Three Democratic senators, led by Elizabeth Warren, are urging Federal Reserve Chair Jerome Powell to slash the central bank’s interest rate by 75 basis points to safeguard the U.S. economy. In a letter sent to Powell on Monday, Warren, along with Senators Sheldon Whitehouse and John Hickenlooper, emphasized the urgency of a Fed rate cut to avoid the risk of the economy tipping into a recession.
Senators Urge 0.75% Fed Rate Cut
“If the Fed is too cautious in cutting rates, it would needlessly risk our economy heading towards a recession,” the senators stated in the letter. They argued that an aggressive approach, especially in the short term, would help mitigate potential risks, particularly in the labor market.
As the Fed prepares for its first rate reduction since 2020, lawmakers, investors, and political figures alike are watching closely. Although the Federal Reserve consistently asserts that its decisions remain independent of political pressures, it is clear the institution is facing scrutiny from various quarters.
Warren and her colleagues represent one side of the debate. They favor faster and steeper Fed rate cuts. However, figures like former President Donald Trump have expressed caution about changing rates ahead of the upcoming presidential election.
Currently, Fed policymakers are expected to announce their decision on Wednesday at the conclusion of their two-day meeting. While a rate cut has been widely anticipated, the magnitude of the reduction remains uncertain. Hence, market participants are speculating that the Fed could opt for a 0.25% or 0.50% cut.
However, the senators are advocating for a much larger cut of 75 basis points. This would mark a significant deviation from the typical quarter-point adjustments usually made by the central bank.
Crypto & Stock Market Impact
The last time the Federal Reserve made a drastic 75-basis-point adjustment was in 2022 when it raised rates in response to soaring inflation. However, the current economic situation is different, with inflation cooling and approaching the Fed’s target of 2%. Hence, the senators argue that this easing inflation, coupled with signs of a softening labor market, justifies swift and aggressive rate cuts.
“Now is the time to swiftly move forward with rate cuts,” the letter reads. They added that “employment numbers adjust slowly, so the Fed should front-load rate cuts to avoid sliding towards a potential crisis.”
As of the latest update, investors remained divided over the size of the potential cut, with some leaning toward a quarter-point reduction. However, there are 59% chances of a 50 bps rate cut, according to CME FedWatch tool. Despite this uncertainty, the letter from the Democratic senators signals a growing belief among some policymakers that the Fed needs to act more decisively.
The letter also underscores concerns that the central bank’s delay in cutting rates could further harm the economy. “It may be too late: Your delays have threatened the economy and left the Fed behind the curve,” the senators wrote.
A 75-basis-point rate cut by the Federal Reserve could have a significant impact on the crypto and stock markets. Lower interest rates generally increase liquidity in the financial system. This may encourage investors to seek higher returns in riskier assets like crypto and even stocks.
Additionally, reduced borrowing costs can boost investor sentiment, potentially driving more capital into digital currencies and stock market. However, the long-term effects of Fed rate cut will depend on broader economic trends and related regulatory actions.
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