Three Democratic senators called on the Fed to lower its benchmark interest rate, arguing that the current high interest rate is exacerbating inflation rather than curbing it.
Democratic Senators Urge Federal Reserve to Cut Interest Rate Due to Inflation Concerns
Senators Elizabeth Warren (D-Mass.), Jacky Rosen (D-Nev.) and John Hickenlooper (D-Colo.) sent a letter to Federal Reserve Chairman Jerome Powell, which currently stands at 5.5%, the highest in two decades. He called for an immediate reduction in the federal funds rate.
“We write today to urge the Federal Reserve to lower the federal funds rate from a two-decade high of 5.5 percent.
“This prolonged period of high interest rates has already slowed the economy and failed to address the remaining key drivers of inflation,” senators wrote, according to a document on the HuffPost website.
The letter comes as financial markets, reacting to a surprisingly resilient labor market, have moved expectations for an interest rate cut to September, previously anticipated for July. This change in expectations stopped the rally in Bitcoin (BTC).
Senators argue that the high interest rate environment aimed at controlling inflation has contributed to increased housing, construction and auto insurance costs.
They warn that maintaining such high rates risks pushing the economy into recession and causing job losses for thousands of American workers. Analysts from JPMorgan noted that higher interest rates increase rental costs.
In their letter, the senators suggest that the Fed follow in the footsteps of the European Central Bank (ECB) and move away from its rigid 2% inflation target.
The ECB and the Bank of Canada recently cut interest rates, departing from the Fed's current stance of maintaining higher interest rates for longer.
The letter also highlights concerns that this divergence in policy could lead to a stronger dollar and tighter financial conditions, disrupting the flow of credit through various sectors of the economy and leading to an economic slowdown.
*This is not investment advice.