POLITICO Nightly: The politics of a rate cut

By Calder McHugh Federal Reserve Chairman Jerome Powell takes a question from a reporter at a news conference following a Federal Open Market Committee meeting on July 31. | Andrew Harnik/Getty Images MEETING OF THE MINDS — When the Federal Reserve has its next scheduled meeting on Sept.17 — the last one before the election — the agenda will include a decision that could tilt momentum in the 2024 election and set the course for the future of the American economy. The financial markets overwhelmingly expect that the Fed will cut interest rates for the first time since March 16, 2020, during the onset of Covid. But whether the cut will be a standard quarter percent (or 25 basis points) or a more aggressive half percent (50 basis points) remains an open question. And before the board meets, a monumentally important jobs report — due this Friday — will go a long way towards deciding their path forward. The Harris and Trump campaigns likely have that report date circled, starred and underlined. A stronger than expected jobs report, and Vice President Kamala Harris will be able to reasonably claim that the economy is on the right track, the Fed is acting to bring interest rates down and the Biden-Harris administration is on the way towards a strong jobs market coupled with low inflation. A weak one and the Fed will look as if it’s behind the eight ball, bolstering former President Donald Trump’s claims that the economy is weak and the Fed is feckless. Trump claims that he would like to return to an older model where the president maintains more control over the Fed’s decision-making. Aside from the November implications, the Fed’s action this month could have a significant effect on the stock market — which hangs on every word from Chair Jerome Powell — and on other asset classes. While the economic picture in 2025 and beyond remains murky, it’s about to come into slightly clearer focus in the next two weeks. To get a better understanding of what the Federal Reserve is poised to do and the political and economic implications, Nightly spoke with Dr. Yung-Yu Ma, a leading market analyst who serves as chief investment officer for BMO Wealth Management in the United States. This conversation has been edited. Is an interest rate cut a lock at the September Fed meeting?  That does seem locked in at this point. I think there’s even a question of whether the Fed will cut interest rates by a quarter percent, which is what certainly seems like a lock, versus a half percent. I think that is going to be mainly dependent on the jobs report that comes out on Friday. If we see some weakness in that report that causes the Fed a bit of concern, then there might be momentum building to the downside in the labor market. In that instance, I do think the Fed would seriously consider cutting by a half percent in September. What are the important differences between a 25 basis point cut and a 50 basis point cut? How might those affect the stock market?  We want to think about this in context of what’s bringing the Fed to cut rates. If it looked like there was just a little bit more softness in the job market than they were anticipating and they decided to be aggressive to cut by half a percent to offset or combat that, then I think that would be taken well by the markets. If it’s simply the case that the jobs report that comes out on Friday and covers August is a very weak jobs report, and the Fed is almost compelled or pushed to cut 50 basis points, then it would be seen as being behind the curve a little bit. In that instance, I don’t think a half point cut is going to lift the market higher; the thought is going to be that the Fed has to play a little bit of catch-up. The question is whether the Fed appears to be ahead of the curve, at the curve or behind the curve. I think there’s a little bit of a feeling right now that the Fed is behind the curve if it just cuts by a quarter percent. And if data softens a little bit, and the Fed still cuts by a quarter percent, I think it will be perceived as being behind the curve, and probably the markets won’t like that. As you may recall, a month ago it was the prior jobs report that sent the market into a tailspin. How and when will ordinary voters feel the aftershock of a rate cut? How will it change their lives? I think it’s going to take a little while for a lot of things to come into play here. There are things happening on the ground that could happen a little bit sooner. For example, in anticipation of these rate cuts auto companies are already rolling out better financing deals. They’re more willing to lock in a three- or five-year loans offering 1.9 or 2 percent financing, knowing that over the next couple of years rates are coming down, whereas a year ago that was almost unheard of. But if you think about the broader effect of rate cuts in terms of helping economic growth, that’s just going to take some time. That’s more of a 2025 story, when companies have cheaper borrowing costs, so they can therefore expand more or be more willing to take on new projects or hire workers or invest more. A quarter percent is not going to do it. You need to get to a full percentage point — which we’ll probably get by the end of the year — before some of the dynamics that permeate the economy and help everyone feel better come into play: Better economic growth, more opportunities, if you run a small business things just kind of picking up. What direct political effects might be felt between now and November based on the jobs report and rate cuts? Could those numbers move the ball in one direction or another?  