Election Interference? Elizabeth Warren Urges Fed To Cut Rates By 75bps…

Authored by Mike Shedlock via MishTalk.com,

A trio of Democrat Senators wrote Jerome Powell begging for a three-quarter point cut.

Letter to Powell

Here is the Letter to Powell from Sens. Elizabeth Warren (D-MA), John Hickenlooper (D-CO) and Sheldon Whitehouse (D-RI).

We write today to urge the Federal Reserve (Fed) to cut the federal funds rate, currently at a twodecade-high of 5.3 percent, by 75 basis points (bps) at the Federal Open Market Committee (FOMC) meeting on September 17 and 18, 2024. Given the Fed’s confidence in inflation moving towards its target of 2 percent and data indicating slower job growth, now is the time to swiftly move forward with rate cuts.

For months we have been calling upon you to cut the federal funds rate. 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. We were encouraged to hear your remarks this past month when you acknowledged that “[t]he time has come for policy to adjust.” 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. 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.” 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.” 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. 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. 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.” While the economy remains strong overall, this softening of the labor market offers further justification for lowering rates.

If the Fed is too cautious in cutting rates, it would needlessly risk our economy heading towards a recession. A number of economists have warned of this risk since July. Former president of the Federal Reserve Bank of New York, Bill Dudley, wrote, “dawdling now unnecessarily increases the risk.” The Committee must consider implementing rate cuts more aggressively upfront to mitigate potential risks to the labor market.

Thank you for your attention to this matter.

No Case, No Case, No Case

• There is no legitimate case for a three-quarter point cut.

• There is no case for political meddling with the Fed.

• There is no legitimate case for the Fed at all.

However, the one thing worse than the Fed would be to put Congress in control of money supply and interest rates.

This is why it was ridiculous for Trump to claim he could do a better job than the Fed.

When Trump made that statement I warned Democrats would do the same. Today they just did.

What’s Warren’s Angle?

• Help Kamala Harris

• Ask for 75 basis points to make 50 basis points look like the middle ground.

Understanding the Dual Mandate

July 31: Fed is Attentive to the Risks to Both Sides of its Dual Mandate

The Fed is concerned about inflation and jobs. It’s the latter that will be the bigger problem in the near-term.

August 23: Fed Does Not Seek or Welcome Further Labor Market Cooling

The market is cheering the Jerome Powell’s self congratulatory and market friendly speech at Jackson Hole. “Your mileage may vary,” said Powell. Indeed.

Undoubtedly, “Your mileage may vary,” is the most accurate thing Powell said today.

Two Fed studies have debunked the myth of inflation expectations, and so does common sense. ….

September 6: Payroll Report: Manufacturing Sheds 24,000 Jobs, Government Adds 24,000, Big Negative Revisions

Full Time Employment is -1,021,000 from a year ago!

Suddenly, there’s a 59 Percent Chance of Half-Point Interest Rate Cut by the Fed

This morning, I noted Suddenly, there’s a 59 Percent Chance of Half-Point Interest Rate Cut by the Fed

Reflections on the Fed’s Dual Mandate

I do not believe there should be a dual mandate.

Heck, I don’t think there should be a Fed. Nor do I think a goal of 2 percent inflation is a good idea, even if accurately measured.

But I didn’t create the mandate, Congress did. And that mandate gives the Fed cover to do whatever it wants.

A month ago I predicted a 50 basis point cut this month. Many people thought I was crazy.

Bear in mind that a prediction does not indicate support for the policy. It’s only a reflection of what I think is likely.

To understand the problem with big rate cuts, look ahead.

Looking Ahead

Deficits are massive, tariff hikes are inflationary, just-in-time manufacturing has been replaced by just-in-case stockpiling, demographics put upward pressure on wages while dramatically increasing the need for Medicare, and both Trump and Biden want more production in the US.

Every point in the above paragraph is inflationary.

Underlying inflation pressures are huge. Given neither party’s willingness to do anything to fix out of control spending, it’s the recent decline in the rate of inflation that’s transitory, not the increase in inflation.