Dudley
It’s been quite a turn for former New York Fed President Bill Dudley. Back in late May, he was calling for the Federal Reserve to hike rates further but now he’s saying they should be cutting by 50 basis points.
The two objectives of the Fed’s dual mandate — price stability and maximum sustainable employment — have come into much closer balance, suggesting that monetary policy should be neutral, neither restraining nor boosting economic activity. Yet short-term interest rates remain far above neutral. This disparity needs to be corrected as quickly as possible.
He cites the 0.8 percentage point rise in the unemployment rate and fading inflation and argues the downside risks to employment outweigh the upside risks to inflation.
“I expect the Fed will do 50,” Dudley writes. “Monetary policy is tight, when it should be neutral or even easy. And a bigger move now makes it easier for the Fed to align its projections with market expectations, rather than delivering an unpleasant surprise not warranted by the economic outlook.”