The Fed is doing a good job of trying to stay out of the politics and just look at the economics of it. I do think there’s a marginal voter out there that has been upset about the effects of inflation over the past couple of years. Rate cuts aren’t going to be helpful in a direct, immediate sense to offset that feeling. But I think that these numbers will determine which narrative takes hold better — Trump’s, that the Fed is playing politics cutting rates right before the election and the economy is weak, or Harris’, that the economy is back on track, inflation is down, interest rates are coming down and we’re on the cusp of brighter days. If we get a worsening jobs report on Friday, and then another bad one in early October, I think that could add to the perception that the economy just hasn’t been well managed under the current administration. That’s going to be the narrative that Trump tries to hammer home. If there’s enough data to support that case, then I think there’s potential that could resonate with some voters. Despite the stock market being up and the labor market being okay, I don’t think the average American feels that the economy is great. So, in that scenario, would a stronger than expected jobs number help Harris’ case? I think so, yeah. I think Harris’ case is: Look, we’ve weathered the storm, the economy is on stable footing and brighter days are ahead. Stick with us. If you get data that supports that, then that helps to drive the case home. If, however, we get information this week and next month that suggests that maybe we’ve gotten inflation down but we’ve got a worsening economy, then we’ve gone out of the frying pan and into the fire. Welcome to POLITICO Nightly. Reach out with news, tips and ideas at nightly@politico.com . Or contact tonight’s author at cmchugh@politico.com or on X (formerly known as Twitter) at @calder_mchugh . What'd I Miss? — Shooter kills 4 and injures at least 9 at a high school outside Atlanta, officials say: Four people were killed and at least nine were injured today in a shooting at a high school outside of Atlanta where students ran to seek safety in the football stadium, the Georgia Bureau of Investigation said. Shots were fired this morning, and officers swarmed the campus of Apalachee High School as parents raced to find out if their children were safe at the school in Winder, Georgia. A suspect was in custody, authorities said. It was not immediately clear if the shooter was a student at the school. — Chinese consul general removed after arrest of former New York staffer, Hochul says: The Chinese consul general in New York has been removed , New York Democratic Gov. Kathy Hochul said today — a day after her former gubernatorial staffer Linda Sun was arrested on charges involving alleged aid to the Chinese government. “I was just on the phone at the request of Secretary of State Blinken, speaking with a high-ranking State Department official, and I conveyed my desire to have the consul general from the People’s Republic of China in the New York mission expelled,” Hochul said at an event in Manhattan. “And I have been informed that the consul general is no longer in the New York mission.” — DOJ announces new crackdown on Russian disinformation in 2024 election : The Justice Department has seized more than 30 web domains that it said were part of a broader, ongoing, surreptitious effort by the Russian government to influence the 2024 U.S. election and American public opinion, federal authorities announced today. The seized sites were linked to a Russian campaign known as “Doppelganger,” one of the most prolific and public groups spreading disinformation linked to Moscow in recent years. Experts recently saw evidence of the group spreading Russian disinformation related to the failed assassination attempt against former President Donald Trump, and the Biden administration has worked to counter the group’s efforts in recent months. Nightly Road to 2024 WISCONSIN BADGER — Robert F. Kennedy Jr. has filed a lawsuit in Wisconsin trying to get his name removed from the battleground state’s presidential ballot after the state elections commission voted to keep him on it, reports the Associated Press. Kennedy suspended his campaign in August and endorsed Republican candidate Donald Trump. Kennedy said he would try to get his name removed from ballots in battleground states, while telling his supporters that they could continue to back him in the majority of states where they are unlikely to sway the outcome. He argued in the Wisconsin