Fed risks Trump fury with historic interest rate cuts

The Federal Reserve cut its key interest rate by 0.5 percent on Tuesday — thrusting it into the center of a political firestorm.

It cut its key lending rate to 4.75 to 5 percent from 5.25 to 5.50 percent. Markets rose immediately after the crisis measures taken in 2008, as the economy collapsed in the Great Recession.

But it's the most politically charged move in recent history by the interest rate-setting agency—as former President Donald Trump repeatedly called for interest rates to remain steady before the election. He and his aides think lowering borrowing costs will benefit Vice President Kamala Harris' campaign to convince the public that the economy is strong and ease concerns about inflation.

While a rate cut won't immediately lower most people's mortgages, and will reduce monthly payments on roughly 401k's, cheaper interest rates will also reduce inflationary pressures on everyday living expenses like credit card bills. Lower mortgage rates will also reduce the cost of buying a home and can relieve a sclerotic housing market.

The Fed, under Chairman Jerome Powell a Trump appointee who the former president has since publicly rejected—voted for the cuts months after falling inflation reports and slowing job growth. Economists believe that if they had not acted, higher interest rates would have increased the likelihood of a recession.

The last time a rate cut came this close to an election was in September 1992, when the economy was still emerging from recession. This ultimately did not save then-President George HW Bush from an electoral defeat at the hands of Bill Clinton, who preached “It's the economy, stupid”.

But this move will lead to major political tensions, with Trump already signaling that he wants control over the independent Federal Reserve if he wins in November. In July, Trump told Bloomberg he would not fire Powell but added, “Especially if I think he's doing the right thing.”