Three key figures from the Democratic Party in the United States, namely Elizabeth Warren of Massachusetts, Jacky Rosen of Nevada, and John Hickenlooper of Colorado, have reached out directly to Federal Reserve Chairman Jerome Powell. In a detailed letter, the senators have called for an immediate reassessment of the federal funds rate, which is currently set at 5.5% – the highest level seen in the past two decades.
In a statement available on HuffPost, the senators stated, “We are writing today to urge the Federal Reserve to lower the federal funds rate from its two-decade high of 5.5 percent.” They argue that the prolonged high interest rate has been hindering the economy without effectively addressing the key drivers of inflation.
This move comes at a crucial time for financial markets, as they have recently adjusted their expectations for a September interest rate cut, which was previously anticipated for July. This shift in expectations had a direct impact on the performance of Bitcoin, causing its price to temporarily stagnate.
Furthermore, the senators emphasized that the current high rates have led to increased housing, construction, and automobile insurance costs. They have voiced concerns that maintaining high rates for an extended period could lead the economy into a recession, resulting in job losses for thousands of American workers. JPMorgan analysts noted, “Higher interest rates lead to increased rental costs.”
The letter suggested that the Federal Reserve should take cues from the European Central Bank (ECB) and reconsider its strict 2% inflation target. Recently, both the ECB and the Bank of Canada have adjusted their policies by opting to decrease their interest rates, unlike the Federal Reserve’s more rigid approach.
The senators also expressed worry that the differences in monetary policies could further bolster the dollar and create tighter financial conditions, impacting the credit flow and slowing down the economy in various sectors.
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