Former US President Trump said at the National Black Journalists Association's annual meeting in Chicago last Wednesday that inflation and high interest rates are "destroying our country".

The Republican presidential candidate said that if elected, he would "significantly lower interest rates". He said, 'I have lowered the inflation rate a lot so that people can buy bacon and ham sandwiches again, and they can afford to go to restaurants.' However, the president does not have direct control over interest rates. The Federal Reserve sets interest rates and operates independently of the White House.?

Since the outbreak of the pandemic, inflation has been a persistent issue, with prices soaring to their highest level in over 40 years. The Federal Reserve, which sets interest rates, has taken a series of interest rate hikes, effectively putting the brakes on the economy and striving to control inflation.

Now, recent economic data shows that inflation is falling back to the Federal Reserve's 2% target, paving the way for the Fed to lower its benchmark interest rate for the first time in many years. The Federal Reserve's favored inflation indicator PCE rose 2.5% year-on-year in June.

The federal funds rate sets overnight borrowing costs for banks, but also affects consumer borrowing costs. The current target range is 5.25% to 5.50%, which is the result of 11 interest rate hikes between March 2022 and July 2023.

Once interest rates fall, consumers may see their borrowing costs also decrease.

This is a year of great significance

In early 2024, Federal Reserve Chairman Powell said at a press conference, "This will be a very important year for the Fed and monetary policy

In the next few months, the signs of economic growth and inflation cooling have laid the foundation for the generally expected interest rate cut, which is good news for those Americans who are struggling to cope with the sky high interest rates.

After last week's two-day Federal Open Market Committee (FOMC) meeting, Powell stated that if economic data supports it, central bank officials may cut interest rates as early as September.

Trump's relationship with the Federal Reserve during his last presidential term

Trump nominated Powell as the Governor of the United States Central Bank in 2018, becoming a fierce critic of the Federal Reserve Chairman and his colleagues. During his tenure, he bypassed historical precedents and publicly condemned the Fed's decisions multiple times.

During his tenure in the White House, Trump complained that the Federal Reserve maintained a high federal funds rate, making it more difficult for businesses and consumers to borrow and putting the United States at a disadvantage economically compared to countries with lower interest rates. However, in the end, Trump's remarks had no impact on the Federal Reserve's benchmark interest rate.

Brett House, an economics professor at Columbia Business School, said, "In the face of any intimidation from the White House, any chairman will remain loyal to the mission of the Federal Reserve

Earlier this year, the former president stated that he would not reappoint Powell to lead the Federal Reserve. He said, "I think he is a politician." "I think if he cuts interest rates, he will do something that may benefit the Democratic Party

Trump also stated in July that cutting interest rates in the weeks leading up to the November presidential election was' something they (central bank officials) know they shouldn't do '.

Last Wednesday, when asked about these comments, Powell emphasized the Fed's singular focus on the economy. The central bank has several main economic goals: promoting maximum employment, maintaining price stability, and ensuring moderate long-term interest rates

Powell said, "We will not change our approach just to deal with political agendas and other factors. We never use our tools to support or oppose a political party, a politician, or any political outcome

The central bank is an independent institution that decides monetary policy without interference from the president or any government department. Therefore, theoretically it is not affected by political pressure.

Greg McBride, Chief Financial Analyst at Bankrate.com, said, "Regardless of who becomes president, the Federal Reserve will firmly defend its independence

The impact of the presidential election on interest rate policy

A research report released by Wells Fargo in February this year showed that in previous presidential election cycles, the Federal Reserve has maintained its established course during the election period, whether it is tightening policy like in 2004, cutting interest rates like in 2008, or remaining stagnant like in 1996, 2012, and 2020. In addition, the report states that since 1994, the Federal Reserve has adjusted policy rates roughly the same number of times in presidential election years as in non election years.

Another research report by Barclays also found that "there is no convincing statistical evidence to suggest that the Federal Reserve's policy execution during presidential elections will differ

McBride said, "The independence of the Federal Reserve will still be the most important. Looking ahead, what will affect the Fed's actions will be what happens in the broader economic sector

However, Federal Reserve Board members are nominated by the President and must be approved by the Senate. Powell will end his second four-year term as chairman in 2026, which opens the door to potential changes in leadership and may also open the door to changes in the direction of monetary policy, which happens to be in the middle of the next presidential term.