The Blubber

US Senators have sent a letter to Powell asking for a 75bps cut.

Their letter:

"For months we have been calling upon you to cut the federal funds rate.1 As we wrote in June, the Fed’s elevated interest rates are not successfully addressing the remaining drivers of inflation, including housing costs—and might even be making them worse.2 We were encouraged to hear your remarks this past month when you acknowledged that “[t]he time has come for policy to adjust.”3 It is clearly the time for the Fed to cut rates. In fact, it may be too late: your delays have threatened the economy and left the Fed behind the curve. Inflation has fallen to 2.5 percent, well below the mid-2022 peak of 7 percent and just above the Fed’s target of 2 percent.4 You have stated that the central bank is looking for “greater

confidence” that inflation is moving to the 2 percent target, and it is clear that the inflation data is pointing in that direction.5 Indeed, one columnist warned investors to “adjust to the notion that inflation could soon undershoot the Federal Reserve's 2% target.”6 At the same time, the unemployment rate has ticked up to 4.2 percent, from 3.5 percent in July 2023.7 In a Senate Banking, Housing, and Urban Affairs Committee hearing in July you noted that “[]in light of the progress we’ve made [] in lowering inflation…elevated inflation is not the only risk we face,” stating that cutting interest rates “too late or too little could unduly weaken economic activity and employment.”8 Employment numbers adjust slowly, so the Fed should frontload rate cuts to avoid sliding towards a potential crisis. Last month you emphasized that the Fed “[does] not seek or welcome further cooling in labor market conditions," but there is a real risk that that is happening.9 At the end of August 2024, the Bureau of Labor Statistics released their preliminary benchmark annual review of employment data, which revealed that there were 818,000 fewer jobs in the 12 months that ended in March of this year than were initially estimated.10 While these are not job losses, they do indicate that job growth has been much slower than the data previously indicated. Some conservative economists believe that job growth has been even weaker since then.11 The Economic Policy Institute (EPI) stated: “there is no reason why the Fed should be looking to generate a weaker labor market, but recent months have seen signs of a slight softening at the labor markets on the margin.”12 While the economy remains strong overall, this softening of the labor market offers further justification for lowering rates."