Big Fed rate cuts give Donald Trump and Jerome Powell something else to disagree on

The decision to opt for a large half-percentage-point cut to the Federal Reserve opened a new area of ​​disagreement between GOP nominee Donald Trump and Fed Chair Jerome Powell.

What Trump has said this week is that the cuts are a symptom of one thing: a weak economy that he claims was brought on by the Biden/Harris administration.

“I guess it shows that the economy is too bad to cut it, assuming they're not just playing politics,” Trump said at a Manhattan Bitcoin bar on Wednesday.

“One or the other,” the GOP nominee added, “but it was a big cut.”

Powell — who was elevated to the Fed chair by then-President Trump but has often found himself at odds with him in recent years — offered a contrasting analysis Wednesday afternoon.

“Our economy is strong overall,” Powell told reporters, adding that the Fed's move to cut benchmark rates by 50 basis points was a way to ensure economic growth as well as “maintain strength in the labor market.”

Read more: Fed rate cut: What it means for bank accounts, CDs, loans and credit cards

Powell also tried to play down concerns that the big cuts were a sign that policymakers were behind the curve or overly concerned that a deep recession in the economy could be around the corner.

President Biden also weighed in Wednesday afternoon that the news represented an important milestone.

“Inflation and interest rates are falling while the economy remains strong,” wrote the president, who sided with Powell on questions about the state of the economy.

Vice President Kamala Harris added in her own statement that the move is “welcome news for Americans who have borne the brunt of higher prices.” [but] My focus is on the work ahead to bring prices down.”

How this affects the 2024 campaign or economic growth remains to be seen.

The run-up to key decisions saw Powell in a stronger-than-expected position politically, seemingly poised for a more serious political fallout to make a key Fed pivot just weeks before the presidential election.

Powell was dinged for waiting too long from the left.

“This cut in interest rates is another acknowledgment that Powell waited too long to cut rates,” Sen. Elizabeth Warren wrote after the news, but added that she was happy the low rates are now in place.

Warren, who earlier this week favored a 75 basis point cut, added Wednesday that “further rate cuts are needed.”

Trump's comments on monetary policy are the latest in a year in which Trump, as he did as president, has chosen to regularly weigh in on the Fed with criticism of Powell.

Trump raised eyebrows last month when he suggested that the president “should have a say” in Fed decisions and that Powell “got it very wrong.”

On Wednesday, Powell responded to Trump's comments by defending the central bank's historic independence and expressing optimism that it will continue in the years ahead.

Earlier this year, Trump's criticisms of Powell were more directly political. He told Bloomberg in June that the cuts are something “they know they shouldn't be doing.” It came after a February Fox Business interview, when Trump said of the cuts, “I think [Powell’s] Probably going to do something to help the Democrats.”

Recently, Trump has tended to focus less on central banks. Weeks can go by without the GOP nominee publicly mentioning the central bank, and the topic didn't even come up in last week's debate with Harris.

When asked about interest rates, Trump tends to discuss his energy plan, saying more drilling will help lower interest rates.

Trump's plan if he wins, RNC spokeswoman Anna Kelly told Yahoo Finance earlier this week, “is to declare a national energy emergency to rapidly lower mortgage and interest rates.”

Criticism of Trump is what he's been telegraphing this week. “They're going to do rate cuts and all the political stuff,” Trump told a crowd in Michigan Tuesday night before the news broke but with the widely expected cuts. The underlying reason, he added, “is because the economy is not good, otherwise you wouldn't be able to do it.”

For his part, Powell again tried to downplay the role of politics, noting Wednesday afternoon that the economic impact of this week's action would be felt “mostly a step back” — possibly after the vote ends in November.

Either way, he added, “Our job is to support the economy for the American people, and if we get it right, it's going to benefit the American people significantly, so it's really mind-boggling,” he said.

“We don't put any other filter,” he added about politics.

This post has been updated.

Ben Warshkull is the Washington correspondent for Yahoo Finance.

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