Former New York Federal Reserve President William Dudley has argued in a recent article that the Fed should aggressively cut interest rates by 50 basis points. Dudley believes that the Fed’s dual mandate of price stability and maximum employment is now more balanced, necessitating a neutral monetary policy.
However, Dudley notes that short-term interest rates remain well above neutral levels. He argues that this discrepancy needs to be corrected promptly, and a 50 basis point rate cut would align with the Fed’s dot plot expectations. The market is currently anticipating a total rate cut of at least 100 basis points by the end of 2024.
Dudley warns that a smaller rate cut of 25 basis points could send a hawkish signal and raise questions about the Fed’s decision-making. A more aggressive rate cut in September, he suggests, would help the Fed avoid such confusion and maintain market confidence.
