Boon for Harris, bane for Trump: How latest Federal Reserve cut will impact both presidential campaigns

The US economy breathed a sigh of relief after the country’s Federal Reserve cut interest rates for the first time in four years. This marked a major step back from the federal body’s aggressive bid to cool the world’s largest economy and reduce inflation.

The decision came as inflation rates fell dramatically after peaking in the summer of 2022. The American central bank’s decision to lower its benchmark funds rate to 4.75 per cent and 5 per cent marks a significant turning point in its battle against inflation.

“This decision reflects our growing confidence that, within appropriate recalibration of our policy stance, strength in the labour market can be maintained in a context of moderate growth and inflation moving sustainably down to the Fed’s 2 per cent target," the Chair of the US Federal Reserve Jerome Powell said at a press briefing on Wednesday.

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While the central bank and its chair pride themselves on making the decision away from any sort of political influences or considerations, the move is expected to have a major impact on the upcoming US Presidential Elections. As Americans will be heading to polling booths in a few weeks, the economy is most likely to remain one of the major focuses during voting and overall election coverage.

Here’s how the announcement will shape the strategies of both campaigns in the race for the White House.

Good news for Kamala Harris

It is pertinent to note that the larger-than-expected cut could trigger a major stock market boom and will lead to substantive drops in interest rates – on credit cards, car loans and, indirectly, home mortgages – that will be felt by consumers across the nation. All of this will be good news for US Vice President and Democratic presidential candidate Kamala Harris.

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For months, the Biden administration, which includes Harris, has been saying that the post-COVID surge in inflation is now over. The recent move by the US central bank reaffirms that proclamation.

Ever since she joined the presidential race after US President Joe Biden announced the end of his re-election bid, Harris has been attempting to take credit for the Democratic administration’s successes while also distancing herself from the negative perceptions many voters have of Biden’s economic stewardship. Hence, the recent move will not only put the Biden administration in a good light but will also bolster Harris’ position in the race.

Harris basked in glory as soon as the cuts were announced. “While this announcement is welcome news for Americans who have borne the brunt of high prices, my focus is on the work ahead to keep bringing prices down,” the vice president said in a statement on Wednesday. “I know prices are still too high for many middle-class and working families, and my top priority as President will be to lower the costs of everyday needs like health care, housing, and groceries," she added.

How Trump is dealing with the move?

Shortly after the historic announcement, Former US President Donald Trump and his running mate JD Vance, kept on gunning for the state of the US economy under the Biden government.

During his visit to a cryptocurrency-themed bar in New York City, the former president told reporters that the rate cut “shows the economy is very bad, to cut [interest rates] by that much, assuming [the Fed] is not just playing politics."

“It was a big cut,” he added, giving up his line of argument. Meanwhile, when Vance was asked for his reaction to the cuts, the Ohio Senator insisted that a half-point reduction “is nothing compared to what American families have been dealing with for the last three years.”

Both Trump and his campaign dragged Biden and Harris over high inflation rates. During his rebuttal at the first presidential debate against Harris, Trump zeroed in on inflation.

“Look, we’ve had a terrible economy because of inflation which is really known as a country buster. It breaks up countries. We have inflation as very few people have ever seen before, probably the worst in our nation’s history,” Trump said. “That isn’t quite true – inflation had been worse in the past than the bout experienced over the last three years,” he added.

In the past, the former president has also criticised the central bank and its leadership. So much so, that he pledged to bring the quasi-governmental agency more directly under presidential influence if he gets re-elected. Hence, the rate cuts are expected to provide a major blow to Trump’s attack against Harris over the economy.