“We’ve had two more months of good inflation data since the last Fed meeting, and that’s what the Fed asked for,” Claudia Sahm, a former Fed economist and chief economist at New Century Advisors, said in an interview last Friday.
The question now, however, is how far the Fed should go. Financial markets, a compass for the central bank’s direction, haven’t been helpful on that front. Futures markets focused on a 25 basis point rate cut for much of last week, but on Friday, traders shifted to seeing a 25 or 50 basis point cut as equally likely, according to CME’s FedWatch tool.
Sam is among those who think the Fed should do more. "The inflation data alone should be enough for us to cut rates by 25 basis points next week and there will be a series of cuts after that," she said. She believes the federal funds rate has been above 5% for more than a year to fight inflation. "The battle is already won, and they need to start cutting rates. The first cut should be 50 basis points to prevent a potential labor market recession."
Sam said: "The labor market has become weak since July last year, and Fed officials need to cut interest rates by 50 basis points and be ready to take further action." (Jinshi)
