Senator Elizabeth Warren is pushing the Federal Reserve to lower interest rates dramatically this week, with the outspoken crypto critic arguing that higher borrowing costs have threatened the U.S. economy for too long.
“Now is the time to swiftly move forward with rate cuts,” the Senator from Massachusetts wrote in a letter addressed to Fed Chair Jerome Powell. The letter was also signed by Senators John Hickenlooper (D-CO) and Sheldon Whitehouse (D-RI).
In the letter, lawmakers called for a 75-basis-point rate cut. Meanwhile, traders expect the U.S. central bank to lower its benchmark rate from a 23-year high by 0.25% or 0.5% on Wednesday.
Bitcoin’s price rose Friday as traders digested Wall Street Journal and Financial Times articles that suggested Wednesday’s rate cut decision could be a close call. As of this writing, traders see a 57% chance that the Fed embarks on a series of rate cuts with a 50-basis-point drop. A month ago, traders penciled in a 25% chance, per the CME Group’s FedWatch Tool.
While rate cuts are typically bullish for risk assets like stocks and crypto, Warren and others advocated for an extra-large cut based on the labor market’s deteriorating health. With inflation clearly cooling, it’s dangerous for the Fed not to lower borrowing costs rapidly, they wrote, pointing to jobs data for March that was revised 818,000 positions lower last month.
At the same time, the lawmakers described an uptick in the unemployment rate to 4.2% as a worrying sign for the U.S. economy, citing a historic low of 3.5% last July.
“While the economy remains strong overall, this softening of the labor market offers further justification for lowering rates,” the lawmakers wrote. “Employment numbers adjust slowly, so the Fed should front load rate cuts to avoid sliding towards a potential crisis.”
Taking a measured approach to rate cuts would needlessly put the U.S. economy at risk, the senators argued. They backed up their call by reprising a previous remark from Powell, in which he adamantly said the Fed does not “welcome further cooling in labor market conditions.”
A cautious approach, however, was seen as the Fed’s base case less than a week ago.
Following an inflation readout last week, which showed that core inflation—a measure stripping out volatile food and energy prices—was sticky, the market leaned toward a 25-basis-point move. At that time, analysts worried that the Fed could “spook” the market with a 50-basis-point cut.
While the senators' proposed cut could exasperate slowdown jitters, some experts have called for a 75-basis-point cut recently. As markets weathered a global sell-off last month, for example, Wharton Business School Professor Jeremy Seigal called for slashing rates immediately.
Even though Seigal, who is also a senior economist at WisdomTree, later walked back his call, Seigal posited then that markets would “rip” higher if the Fed delivered such a strong cut.
Warren, a noted crypto skeptic, has ruffled industry feathers while calling for stricter regulations. She described “shadowy super-coders” as an imminent threat to the financial system in 2021, and raised national security concerns with “foreign adversaries” running crypto miners in July.
Due to Warren’s crypto comments, she has said the crypto industry has it out for her. Currently, John Deaton, a crypto lawyer, is vying for her Senate seat, campaigning against her with over a million dollars in outside support from Ripple Labs.
Still, in advocating for a 75-basis-point cut, it appears Warren and the crypto industry have shared ground—at least when it comes to the Fed’s chances of cutting rates vigorously.
Edited by Andrew Hayward