Powell's crash could make Trump president.
The stock markets are suddenly shaking and rattling America's election campaign. The economy is fragile, and the economic record of Joe Biden and Kamala Harris has suddenly come into focus. Is Donald Trump benefiting from this? Ironically, an opponent is unwittingly playing into his hands.
American Federal Reserve Chair Jerome Powell delivered the most expensive speech of all time. Last Wednesday, he faced the press and announced that the Fed would keep its benchmark interest rate at a high 5.25 to 5.5 percent. The risk of inflation is not yet over, but with "some further progress," a rate cut in September could be "on the table." The financial markets found this too slow and too late.
Nervousness spread, and when weak economic data from the US was also released on Friday, a global sell-off in securities began. More than $4 trillion has been wiped off global stock markets since Powell's speech. Nvidia's stock (which was at a high of $112 mid-week) temporarily plummeted to $83.66. Alone, this stock saw $500 billion in value evaporate. Many analysts from Hong Kong to London, from Frankfurt to New York are blaming Powell's speech and his delay in cutting rates for the crash.
The stock market crash threatens to significantly influence the political climate in the US. Millions of Americans own stocks, with many relying on them for retirement. The crash is now exacerbating Americans' concerns that the US economy is on shaky ground under Joe Biden and Kamala Harris.
Indeed, recent economic indicators are not promising. The US manufacturing purchasing managers' index - a key sentiment indicator - fell to 46.8 points in July from 48.5 in June. Economists had expected the barometer to rise to 48.8 points. And the US labor market is also struggling. In July, the world's largest economy surprisingly created few new jobs, and the unemployment rate reached 4.3 percent, the highest level in nearly three years. Last year, it was measured at 3.5 percent.
Just before the election, these sensitive numbers are rising sharply. With the stock market crash, there is now a risk that America could slip into a recession. Economists at Goldman Sachs have increased the probability of the US slipping into a recession within the next year from 15 to 25 percent, while analysts at JPMorgan put the probability of a recession at 50 percent.
Harris has a problem
Americans' assessment of the economic situation is also surprisingly negative. The Gallup poll found a depressing score of -35 on the mood scale (from -100 to +100) for July - in March, it was already bad at -20, but since then, the mood has continued to deteriorate. According to Gallup, 46 percent of Americans describe the current economic situation as "poor." Even seven out of ten Americans fear that the economy will "get worse," while only 24 percent say it will "get better." This gloomy picture is likely to worsen with the crash.
For Kamala Harris' campaign, the news and the crash come at an inopportune time. Just as she was gaining momentum in her challenging campaign against Donald Trump, with donations pouring in, poll numbers improving, and liberal America appearing mobilized once again to prevent the return of right-wing populism, the crash and fear of a recession could now undo all of that. The Republicans are already targeting two perceived weaknesses of the new candidate in their campaign: her alleged failure in immigration policy and her supposedly left-wing, anti-business program.
In this complex situation, the central bank chief finds himself not only at the center of the stock market storm but also suddenly playing a key role in the American election campaign. Democrats, like many shareholders and representatives of the financial industry, are calling on Powell to quickly and significantly ease monetary policy. The central bank must alleviate the crash with cheaper money, stimulate the economy, and provide new prospects for stock markets. Powerful Democratic Senator Elizabeth Warren, speaking for the Harris camp, said Powell "made a big mistake by not lowering interest rates" and warned that "the jobs data is flashing red." Warren even urged Powell to "cut interest rates now, not in six weeks."
Meanwhile, the Trump camp has been criticizing Powell for weeks, accusing him of helping the Democrats in the upcoming US presidential election with an interest rate cut in September.
Trump wants Powell out
Powell, however, emphasized in his speech that his decisions would remain strictly apolitical. The central bank is "absolutely" non-political, and if it lowers interest rates at the next meeting, it will not use its tools to support or combat any political party, politician, or political outcome. In left-wing circles, it's often said that Powell is maintaining high interest rates to help Trump. While it's true that Powell has a history with the Republicans, he has also been a staunch defender of the central bank's independence from President Trump, making him a political target. Trump initially wanted Powell to quickly and significantly lower interest rates, disregarding inflation risks. Powell refused.
Just a few weeks ago, Trump announced that if he returns to the White House, he will prevent another term for current Fed Chair Jerome Powell. In Trump's circle, there's a desire for a more aggressive Fed policy of cheap money to stimulate economic growth. However, this would not only undermine the independence of the central bank but also provoke new inflation. Powell, a steadfast defender of monetary stability, finds himself in a tragic situation where he can't please any political camp in defense of his principles, and he might even inadvertently help his biggest opponent into office, ultimately losing his own job.
In light of the stock market crash and rising concerns about a potential recession, Donald Trump's critics may find it harder to paint a rosy economic picture for Joe Biden and Kamala Harris. Despite this, Democratic Senator Elizabeth Warren has criticized Federal Reserve Chair Jerome Powell for not lowering interest rates sooner, potentially aligning herself with Trump's campaign calls for a more accommodative monetary policy.
