Senators Push Fed for 0.75% Rate Cut to Prevent Recession

A group of Democratic senators, led by Elizabeth Warren, is pressing Federal Reserve Chair Jerome Powell to implement a significant reduction in interest rates to protect the U.S. economy.

In a letter sent to Powell, Senators Warren, Sheldon Whitehouse, and John Hickenlooper called for a 75-basis-point rate cut, warning that failure to act could increase the risk of a recession.

The senators argue that delaying rate cuts could push the economy into trouble, particularly affecting the labor market. They believe a more aggressive stance in the short term is necessary to avoid long-term economic challenges.

As the Fed prepares for its next policy meeting, there is widespread anticipation of a rate cut, though the size remains unclear. Investors and market watchers are speculating about potential cuts of 0.25% to 0.50%, while the senators are advocating for a larger 0.75% reduction. The senators’ call comes as inflation trends downward, nearing the Fed’s target of 2%, and the labor market shows signs of softening, which they argue justifies a bolder move.

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The letter expresses concern that the Fed’s hesitance in cutting rates could harm the economy further, emphasizing the need for swift action. While a 75-basis-point cut would be a substantial shift, its effects on markets, particularly stocks and cryptocurrencies, could be significant, potentially boosting liquidity and investor sentiment.

Alexander Stefanov