Senator Warren calls on Fed to cut interest rates by 0.75% at next meeting

Bitcoin skeptic Elizabeth Warren (D-Massachusetts) and other Democratic senators sent a letter to the Federal Reserve on Monday calling for much more aggressive rate cuts than the market expects.

“We are writing today to urge the Federal Reserve (Fed) to cut the federal funds rate, currently at a two-decade high of 5.3 percent, by 75 basis points (bps) at the Federal Open Market Committee meeting ( FOMC) on Sept. 17 and 18, 2024,” the senators wrote.

‘Too late’ to cut rates

The letter follows Federal Reserve Chairman Jerome Powell’s Jackson Hole speech in August, when he proclaimed that “the time has come” for the central bank to start cutting interest rates. Although he stated that “upside risks to inflation have receded”, he acknowledged that downside risks to unemployment were beginning to rise.

It also follows months of Senator Warren’s insistence that the Fed should have cut interest rates earlier this year, in line with the Bank of Canada and the European Central Bank (ECB). At the time, she and Sen. Jacky Rosen (D-Nevada) argued that high interest rates were ironically exacerbating inflation, including the costs of housing and auto insurance.

While he now admits that inflation has almost fallen to the Fed’s 2% target, Warren now says it “may be too late” for the Fed to start with modest rate hikes. He pointed to the latest Bureau of Labor Statistics cut, which revealed that 818,000 fewer jobs were created in the 12 months ending in March 2024 than initially estimated, meaning growth in employment has been much slower than the Fed thought.

“If the Fed is too cautious in cutting rates, it would run the unnecessary risk of our economy heading into recession,” the senators wrote. “The Committee must consider implementing rate cuts more aggressively to mitigate potential risks to the labor market.”

What will the Fed do next?

Interest rate traders have a 67% chance the Fed will announce a 50 basis point cut on Wednesday, according to CME FedWatch. On Friday, some Fed policymakers said they were ready to start cutting rates, warning that the labor market could be in danger without the next decisive move.

By contrast, BlackRock warned On Monday, the rate cuts would not be as sharp as the market expects. The price of Bitcoin fell back below $58,000 after that.

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