Former Fed Economist Advocates for Significant Rate Cuts

According to Odaily, former Federal Reserve economist and chief economist at New Century Advisors, Claudia Sahm, expressed her views in an interview last Friday. She stated, 'Since the last Federal Reserve meeting, we have had two months of good inflation data, which is what the Fed has been asking for.' However, the current issue is the extent of action the Fed should take. Financial markets, often seen as a guide for central bank direction, have not been helpful in this regard. According to the CME Group's FedWatch tool, the futures market focused on a 25 basis point rate cut for most of last week, but by Friday, traders shifted to an almost equal likelihood of either a 25 or 50 basis point cut. Sahm is among those who believe the Fed should take more significant action. She commented, 'The inflation data alone is enough for us to cut 25 basis points next week, and there will be a series of rate cuts after that.' She noted that the federal funds rate has been above 5% for over a year to combat inflation. 'This battle has been won, and they need to start cutting rates,' she said. This implies an initial 50 basis point cut to prevent a potential labor market recession. She added, 'Since last July, the labor market has weakened, so part of this is recalibration. We have more information now. Fed officials need to make this 50 basis point cut and be ready to take further action.'