Federal Reserve Faces Pressure for Emergency Rate Cut as Job Growth Slows
The American economy is close to a big moment: the Federal Reserve is expected to lower interest rates for the first time since the Covid pandemic. However, there is debate about how much the Fed should cut these rates.
Senator Elizabeth Warren, a Democrat from Massachusetts, wants the Fed to cut interest rates by a large amount—three-quarters of a percentage point. This is a big move, usually only seen in times of serious crisis. In a letter to Federal Reserve Chair Jerome Powell, Warren and two other Senators said that now is the time to cut rates quickly, as inflation is going down and job growth is slowing.
However, most investors and experts do not expect such a large cut. Wall Street is not predicting a big change, and Fed officials have not spoken in favor of such a large cut either.
Warren and her colleagues are concerned that keeping interest rates high for too long is harming the job market. They argue that by delaying rate cuts, the Fed is making it more likely that the economy will enter a recession.
Bill Dudley, a former president of the Federal Reserve Bank of New York, recently warned that waiting too long to cut rates could hurt the economy. However, even Dudley does not think the Fed will make such a large cut this week.
Most economists are expecting a smaller rate cut, with many predicting a quarter or half-point reduction. A large, sudden cut could make investors nervous, and some might worry that the Fed knows something bad about the economy that others do not.
In times of crisis, the Fed has made big cuts, like in 2008 during the financial crisis and in March 2020 when Covid hit. But right now, many experts, including David Kelly from JPMorgan, think it’s better to cut rates slowly and carefully.
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