Fed Should Cut Interest Rate as Restrictive Stance Adds to Inflation, Democrats Say

Elevated interest rates aimed at taming inflation have become a part of the problem, three Democrat senators said.

AccessTimeIconJun 11, 2024 at 9:37 a.m. UTC
Updated Jun 11, 2024 at 9:40 a.m. UTC
  • Now is the time to cut rates, three Democrat senators said in a letter to the Fed on Monday.
  • The Fed should move away from its 2% inflation target, the letter added.

The Federal Reserve (Fed) has kept the interest rate too high for too long and it's time for a cut, three Democrat senators said Monday in a letter to the central bank's chairman, Jerome Powell.

"We write today to urge the Federal Reserve (the Fed) to cut the federal funds rate from its current, two-decade-high of 5.5 percent. This sustained period of high interest rates is already slowing the economy and is failing to address the remaining key drivers of inflation," Senators Elizabeth Warren (D-Mass.), Jacky Rosen (D-Nev.) and John Hickenlooper (D-Colo.) wrote, according to a document on the HuffPost website.

In response to the surprisingly resilient labor market, financial markets pushed out expectations for a first 25 basis-point interest-rate cut to September from July. The hawkish repricing has stalled a rally in bitcoin (BTC).

The senators argue that the elevated interest-rate environment aimed at taming inflation adds to the problem by pushing up housing, construction and auto insurance costs, and risks propelling the economy into a recession that could " push thousands of American workers out of their jobs." In April, investment banking giant JPMorgan analysts said higher interest rates are spiraling into rent.

The senators said it's time for the Fed to follow the European Central Bank's lead and move away from the 2% inflation target. The ECB and Bank of Canada cut rates last week, diverging from the Fed's higher-for-longer stance.

According to the letter, the divergence could lead to a stronger dollar and tighter financial conditions or flow of credit through various sectors of the economy. Tighter financial conditions often lead to economic slowdown.

Singapore-based crypto trading firm QCP Capital does not expect the divergence to last long and sees the drop in BTC and ether (ETH) prices as a buying opportunity.

Edited by Sheldon Reback.


Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

Omkar Godbole

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.