On Monday, September 16, three prominent Democratic senators, Elizabeth Warren, Sheldon Whitehouse, and John Hickenlooper, pushed for a 75-basis-point (bps) Fed rate cut to safeguard the U.S. economy from a potential downturn. In a letter sent to Federal Reserve Chair Jerome Powell today, the lawmakers also emphasized that a more aggressive approach is necessary to prevent the economy from slipping into a recession. Such a move could boost the cryptocurrency and stock markets.
Senators Urge For 75 bps Fed Rate Cut
“If the Fed is too cautious in cutting rates, it would needlessly risk our economy heading towards a recession,” the senators warned in their letter, according to Bloomberg. They argued that the Federal Reserve should “consider implementing rate cuts more aggressively upfront to mitigate potential risks to the labor market,” which has recently shown signs of cooling. Although inflation is trending toward the Fed’s 2% target, the lawmakers stressed the importance of acting now to prevent further economic deterioration.
This letter comes as the central bank prepares for its first rate cut since 2020, in response to a softening U.S. job market and cooling inflation. While the central bank has signaled that a rate cut is likely, the size of the reduction remains uncertain. Currently, market participants are eyeing an equal chance of either a 25 bps or 50 bps Fed rate cut.
However, the senators are pushing for a more substantial 0.75% cut. A reduction of that size, larger than the typical 0.25% move, would be a significant shift in the monetary policy. The letter also underscores the complex political dynamics around the central bank’s decision-making process.
While Fed officials maintain that policy choices are independent of political pressures, they face scrutiny from multiple directions. Some lawmakers, like Warren, Whitehouse, and Hickenlooper, argue that the finance authority has been too slow to lower rates.
Political Factors
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Whilst, others like former President Donald Trump, believe the government body should avoid making any major moves before the upcoming presidential election. Trump has previously stated that the body “shouldn’t adjust rates ahead of the election,” a view echoed by some Republican critics.
The senators’ letter is not the first time they have expressed concern over the government’s approach. Earlier this year, they urged Powell to begin cutting rates, but the central bank has so far held its policy rate steady, keeping it in a range of 5.25% to 5.5%, the highest in over two decades. The senators argued that delaying rate cuts has already placed undue strain on the economy and left the Fed “behind the curve.”
With the labor market losing momentum and inflation easing, the senators believe that now is the time for the Federal Reserve to act decisively. “It is clearly the time for the US central bank to cut rates,” they wrote, adding, “Employment numbers adjust slowly, so the Fed should front-load rate cuts to avoid sliding towards a potential crisis.”
Crypto Market Rebound On Cards?
As the debate over interest rate cuts continues, the potential implications for the crypto market are significant. Reduced interest rates generally lead to a weaker U.S. dollar, which can boost riskier assets such as cryptocurrencies. A cut of 0.75 bps could enhance liquidity and spur more investment in digital assets like Bitcoin (BTC) and Ethereum (ETH).
Currently, the crypto market has been under pressure, with Ethereum price dropping by over 5.5%, trading below $2,300. Meanwhile, Bitcoin (BTC) fell by around 4%, below the $58,000 level. A larger-than-expected Fed rate cut could spark a rebound in crypto markets as investors seek higher returns in alternative assets.
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Also Read: 16-21 Sept Events: Fed, Bank of England, Bank of Japan’s Interest Rates
