The Morning: Interest rates and the election

Plus, the Middle East, an earthquake in Taiwan and the wrap dress.

View in browser|nytimes.com Continue reading the main story April 3, 2024 Good morning. Today, my colleague Jeanna Smialek explains how interest rates could impact the presidential election. We're also covering the Middle East, an earthquake in Taiwan and the wrap dress. — David Leonhardt The New York Stock Exchange.  Brendan Mcdermid/Reuters Political interest By Jeanna Smialek A reporter covering the Federal Reserve The Federal Reserve is in a tough spot. It expects to cut interest rates soon. But doing so before an election will yank the apolitical central bank directly into a partisan fight. Fed officials have lifted borrowing costs to 5.3 percent, the highest level in decades, to slow inflation. Now that price increases are fading, Fed officials think that they can dial back that response starting later this year. Investors expect the first move to come in June or July — just as the election kicks into high gear. Donald Trump, the presumptive Republican nominee, says rate cuts this year would probably be an effort to help Democrats. Lower rates can lift markets and help the economy, so politicians tend to prefer cheap money when they are in office. Fed officials insist that rate changes would respond to economic conditions, not politics. Still, they can't ignore the vitriol. If they ramp up during the campaign, Trump's attacks could convince his supporters that the Fed is bending to partisan whims. And in the long run, a loss of popular support could expose the central bank, which answers to Congress, to lawmaker censure or even political tinkering. Prized independence The central bank sets policy without having to check its decisions through Congress or the White House. That doesn't mean that Fed officials are free to do whatever they want. Congress has given the Fed its goals — full employment and low, stable inflation — and it holds regular oversight hearings. The White House influences the central bank by nominating the Fed's chair, vice chair, and other Washington-based governors. Jerome Powell at a Senate hearing.  Kent Nishimura/Getty Images But even if elected officials shape it, the Fed is insulated from immediate political backlash as it sets actual policy. That is because its big job — controlling inflation — can be very unpopular in Washington. Its efforts have been blamed for slowing the economy severely enough to harm or even doom both Jimmy Carter's and George H.W. Bush's re-election attempts. In fact, incumbent politicians used to frequently harangue Fed chairs for lower interest rates in public and in private. (Lyndon B. Johnson reportedly cornered his Fed chair against a wall at his Texas ranch.) Such critiques stopped in the 1990s, when the Clinton administration started a tradition of not commenting on Fed policy. Trump ended that tradition during his term in office, pushing loudly and constantly for lower interest rates to help goose the economy. He called Jerome Powell, his pick for Fed chair, an "enemy." He looked into firing Powell, only to learn that doing so was nearly impossible. Now that Trump is back on the campaign trail, he's much less welcoming to low rates, since presumably Biden would benefit from them. He says it would be political for the Fed to cut borrowing costs, and he has kept up his criticism of Powell, whom President Biden renominated. "He's going to do something to probably help the Democrats, I think, if he lowers interest rates," Trump said this year. Apolitical Fed There's little reason to think that rate cuts by the Fed would be a ploy to bolster Democrats. "We're working to serve all Americans, not any particular set of Americans or political parties or leaders," Powell said during an event last week, one of several times he brought up or addressed the central bank's independence. Fed officials have been clear that they are setting policy in response to inflation data. The Fed's favored inflation gauge has dropped to 2.5 percent from a peak of around 7 percent. Officials are now simply waiting for further confirmation that inflation is under control to make a move. Not to mention, Fed policies take time to trickle through the economy, so it's not clear how much a summertime rate cut would reshape the economy before November elections. Finally, Fed officials have limited reason to cave to political pressure: They serve long terms, are difficult if not impossible to remove and don't all come from a single political party. Transcripts and inside accounts confirm that in recent years, politics rarely come up at Fed meetings. But even if the Fed sets policy without an eye toward politics, officials want to make sure America knows and believes that. The Fed relies on public belief to do its job. When people and companies think that the Fed is focused on fighting inflation, they expect inflation to hover at modest levels over the long run. That confidence helps to shape their behavior in ways that can help to keep inflation under control. Businesses don't jack up prices as quickly, for instance. "The Fed is, to me, a very important American institution that serves all Americans on a nonpolitical basis," Powell said last week. "Integrity is everything." Related: An earlier Fed chair, Arthur Burns, is remembered as someone who bent to political pressure. Some say that's not fair. Continue reading the main story ADVERTISEMENT THE LATEST NEWS Middle East In central Gaza.  Agence France-Presse — Getty Images The Israeli military took responsibility for a strike in Gaza that killed seven World Central Kitchen aid workers. The top commander said it was a mistake, and Benjamin Netanyahu called it tragic. Biden said he was outraged by the deaths, adding, "Israel has not done enough to protect aid workers." The seven people killed "were the best of humanity," José Andrés, the chef who founded World Central Kitchen, writes in Times Opinion. Read his essay. Iran's leaders vowed to respond to Israeli airstrikes in Syria that killed three Iranian commanders on Monday. The Biden administration plans to sell F-15 fighter jets, worth billions, to Israel. More International News Taiwan felt its strongest earthquake in 25 years. At least nine people died and hundreds are injured. A fire at an Istanbul nightclub killed 29 people. The authorities said renovation work at the club may have been the cause. In Uganda, a court largely upheld an anti-gay law. It includes the death penalty for some cases. The U.S. warned Russia that Islamic State terrorists were planning a terrorist attack on a concert venue near Moscow, according to American officials. The police said a boy had shot and killed a 12-year-old and wounded two other students at a school in Finland. Senegal inaugurated Africa's youngest elected president, the 44-year-old Bassirou Diomaye Faye. 2024 Election Trump said undocumented immigrants were "not humans" and described the U.S.