A group of Democratic senators are urging the U.S. Federal Reserve to take bold action and cut the federal funds rate by 75 basis points this week. Senators Elizabeth Warren, Sheldon Whitehouse, and John Hickenlooper have written a public letter to Fed Chair Jerome Powell, citing concerns about recession risks and a weakening labor market as reasons for the significant rate cut.
The senators argue that despite the Fed’s confidence in inflation moving towards its target of 2 percent, slower job growth and other economic indicators justify the need for immediate rate cuts. They have been advocating for rate cuts for months, emphasizing that the current elevated interest rates are not effectively addressing inflation drivers such as housing costs.
The Federal Open Market Committee is set to meet this week to discuss U.S. monetary policy and decide on the federal funds rate. While the CME FedWatch Tool predicts a 65% chance of a 50 basis point rate cut and a 35% chance of a 25 basis point cut, the tool does not foresee a 75 basis point cut.
The senators argue that a 25 basis point cut would not be sufficient given the current state of the American economy. They believe that a 75 basis point cut is necessary to bring the federal funds rate to a level that is still higher than pre-recession levels but closer to neutral given the non-inflationary labor market.
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In conclusion, the call for a significant rate cut by these Democratic senators reflects growing concerns about the state of the U.S. economy. It remains to be seen how the Federal Reserve will respond to these calls for action and what impact it will have on the overall economic landscape.