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 urged the Federal Reserve to reduce the federal funds rate by 75 basis points during the upcoming Federal Open Market Committee (FOMC) meeting. The current interest rate stands at a two-decade high of 5.3%, and the senators argue that a significant rate cut is necessary to address slowing job growth and falling inflation.
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“The Fed’s elevated interest rates are not effectively addressing inflation drivers, including housing costs,” the senators wrote, calling for swift action to lower rates. They pointed to recent data showing inflation has dropped to 2.5%, well below its 2022 peak of 7%, and expressed concerns about a rise in the unemployment rate to 4.2%, up from 3.5% in July 2023.
The senators warned that delays in cutting rates could pose a threat to the economy. “Your delays have threatened the economy and left the Fed behind the curve,” they noted, adding that immediate action is needed to prevent further weakening of the labor market.
In their letter, the senators also referenced remarks made by Powell in August 2024, when he acknowledged that the time had come for a policy shift, stating, “The time has come for policy to adjust.” The senators urged the Fed to move aggressively, suggesting that a 25 basis point cut would be insufficient to address the current economic challenges. They recommended a 75 basis point cut, which would lower the rate to between 4.5% and 4.75%, still higher than pre-2023 levels.
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The letter concluded with a warning that if the Fed is too cautious in reducing rates, the economy could risk sliding into a recession. The senators emphasized the importance of acting now to safeguard economic stability and prevent further job losses.
The FOMC meeting is scheduled for September 17-18, 2024, and the senators are hopeful that their recommendations will be taken into consideration.
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