American families. For that reason, the savings rate of US citizens is near all-time lows. Unemployment is rising, as is the time it takes for unemployed people to find a new job. The labor force participation rate has fallen as well. Those are all developments which took place since the Biden administration took office in January 2021.”
Just six days ago Biden said he “cured the economy”… Is this what being “cured” is like? pic.twitter.com/M5xSUU6kCn
— Daily Caller (@DailyCaller) August 5, 2024
Prices have increased over 20% since Biden took office in January 2021, with the cost of everyday staples like eggs and butter up approximately 163% and 50% between November 2020 and September 2024, respectively. The elevated costs have weighed on American bank accounts, with the savings rate — the percentage of income one can save for future use — falling from 32% in April 2020 to 4.4% in October, according to the Federal Reserve Bank of St. Louis (FRED).
Meanwhile, unemployment has risen from 3.4% in April 2023 to 4.2% in November, FRED data shows, and the average duration of unemployment sits at 23.7 weeks, the longest since April 2022.
“Trump is inheriting a ticking time bomb,” Antoni wrote on X Friday. “The new admin really has their work cut out for them cleaning up this inflation mess.”
The Fed is expected to cut rates again during its FOMC meeting Wednesday, with roughly 95% of interest-rate traders predicting a 0.25% reduction, according to CME Group’s FedWatch tool.
The White House did not respond to the DCNF’s request for comment. The Fed declined the DCNF’s request for comment.
(Featured Image Media Credit: Screen Capture/CSPAN)
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