At first, the Federal Reserve’s “jumbo” 50-basis-point interest-rate cut from September was well received by the financial markets. Now that some time has passed, however, the central bankers’ decision to pivot so aggressively is being widely re-evaluated as a potential policy error.

After all, even as Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen effectively declare victory over inflation, the “jumbo” rate cut may be too much, too soon. Or, in the words of former President and current presidential candidate Donald Trump, it may be “too big” of an interest-rate reduction.

During a recent appearance at the Detroit Economic Club, Trump cautioned, “The fact is that the Federal Reserve brought the interest rates down a little too quickly.” He added, “It was too big a cut and everyone knows that was a political maneuver that they tried to do before the election.”

Certainly, it’s interesting timing for the Federal Reserve to enact a 50-basis-point rate cut mere months prior to the U.S. presidential election. Powell and his colleagues at the Fed made no such drastic policy maneuver in 2016, when Trump ran for re-election.

On that topic, Trump observed that Powell’s “jumbo” rate cut “was totally a political decision and inflation has started to rise.” Trump further implementing high interest rates “really kills the American dream for young people.”

Courtesy: St. Louis Fed, @VanceGinn

There’s no denying that the Fed is having trouble keeping inflation down. It’s too early for anyone to declare victory, as the U.S. Consumer Price Index (CPI) still isn’t down to the 2% target and many consumers continue to struggle.

In actuality, the CPI reading for September came in at 2.4%. That’s “hotter” than the 2.3% inflation growth rate that economists had anticipated.

Furthermore, September’s CPI print showed 0.2% month-over-month growth. In contrasts, economists had only expected 0.1% month-over-month inflation growth in September.

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    In other words, the Federal Reserve may have been too aggressive in pivoting from zero rate cuts to a “jumbo” rate cut in September. Nevertheless, Lael Brainard, national economic adviser to the Biden-Harris administration, declared, “We keep making progress.”

    “Progress” might not be the best word to use here. Over the past four years, the CPI (price increases) for numerous essential goods and services has skyrocketed:

    • Food at home: +22.4%
    • Shelter: +23.6%
    • Electricity: +29.5%
    • Transportation: +41.9%
    • Gasoline: +44.4%
    • Auto Insurance: +59.7%

    Courtesy: @TheAtlasSociety

    I didn’t even include discretionary/luxury items on that list; these are essentials that Americans need on a daily basis. Thus, the CPI print for a September 2024, while already bothersome, doesn’t even begin to tell the tale of hyperinflation in the U.S.

    If Trump is re-elected, he plans to reduce the grip that the Federal Reserve has over the nation’s economic policy. On that note, Trump stated in August that the U.S. president “should have at least a say” in setting central bank interest-rate policy.

    That’s a game-changing idea that the current powers-that-be probably wouldn’t want to see put into action. It’s much more convenient to manipulate the headline inflation data to look better than it really is, in order to provide some “window dressing” during an election year.

    Even before the “jumbo” interest-rate cut, Trump strongly suspected that America’s central bankers would make a politically based move. “I think [Powell’s] going to do something to probably help the Democrats,” Trump predicted in an interview.

    Non-biased observers would be hard-pressed to say Trump was wrong about that prediction. As it turned out, the Fed made a big move and it will have consequences, especially if inflation surges before the end of the year.

    Governments Have Amassed ungodly Debt Piles and Have Promised Retirees Unreasonable Amounts of Entitlements, Not In Line with Income Tax Collections. The House of Cards Is Set To Be Worse than 2008! Rising Interest Rates Can Topple The Fiat Monetary Structure, Leaving Investors with Less Than Half of Their Equity Intact!

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