Chairman Jerome Powell and the Federal Reserve electing to hold steady on interest rates for now came as no surprise to WalletHub’s CEO Odysseas Papadimitriou. While he did not expect a rate change yesterday (June 19), “… future pricing indicates we’re almost certain to see a rate reduction this summer or early fall.”
Asked if the Fed should reduce its target rate, Papadimitriou responded, “The Fed has more economic data than anyone, so if they are simply reacting to market conditions, there’s no reason to question them at this point. However, the Fed must make it very clear that the move is not politically motivated.”
He feels that President Trump’s public statements have made it abundantly clear he and his administration would like rates to decrease as they believe it will lead to prolong the current period of economic expansion, at least, in Papadimitriou’s view, “through re-election.” However, he continued, “Fed Chair Jerome Powell has also made it clear that he fully understand the independent authority of his office. It is hard to say which of those two opposing forces is winning out right now.”
For what it’s worth, WalletHub’s recent Fed Rate Survey found that seven in 10 people feel that the Federal Reserve knows how to grow the economy better than the Trump administration. Yet, almost the same number of people, 76 percent, support a Fed rate cut, considering it good for the economy.
Papadimitriou believes a rate cut would benefit consumers with credit card debt. “WalletHub projects [they] will save roughly $1.6 billion on interest,” he said. “If reducing rates delays the next recession, it would help all of us by giving us some extra time to save up for leaner times. Plus, a drop in rates would put American businesses and consumers in a better position to withstand an escalation in the trade war with China.”
The signaling from the Federal Reserve that it may lower rates later this year has many Americans wondering why did the agency raise rates in September and December of last year only to reduce it during the same period of 2019?
“The Fed’s official position will be that market conditions have changed,”
Papadimitriou predicted. “The story you’ll see on cable TV will be that President Trump coerced the Fed into action. From my perspective, the Fed completely miscalculated how serious the Trump administration was about using tariffs as a negotiating tool with China and other countries.”