-Mexico border as a "blood bath." Robert F. Kennedy Jr. called Biden a bigger threat to democracy than Trump. After criticism, he backtracked. More on Politics Biden discussed Chinese aggression toward Taiwan and in the South China Sea in a call with Xi Jinping. The government is on track to admit 125,000 refugees this year, the most in three decades. A Trump win would likely reverse that trend. The Supreme Court did not reinstate a voting map in Washington State that a judge said discriminated against Hispanic voters. Biden has a complex relationship with big business: He wants to raise taxes on large companies, but his agenda relies on corporate tax breaks. Other Big Stories A machine designed for cloud brightening in California. Ian C. Bates for The New York Times As climate change gets worse, researchers tested a machine designed to reflect sunlight back into space. Six prisoners in New York sued the state for preventing inmates from viewing the eclipse. A man killed his wife and kidnapped his 15-year-old daughter in 2022. A newly released video shows how California deputies shot and killed the girl as she exited her father's truck. Opinions Sex is a biological fact. Saying it is "assigned at birth" is misleading, Alex Byrne and Carole Hooven argue. There's a surge of dengue in the Americas. Deborah Heaney writes about how travelers can avoid spreading the virus. Here are columns by Bret Stephens on the ugly elements of pro-Palestinian protests and Thomas Edsall on the network of people helping Trump's campaign. A subscription to match the variety of your interests. News. Games. Recipes. Product reviews. Sports reporting. A New York Times All Access subscription covers all of it and more. Subscribe today. MORNING READS In New York City.  Yuvraj Khanna for The New York Times City streets: Orange steam funnels are all over New York City. But what are they actually for? Viral: People are reviewing sticks — yes, sticks — on the internet. Electric cars: Tesla had a bad quarter, while its rivals thrived. It could be losing its dominance. Sustainability: Sick of plastic wrap on your fresh fruit? Changes are coming. Brain activity: Exercise can improve your cognitive and mental health. Reap the benefits. Tourism: Rome could soon be more walkable. Officials are planning to create a huge, pedestrian-friendly area in the city's center. A five-star stay: In China, some bird nests are turned into an expensive soup. In Borneo, people are giving the birds luxury houses to help them build the nests. Viewing party: Small cities have big plans for the eclipse. Lives Lived: Larry Lucchino was an executive with the Baltimore Orioles and the San Diego Padres who oversaw construction of modern stadiums. As president of the Boston Red Sox, he preserved Fenway Park for generations. He died at 78. SPORTS Elite Eight: Iowa's win over L.S.U. set a record for the most-watched women's college basketball game. N.B.A.: Joel Embiid returned for the Philadelphia 76ers after an injury. He helped his team defeat the Oklahoma City Thunder, 109-105. Jerseys: Adidas stopped the sale of German soccer shirts bearing the number "44" because the lettering closely resembled a Nazi symbol. Continue reading the main story ADVERTISEMENT ARTS AND IDEAS Michelle Obama and Kate, Princess of Wales.  From left: Omar Torres/AFP — Getty Images; Chris Jackson/Getty Images Out of style: For decades, women loved the wrap dress, a design popularized by Diane von Furstenberg, because it was both flattering and office appropriate. The style boomed in the 1970s — and again in the 2000s and 2010s. "If you bought Sheryl Sandberg's 'Lean In' when it came out in 2013, you probably owned a wrap dress," Jessica Testa writes. In recent years, however, the dress has become unfashionable. One reason: Workplaces are more casual and workers have more flexibility to express themselves. More on culture At Shaw-naé's House.  Colin Clark for The New York Times The Times restaurant critic Pete Wells reviewed a six-table restaurant serving soul-food on Staten Island. (Talk to Pete about his latest 100 Best Restaurants in New York City list on Reddit at 1:30 p.m. Eastern.) A former employee sued Ye, formerly known as Kanye West, accusing the rapper of making antisemitic rants and of praising Hitler. Larry David spoofed Georgia's voting laws on "Curb Your Enthusiasm." Georgia's secretary of state sent him a good-humored response. Stephen Colbert joked about Trump's gag order. THE MORNING RECOMMENDS … David Malosh for The New York Times Cook a one-pot meal of skillet ginger chicken with apricots. Build a home theater system. Prune your garden. GAMES Here is today's Spelling Bee. Yesterday's pangrams were faintly, finality and infantility. And here are today's Mini Crossword, Wordle, Sudoku, Connections and Strands. Thanks for spending part of your morning with The Times. See you tomorrow. Sign up here to get this newsletter in your inbox. Reach our team at themorning@nytimes.com. Continue reading the main story Editor: David Leonhardt Deputy Editor: Adam B. Kushner News Editor: Tom Wright-Piersanti Associate Editor: Lauren Jackson News Staff: Desiree Ibekwe, Sean Kawasaki-Culligan, Brent Lewis, German Lopez, Ian Prasad Philbrick, Ashley Wu News Assistant: Lyna Bentahar Saturday Writer: Melissa Kirsch Need help? Review our newsletter help page or contact us for assistance. You received this email because you signed up for the Morning newsletter from The New York Times, or as part of your New York Times account. To stop receiving The Morning, unsubscribe. To opt out of other promotional emails from The Times, including those regarding The Athletic, manage your email settings. To opt out of updates and offers sent from The Athletic, submit a request. Subscribe to The TimesGet The New York Times app Connect with us on: Change Your EmailPrivacy PolicyContact UsCalifornia Notices The New York Times Company. 620 Eighth Avenue New York, NY 10018