Three Democratic senators urged the Federal Open Market Committee (FOMC) to aggressively cut its federal funds rate at its September meeting in an effort to jolt the economy as the November presidential election draws near.
Massachusetts Democratic Sen. Elizabeth Warren, Colorado Democratic Sen. John Hickenlooper and Rhode Island Democratic Sen. Sheldon Whitehouse requested the Fed issue a 0.75% cut at the FOMC meeting on Tuesday and Wednesday — three times its usual quarter-point move, according to a letter sent by the senators to Federal Reserve Chairman Jerome Powell on Monday. Lower interest rates would mean a lower cost of borrowing for businesses and consumers, which could spur economic growth, and, consequently, boost the Democrats chances of keeping the White House come November. (RELATED: ‘Recession May Have Already Begun’: Biden Admin Admits It Overestimated Employment By Nearly 1 Million Jobs)
“If the Fed is too cautious in cutting rates, it would needlessly risk our economy heading towards a recession,” the senators wrote. “The Committee must consider implementing rate cuts more aggressively upfront to mitigate potential risks to the labor market.”
These were the same Democrats saying that Donald Trump was irresponsible for trying to influence the FED. https://t.co/Ar3Rz3Mv6n https://t.co/eXXQehlP2M
— Margot Cleveland (@ProfMJCleveland) September 16, 2024
The FOMC is expected to cut rates this week after holding its target range at a 23-year high of 5.25%-5.50% for eight straight meetings, with Powell remarking that “the time has come for policy to adjust” following months of falling inflation as well as job growth coming in below economists’ expectations in both July and August. However, the magnitude of the reduction remains unclear, with 63% of interest rate traders predicting a 0.50% cut and the remaining 37% predicting a 0.25% decrease, according to the CME Group’s FedWatch Tool.
When the Fed adjusts interest rates, it typically does so by 0.25%, reserving more drastic changes for economic emergencies, according to Bloomberg. The strategy ensures the Fed has significant leeway to alter rates going forward based on what economic data, according to Forbes.
However, the senators suggested a more drastic adjustment is needed, claiming the Fed has fallen “behind the curve,” meaning it has waited too long to lower its federal funds rate and thus has heightened dangers of an economic slowdown. Fears of a slowdown sparked a global market sell-off in August, with Tokyo’s Nikkei 225 and the U.S.’ S&P 500 index dropping roughly 12.5% and 3% respectively.
“It may be too late: your delays have threatened the economy and left the Fed behind the curve,” the senators wrote. “Employment numbers adjust slowly, so the Fed should frontload rate cuts to avoid sliding towards a potential crisis.”
The enormous 0.75% rate cut would come as inflation sits at 2.5%, still a half-point above its target of 2%. It would also come shortly before an election, and could drive the stock market upwards like it did when the Fed, back in December 2023, signaled it would reduce rates in 2024, according to ABC News.
Historically, the performance of the S&P 500 index accurately predicts election results 83% of the time, and over 80% of registered voters say the economy will be very important to which candidate they select in 2024.
“The Fed is going to cut rates this month to look good before the election — it’s just politics,” billionaire businessman Howard Lutnick wrote in a post on X. “President Donald Trump’s policies will unleash American ingenuity and drive growth in America.”
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