A strong jobs report complicates Jerome Powell’s political dilemma as 2024 election nears

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Federal Reserve Chair Jerome Powell’s efforts to navigate monetary policy through a white-hot election year just got more complicated.

A stronger-than-expected jobs report released Friday morning that surprised Wall Street means the central bank is even more likely to move any consideration of interest rate cuts closer to Election Day. Powell already made it clear this week that a cut in March was likely off the table.

That places the Fed on a collision course with figures on both sides of the political divide who are ready to attack Powell if the cuts come too soon or too late for their liking. Those critics include Republican front-runner Donald Trump, who offered a new warning Friday likely to raise the pressure on Powell.

Former President Donald Trump and Fed Chair Jerome Powell. (Drew Angerer/Getty Images)

“I think he’s going to do something to probably help the Democrats,” Trump predicted, saying “it looks to me like he’s trying to lower interest rates for the sake of maybe, getting people elected.”

“I think he’s political,” the former president added of Powell in a new interview with Fox Business’s Maria Bartiromo released by the network Friday morning.

Trump also reiterated that he wouldn’t reappoint Powell when the chair’s term expires in 2026 and that he has ideas for who might replace him but “I can’t tell you now.”

Trump was the president who initially appointed Powell to his current position back in 2017 before quickly turning on him in the years that followed. There is no evidence that Powell, a Republican, is pushing for monetary policy that would benefit one party or another.

Powell himself was asked about the political pressure from Trump and other Republicans this week and deflected the question about whether he even wants a third term.

“I don’t have a stance on that, it’s not something I’m focused on,” he said at a Wednesday press conference.

‘Blowout’ number

Friday’s jobs report beat expectations across the board. The US economy created 353,000 nonfarm payroll jobs in January, according to the Bureau of Labor Statistics data, well above the 185,000 expected by economists.

December’s figures were also revised to show 333,000 jobs created last month.

“My first words were ‘oh my god,'” said Jennifer Lee, BMO Capital Markets senior economist, on Yahoo Finance Live Friday morning after seeing the jobs figures.

The immediate debate in the aftermath of Friday’s jobs report was whether good economic news could be bad news for investors hoping for rate cuts soon.

Lee predicted that the huge beat means a March interest rate cut “is definitely not happening” and that the first cut could wait until the second half of the year, perhaps in July.

July is, of course, just months before Election Day and also the same month when Trump will likely be accepting the GOP’s presidential nomination for the third time in a row.

Republicans are set to pick their nominee the week of July 15 in Milwaukee. Just days later, Powell and the central bank’s Federal Open Market Committee will gather in Washington on July 30.

Markets began the year predicting there would be six cuts in 2024, three more than estimates from Fed officials, and that the cuts would likely start in March.

But policymakers have been pushing back on that timeline, arguing they needed to see more evidence of inflation moving sustainably down to the Fed’s target of 2%.

Powell reiterated that at a press conference this week after the Fed agreed to hold rates steady for the fourth consecutive FOMC meeting, keeping them at a 22-year high.

A March cut, he said, is “probably not the most likely case or what we’d call the base case.”

“I don’t think it’s likely the Committee will reach a level of confidence by the time of the March meeting to identify March as the time to [cut rates].”

He said that the Fed didn’t need to see “better data,” but just “more good data” and a “continuation of the data we have been seeing.”

The new evidence of a strong labor market makes it even more challenging for the Fed to pivot quickly to cuts.

It could mean it holds rates higher for longer than some on Wall Street had expected. Investors are now betting the first cut happens in May, according to data from the CME Group.

“It does put the Fed in a difficult place,” said Gregory Daco, EY chief economist.

Another recent complication for the Fed was a recent strong GDP number that was cheered by President Biden and other Democrats.

In a statement Friday morning, President Biden didn’t mention the Fed but touted Friday’s jobs numbers as showing how “America’s economy is the strongest in the world.”

Political pressure from all sides

Powell is a longtime Republican who even once served as an official in the George H.W. Bush administration but has nevertheless become a lightning rod for the conservative wing of the GOP ever since.

As far back as last summer, Trump pledged not to reappoint Powell to head the central bank. In a Fox Business interview last August, he charged that Powell was “always late.”

In addition to Trump, Powell is also likely facing political pressure from the left in the months ahead in the opposite direction.

A range of liberal senators from Elizabeth Warren of Massachusetts to Sherrod Brown of Ohio are directly pushed for cuts as soon as possible, saying it would help out homeowners struggling with high mortgage rates.

In one sign the leftward pressure is unlikely to abate, Bilal Baydoun of the Groundwork Collaborative reacted to Friday’s jobs number by reiterating his call for immediate cuts.

“The data is very clear that we never had to sacrifice jobs for lower prices,” he wrote in a statement. His group is closely aligned with liberal figures like Warren.

Sen. Elizabeth Warren (D-Mass.). (Kent Nishimura/Getty Images)

Sen. Elizabeth Warren (D-Mass.). (Kent Nishimura/Getty Images)

For his part, Powell has steadfastly tried to avoid the political debate as much as possible saying he and the Fed board will ignore the political pressure.

“This year is going to be a highly consequential year for the Fed and for monetary policy, and we’re very buckled down, focused on doing our jobs,” he said during Wednesday’s press conference.

Ben Werschkul is Washington correspondent for Yahoo Finance.

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