lawsuit filed Tuesday in Dane County Circuit Court that third party candidates are discriminated against because state law treats Republicans and Democrats running for president differently. GEORGIA ON HIS MIND — Former President Donald J. Trump has reached an uneasy truce with Gov. Brian Kemp of Georgia, setting aside a yearslong grudge over his Republican counterpart’s refusal to help him overturn the state’s 2020 election results, writes The New York Times. The question for Republicans, as Georgia looks increasingly crucial to the party’s chances of retaking the White House, is how long the volatile Trump will let it last . So far, the main signs of their reconciliation have been a few kind words. Weeks after the former president ripped into Kemp at an Atlanta rally last month — accusing him of wanting Trump “to lose” and of leading a state that had “gone to hell” before insulting his wife — he gratefully accepted the governor’s endorsement. Trump, who had been urged by his advisers to reconcile, thanked Kemp on social media for “all of your support and help.” The governor has said in interviews and at fund-raisers that he stands behind Trump. AROUND THE WORLD Canadian Prime Minister Justin Trudeau arrives Monday, July 8, 2024, at Andrews Air Force Base, Md., to attend the NATO summit in Washington. | Mark Schiefelbein/AP BATTLE LINES — Canada’s New Democratic Party Leader Jagmeet Singh says he’s “ripped up” the deal that has propped up Prime Minister Justin Trudeau’s Liberals in a minority Parliament for the past 2½ years, dealing a blow to the government’s stability. The move distances Singh’s progressive party from an unpopular government that’s sunk in the polls. Since Canada’s next federal election was not expected until fall 2025, the news sends speculation in Ottawa into overdrive as to whether one will come much sooner. “Justin Trudeau has proven again and again he will always cave to corporate greed,” Singh said in a video posted on his social media accounts just as Trudeau was about to speak to journalists about a new school food program. “The Liberals are too weak, too selfish and too beholden to corporate interests to fight for people. They cannot be the change. They cannot restore the hope. They cannot stop the Conservatives, but we can,” Singh said. The announcement comes just days before Trudeau is scheduled to huddle with his caucus ahead of the fall sitting of Parliament, which begins Sept. 16. CASH PRIZE — A massive cyberattack that hit Iran last month threatened the stability of its banking system and forced the country’s regime to agree to a ransom deal of millions of dollars , people familiar with the case say. An Iranian firm paid at least $3 million in ransom last month to stop an anonymous group of hackers from releasing individual account data from as many as 20 domestic banks in what appears to be the worst cyberattack the country has seen, according to industry analysts and western officials briefed on the matter. A group known as IRLeaks, which has a history of hacking Iranian companies, was likely behind the breach, the officials said. The hackers are said to have initially threatened to sell the data they collected, which included the personal account and credit card data of millions of Iranians, on the dark web unless they received $10 million in cryptocurrency, but later settled on a smaller sum. Nightly Number $3.76 billion The amount of money that members of the Nordstrom family, with the help of a Mexican retail group, are bidding to take the century-old department store private . Erik Nordstrom said the Nordstrom family members own about 33.4 percent of the company’s outstanding common stock and are willing to pay investors $23 for each share they own. RADAR SWEEP FIND IT ON YOUTUBE — In order to close the gap between Latino voter registration numbers and how many Latinos show up to the polls to vote, the advocacy organization Poder NC Action is trying a new strategy: Producing telenovelas geared towards young Latina women . And after the North Carolina-based group released an eight-part series on YouTube earlier this year, other voter advocacy organizations, in states including California, Wisconsin, Arizona, Florida, Texas, Georgia and Colorado are learning something, featuring many of the videos in social media advertisements and other voter targeting programs. It’s just the latest in a series of attempts to reach younger voters on non-traditional platforms, but the intricate story and production value of this effort looks different from many other influencer-based attempts at targeting voters. Melissa Hellmann reports for The Guardian. Parting Image On this date in 1966: Illinois national guard patrol a main street in Cicero, a suburb of Chicago, as civil rights marchers protest in the all-white community. Some young people in the area threw rocks at the marchers. | AP Did someone forward this email to you?  Sign up here .   Follow us on Twitter Charlie Mahtesian @PoliticoCharlie Calder McHugh @calder_mchugh   Follow us

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