Former New York Fed President Dudley: Fed Will Cut Rates by 50 Basis Points
In a recent article, former New York Fed President Dudley argued that an aggressive 50 basis point rate cut by the Fed makes sense. The two objectives of the Fed's dual mandate – price stability and maximum employment – have become more balanced, indicating that monetary policy should be neutral, neither restraining nor stimulating economic activity. However, short-term interest rates are still significantly above neutral levels. This gap needs to be addressed promptly. A 50 basis point cut would also align with the Fed's dot plot projections. The market expects a total rate cut of at least 100 basis points by the end of 2024. If the Fed only cuts by 25 basis points now and anticipates a 50 basis point cut later this year, it would send a hawkish signal, raising questions as to why it didn't cut by 50 basis points in the first place. Cutting rates by 50 basis points in September would help the Fed avoid this predicament.