As the Democratic national convention ramps up, what numbers are we looking at?

As of 10:03 am today, Bloomberg reports a yield of 4.05% and 3.88% on two-year and 10-year U.S. Treasuries, respectively. Data as of 16 August from the Board of Governors of the Federal Reserve System reported two-year and 10-year yields of 4.08% and 3.92%, respectively.

Meanwhile, the markets are betting on a cut in the interbank overnight lending rate (federal funds rate) at the September Federal Open Markets Committee meeting. According to the CME FedWatch tool, markets have determined a 75% chance of a 25-basis point cut in the overnight rate target range. The current target range is 5.25-5.50%.

As part of its monetary policy for achieving its statutory mandate of stable prices and full employment, the Federal Reserve is pursuing a goal of getting increases in consumer price levels down to an annual rate of two percent. The last reading of the Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditure (PCE) Index, reported an annual increase in price levels of 2.5%. Members of the Board of Governors, including its chairman, Jerome Powell, have been driving home the point that any reduction in rates is likely to occur when the Fed has sufficient good data evidencing a decline in inflation. Inflation need not be at two percent in order for the Federal Reserve to pull the trigger on reducing rates.

What does potential Federal Reserve monetary policy have to do with tomorrow’s convention? Fed monetary policy, specifically the Fed’s outlook on inflation, should put parameters on the reality of Ms. Harris’ proposals. Ms. Harris’ proposals should reflect the coordination between the Board of Governors and the Congress that is called for under the Full Employment and Balanced Growth Act.

While board members and Federal Reserve Bank presidents assert that they are politically independent, as a matter of the rules of the economic and banking system, they are tied to the executive and legislative branches. Any assessment of the future success of Ms. Harris’ economic policy proposals should be made within the parameters of potential impact on the economy.

Critics of Ms. Harris’ proposal to provide $25,000 for first time home buyers, expansion of the earned income and childcare tax credit, and expansion of elder care and childcare are already raising concerns as to the impact the additional spending may have on inflation. The extra money in consumer hands may mean that prices are bid up and defeat the efforts on the part of the Fed to get inflation under control.

In addition, what would failure of these proposals mean for the returns on donor investment in a Harris campaign? Political action committees and individual donors may not want to fund candidates in the 2026 midterms with the same passion that they are funding Ms. Harris’ campaign today.

Offering viable proposals today, proposals that not only come to fruition but avoid negative impacts on the economy will increase the chances of a sustaining the political power of Democrats into 2026 and 2028.

Alton Drew

18 August 2024

For more of my take on the American political economy, purchase my book on amazon.com/author/altondrew.