Fed delay may put it in U.S. election firestorm

The Federal Reserve could be entering the U.S. presidential firestorm. A decision on Wednesday by its Federal Open Market Committee to keep interest rates steady means its next potential move will come just as the election intensifies. Congressional Republicans already are calling for more oversight of the Fed. Waiting to move on rates unnecessarily invites more political risk. Texas Senator Ted Cruz, who is running second in the Republican race, has backed a proposal by Kentucky Senator Rand Paul – who dropped out of White House contention last month – to audit the Fed. Worse, front-runner Donald Trump expressed support for more central bank oversight in a tweet he posted in February. Trump also has said he favors a more hawkish monetary policy and told a Capitol Hill newspaper that Fed Chair Janet Yellen was keeping interest rates low to avoid a recession that would hurt President Barack Obama. More from Breakingviews : Bank IPOs expose dark arts of Chinese finance And yet it's Hillary Clinton, the former secretary of state in the lead to become the Democratic presidential nominee, who probably stands to suffer most from a rise in interest rates later this year. It could spark greater market volatility and worries about economic growth, giving fodder to an anti-establishment candidate. A Fed move in June would immediately precede the party conventions to nominate candidates. And a hike in the autumn would come just as the contenders make their final pitches to voters. Most economic factors suggest the U.S. economy is ready for a rate hike. The core Consumer Price Index reported on Wednesday, for example, showed a year-over-year increase of 2.3 percent in February. That's as high as it has been since 2008 and should ease concerns about inflation even though it is not the Fed's preferred metric. The unemployment rate also dropped to 4.9 percent in January soon after the Fed raised rates for the first time in nearly a decade. Altogether, it means the central bank could have confidently inched up rates again this week, but chose an overly cautious route instead. It also is forecasting only two increases this year now instead of four. The timing is shaping up to be politically incorrect. For more independent commentary and analysisfrom Reuters Breakingviews, visit breakingviews.com

U.S. Federal Reserve Chair Janet Yellen

Kevin Lamarque | Reuters

The Federal Reserve could be entering the U.S. presidential firestorm. A decision on Wednesday by its Federal Open Market Committee to keep interest rates steady means its next potential move will come just as the election intensifies. Congressional Republicans already are calling for more oversight of the Fed. Waiting to move on rates unnecessarily invites more political risk.