Fed interest rate hike adds to midterm tremors for GOP

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Federal Reserve raised interest rates for the first time in several years in the face of stubborn inflation

Federal Reserve raised interest rates for the first time in several years in the face of stubborn inflation

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The Federal Reserve raised interest rates yesterday for the first time since July 2023, a clear sign that central bank officials remain concerned about persistent inflation less than two months before the midterm elections.

The Federal Open Market Committee voted unanimously to raise its benchmark rate by a quarter percentage point, to a range of 3.75 percent to 4 percent. The latest projections suggest another increase could follow by the end of the year.

“The plain fact is that inflation is too high and has been for too long,” Fed Chair Kevin Warsh said Wednesday.

The move is intended to help cool inflation in the long-run, but consumers are more likely to notice rising borrowing costs in the short-term.

Credit card holders may find themselves paying a few extra dollars each month on their debt, while prospective home and car buyers could face higher quotes, according to Matt Schulz, LendingTree’s chief consumer finance analyst.

“This isn’t going to hit anybody super hard,” Schulz told Morning Report. “But the people who are going to feel this the most are the people who have very little financial wiggle room right now. And so many people are living on tight budgets, living paycheck to paycheck, that every dollar matters.”

“If you are somebody who doesn’t really have much savings and has a pretty substantial amount of credit card debt, this could be noticeable for you,” Schulz added.

Schulz noted that the interest-rate hike is “good news for savers,” who could earn higher returns on money held in high-yield savings and money-market accounts.

While the increase may not have a substantial impact on most voters’ wallets, it could reinforce broader concerns about the economy and inflation heading into the midterms.

Francesco Trebbi, a professor of business and public policy at the University of California, Berkeley’s Haas School of Business, said the decision could put Republicans, who control Congress and the White House, in a difficult position heading into the midterms. He pointed to his research on the 2024 election, which found that declining purchasing power made voters more likely to vote against the incumbent.

“In order for the Fed hike to improve the inflation scenario, it will need to cool down the economy and somewhat depress aggregate demand,” Trebbi said. “This will be potentially costly for the incumbent party in Congress, because economic growth will be worse.”

Trebbi said, however, that he could see a “silver lining for the Republican Party” emerging if the rate hike helps stabilize price dynamics and “substantially flatten” the Treasury yield curve.

If that happens, he said, “This could be read by voters as a sign of policy competence and enhanced stability, validating the incumbent party.”

Decision Desk HQ (DDHQ) chief elections analyst Geoffrey Skelley also expects the immediate economic impact to be minimal, but he said the rate hike will likely “continue to feed into a narrative that inflation is worse than it should be, that the economic status quo is not great.”

“There’s no reason to think that this news is going to somehow produce a wave of economic optimism, which is already a problem for the president’s party,” he added. “And this news isn’t going to help.”

The decision also puts Warsh at odds with President Trump, whobacked him for the position after repeatedly demanding the Fed cut rates.

At a rally in North Carolina on Wednesday night, Trump directed his ire at the Fed’s board of governors, which voted unanimously to raise rates.

“I told Kevin, I said, ‘You might as well vote with the board because it’s just not going to matter.’ The board is very hostile,” he continued. “They’re very political. They’re doing the wrong thing.........

© The Hill