Three prominent Democrats Federal Reserve Chairman Jerome Powell on Monday called for a 75 basis point interest rate cut, warning that the central bank may have already held off too long.
The central bank is due to announce the rate cut on Wednesday after keeping interest rates unchanged at 5.25-5.5 percent, a two-decade high, for more than a year.
Chairman Powell had hinted in December that a rate cut was on the way, but rising inflation this spring led the Fed to postpone any planned cuts, waiting for inflation to continue to fall.
Inflation in August came in at 2.5%, lower than expected and far from the June 2022 peak of 9.1%.
“It is clearly time for the Fed to cut rates. In fact, it may be too late. Your delay has endangered the economy and rendered the Fed obsolete,” Sens. Elizabeth Warren (D-Mass.), Sheldon Whitehouse (D-Iowa) and John Hickenlooper (D-Colo.) said in a letter to Chairman Powell.
The unemployment rate also rose slightly from 3.5% in July 2023 to 4.2% in August, but remains low by historical standards.
“Because employment data changes slowly, the Fed should frontload rate cuts to avoid a potential crisis,” the lawmakers wrote.
A 75 basis point cut is highly unlikely, but lawmakers point out that even if a cut occurs, interest rates of 4.5% to 4.75% would still be higher than at any point between November 2007 and January 2023.
The majority of interest rate traders are expecting a 50 basis point cut. CME FedWatch tool.
Some Democrats, including Ms. Warren, have been urging Powell to lower interest rates for months, citing the burden that high borrowing costs are placing on Americans and their negative impact on home affordability.
Meanwhile, on the political side, former President Trump has accused Powell, a lifelong Republican whom he appointed in 2017, of being “political” and suggested he would cut interest rates ahead of the November election to help Democrats.
But the Fed is a politically independent institution, and Chairman Powell has repeatedly said the central bank will set aside policy and decide to cut rates based on data.
