A trio of Democratic senators want the US Federal Reserve to cut the federal funds rate by 75 basis points this week.
In a public letter to Fed Chairman Jerome Powell, Elizabeth Warren (D-Massachusetts), Sheldon Whitehouse (D-Rhode Island) and John Hickenlooper (D-Colorado) say recession risks and a weakening labor market justify significant interest rate cuts.
“Given the Fed’s confidence in inflation toward its 2 percent target and data pointing to slower job growth, now is the time to move quickly on rate cuts.
For months we have been calling on you to lower the federal funds rate. As we wrote in June, the Fed’s increased interest rates are not successful in addressing the remaining drivers of inflation, including housing costs – and could even worsen them.”
The Federal Open Market Committee meets this week to determine U.S. monetary policy and set a federal funds rate.
The CME FedWatch Tool estimates that there is a 65% chance that the Fed will cut rates by 50 basis points and a 35% chance that rates will be cut by 25. The FedWatch Tool, which generates probabilities based on 30-day Fed Funds futures prices, does not. I don’t think there is any chance of a 75 basis point cut.
Warren, Whitehouse and Hickenlooper argue that a 25 basis point cut would not be enough given the state of the US economy.
“The FOMC should cut rates by more than the 25 basis points that some Fed officials have already implemented spotted. A 75 basis point rate cut would bring the federal funds rate to 4.5 – 4.75%, which is still be higher than ever between November 2007 and January 2023. Moreover [The Economic Policy Institute] noted that given the non-inflationary labor market, we should be much closer to a neutral level.”
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