Massachusetts Senator Elizabeth Warren is calling for a steep 0.75% interest rate cut by the Fed this week, according to a letter signed by the Senator. Three Democratic senators urged Federal Reserve Chair Jerome Powell and fellow policymakers to make aggressive rate cuts to protect the US Economy.
“If the Fed is too cautious in cutting rates, it would needlessly risk our economy heading towards a recession,” Sens. Elizabeth Warren, Sheldon Whitehouse, and John Hickenlooper said in a Monday letter to the Fed Chair. “The Committee must consider implementing rate cuts more aggressively upfront to mitigate potential risks to the labor market.”
The Federal Reserve is set to decide this week whether it will cut interest rates for the first time in four years. The US has been fighting a difficult battle with inflation since the end of the COVID-19 pandemic. That battle temporarily led to a year-long streak of interest hikes monthly. However, it is expected that the Fed will finally make its first cuts, after leaving interest rates unchanged throughout the summer. Fed officials teased a rate cut at their meeting this week but have been quiet about the potential size of the reduction. The cuts could range from anywhere between 25 basis points to the requested 75 basis points by some Democrats.
“It is clearly the time for the Fed to cut rates,” the senators added in the letter. “In fact, it may be too late: Your delays have threatened the economy and left the Fed behind the curve.”
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What Does 75 Basis Point Rate Cut by the Fed Mean?
Source: Bankrate
A cut of 75 basis points, or 0.75%, would be much larger than the usual quarter-point move. This extreme cut would likely signal an economic emergency, and the Fed hearing the growing economic worries surrounding the country.
The letter highlights the political backdrop surrounding the Fed as it prepares to lower interest rates for the first time since 2020. The jobs market hasn’t performed as well as intended in recent months, thus policymakers are hopeful a rate cut could provide a spark. A Fed spokesperson did speak on the letter Monday, saying, “We have received the letter and plan to respond.”
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The Fed’s upcoming decision to cut interest rates will have a strong effect on the US markets and cryptocurrency. A rate cut along with the further downfall of inflation is desperately needed in the United States’ current turbulent economy.
The outcome of the US Election could also affect the Fed’s future decisions on continuous rate cuts. Both Donald Trump and Vice President Kamala Harris have given contrasting thoughts on how to fix the economy. For the Fed, a 75-point interest rate drop sounds great. However, it could also be too steep too soon, sending the markets into further crisis. Therefore, the final decision will be crucial for the immediate future of the country. A steep cut could signal the worry of banks across the US, thus sending stocks and crypto even lower.