Former New York Fed Chair Dudley: A 50 Basis Point Rate Cut Makes Sense

ChainCatcher reports, citing Jin10, that former New York Fed Chair William Dudley argued in a recent article that an aggressive 50 basis point rate cut by the Fed is justified. Dudley believes that the Fed's two objectives in its dual mandate – price stability and maximum employment – have become more balanced. This suggests that monetary policy should be neutral, neither restraining nor stimulating economic activity.

However, short-term interest rates currently remain significantly above neutral levels. This gap needs to be corrected promptly. A 50 basis point rate cut would also align with the Fed's dot plot projections. The market anticipates a total rate cut of at least 100 basis points by the end of 2024. If the Fed only cuts rates by 25 basis points now and expects a 50 basis point cut later this year, it would send a hawkish signal, raising questions about why it didn't cut rates by 50 basis points initially. A 50 basis point rate cut in September would help the Fed avoid this predicament.