A trio of Democratic senators want the U.S. Federal Reserve to cut the federal funds rate by 75 basis points this week.
In a public letter penned to Fed Chair Jerome Powell, Elizabeth Warren (D-Massachusetts), Sheldon Whitehouse (D-Rhode Island) and John Hickenlooper (D-Colorado) argue that recession risks and a softening labor market justify significant rate cuts.
“Given the Fed’s confidence in inflation moving towards its target of 2 percent and data indicating slower job growth, now is the time to swiftly move forward with rate cuts.
For months we have been calling upon you to cut the federal funds rate. As we wrote in June, the Fed’s elevated interest rates are not successfully addressing the remaining drivers of inflation, including housing costs — and might even be making them worse.”
The Federal Open Market Committee is meeting this week to determine US monetary policy and set a federal funds rate.
The CME FedWatch Tool estimates there’s a 65% chance the Fed will cut the rate by 50 basis points and a 35% chance it will cut it by 25. The FedWatch Tool, which generates probabilities using the 30-Day Fed Funds futures prices, doesn’t estimate there’s any chance of a 75-basis-point cut.
Warren, Whitehouse and Hickenlooper argue a 25-basis-point cut wouldn’t be sufficient given the state of the American economy.
“The FOMC must cut rates by more than the 25 bps cut that some Fed officials have already signaled. A rate cut of 75 bps would put the federal funds rate at 4.5 – 4.75%, which would still be higher than it was at any point between November 2007 and January 2023. Moreover, [The Economic Policy Institute] noted that we should be much closer to neutral levels given the non-inflationary labor market.”
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