Senators Call for Bold Rate Cuts to Protect Economy – On Monday, three Democratic senators urged the Federal Reserve to take bold action and cut interest rates by 75 basis points. The senators—Elizabeth Warren (D-Mass.), Sheldon Whitehouse (D-R.I.), and John Hickenlooper (D-Colo.)—expressed concerns that the Fed’s cautious approach could harm the economy.
In their letter to Fed Chair Jerome Powell, they warned that a careful approach might push the economy into a recession. They believe that cutting rates more aggressively could prevent economic damage. “If the Fed is too cautious, it could risk driving our economy towards a recession,” the senators wrote.
This letter comes as the Fed faces political pressure ahead of its first rate cut since 2020.
Fed’s Independence Faces Political Pressure
The letter from the senators also raised questions about the Fed’s independence. Former President Donald Trump has previously urged the Fed to avoid adjusting rates before the upcoming election. He criticized Powell and the Fed’s handling of monetary policy.
In contrast, President Kamala Harris, who is running against Trump, has stated that she respects the Fed’s independence. However, Trump’s comments have led to concerns that political interference could affect the Fed’s decisions.
Senators Call for Bold Rate Cuts – Economic Data Shows the Need for Rate Cuts
The senators pointed to weakening labor market growth and slowing inflation as reasons for cutting rates now. They argued that taking strong action now could prevent a future economic crisis. The Fed has acknowledged the slowing economy but has not yet committed to a large cut.
Investors are uncertain about the Fed’s move, with expectations split between a 0.25% and 0.50% rate cut. The decision will be revealed on Wednesday after the Fed’s two-day meeting.
A More Aggressive Approach to Cutting Rates
Cutting rates by 75 basis points would be a bold move for the Fed. Historically, such large cuts have been reserved for economic emergencies. The last time the Fed made such a drastic adjustment was in 2022, when it raised rates four times to combat high inflation.
Since July, the Fed has kept rates at their highest level in over 20 years, ranging from 5.25% to 5.5%. This was done to slow down economic growth. Senators Warren, Whitehouse, and Hickenlooper have called for rate cuts several times this year, emphasizing the need for urgent action to prevent economic instability.
