Former Fed economist Sam: The Fed should cut interest rates by 50 basis points

"We've had two more months of good inflation data since the last Fed meeting, and that's what the Fed asked for," said Claudia Sahm, a former Fed economist and chief economist at New Century Advisors, in an interview on Friday. The question now, however, is how big a move the Fed should make. Financial markets, a compass for where the central bank is headed, haven't been helpful on that front. Futures markets spent much of last week focused on a 25 basis point rate cut, but on Friday traders shifted to almost equal odds of a 25 or 50 basis point cut, according to CME's FedWatch tool. Sahm is among those who think the Fed should go bigger. "The inflation data alone should be enough for us to cut 25 basis points next week and have a series of rate cuts after that," she said. She believes the federal funds rate is already above 5% and has been fighting inflation for more than a year. "The battle is already won, and they need to start cutting rates," she said. That means a 50 basis point cut from the start to prevent a potential labor market recession. She said: "The labor market has softened since July last year, so part of this is a recalibration. We are getting more information. Fed officials need to make this 50 basis point cut and be ready to go further." (Jin Shi)