Fed’s Former Vice Chair Cohen Predicts 150 Basis Point RateCuts in Next Five Quarters
By [Your Name], Senior Journalist and Editor
The Federal Reserve is facing a complex economic landscape, with inflation still elevated and the possibility of a recession looming. In a recent interview, former Fed Vice Chair Donald Kohnexpressed his belief that the central bank will need to cut interest rates significantly in the coming months to address these challenges.
Kohn, who served as the Fed’ssecond-in-command from 2006 to 2010, predicts that the Fed will reduce interest rates by a total of 150 basis points over the next five quarters. This would bring the federal funds rate, currently in the range of 5.25% to 5.5%, down to around 3.75% to 4%.
I think the Fed is going to have to ease policy quite a bit to getinflation down to 2% and to avoid a recession, Kohn said. They’ve already raised rates quite a bit, and I think they’re going to have to cut them by a similar amount to get the economy back on track.
Kohn’s prediction is based on several factors. First,he believes that inflation will continue to moderate in the coming months, but it will likely remain above the Fed’s 2% target for some time. Second, he sees a growing risk of a recession, given the recent slowdown in economic growth and the ongoing tightening of financial conditions.
The economy is slowing down, and the Fed’s rate hikes are starting to bite, Kohn said. I think the risk of a recession is increasing, and the Fed is going to have to act to prevent one.
Kohn’s prediction is in line with the views of many economists who are also expecting the Fed to begin cutting interest rates inthe second half of 2023. However, there are also some economists who believe that the Fed will need to keep rates higher for longer to fully tame inflation.
The Fed’s next meeting is scheduled for July 25-26, and it will be closely watched for any signs of ashift in the central bank’s policy stance. While the Fed has signaled that it will hold rates steady at its next meeting, the possibility of a rate cut later this year is growing.
Kohn’s prediction highlights the uncertainty surrounding the Fed’s future policy path. The central bank is facing a delicate balancing act, trying to bring inflation down without triggering a recession. The Fed’s decisions in the coming months will have a significant impact on the economy and financial markets.
Factors Contributing to Kohn’s Prediction:
- Inflation Moderation: While inflation remains elevated, Kohn believes it will continue to decline in the comingmonths, albeit slowly. This suggests that the Fed’s aggressive rate hikes are starting to have the desired effect.
- Recession Risk: The recent slowdown in economic growth and the ongoing tightening of financial conditions have increased the risk of a recession. Kohn believes that the Fed will need to act to prevent a recession,and rate cuts would be a key tool.
- Global Economic Slowdown: The global economy is facing a number of challenges, including the war in Ukraine, rising energy prices, and supply chain disruptions. These factors are contributing to a slowdown in global growth, which could further impact the US economy.
- Labor Market Strength: The US labor market remains strong, with low unemployment and high job openings. However, there are signs of cooling in the labor market, which could lead to a slowdown in economic growth.
Potential Implications of Rate Cuts:
- Stimulate Economic Growth: Rate cuts would lower borrowing costs for businessesand consumers, potentially stimulating economic growth.
- Support Financial Markets: Rate cuts could help to stabilize financial markets, which have been volatile in recent months.
- Reduce Inflationary Pressures: While rate cuts are generally seen as inflationary, Kohn believes that they will be necessary to prevent a recession, which couldultimately lead to lower inflation.
Conclusion:
Kohn’s prediction of 150 basis points of rate cuts over the next five quarters reflects the growing consensus among economists that the Fed will need to ease monetary policy to address the challenges facing the US economy. The Fed’s decisions in the coming monthswill be crucial in determining the course of the economy and financial markets.
References:
- Fed’s Former Vice Chair Cohen Predicts 150 Basis Point Rate Cuts in Next Five Quarters, 36Kr, [Date of Article]
- Federal Reserve, Board of Governors of the Federal ReserveSystem, [Date Accessed]
- Economic Outlook, International Monetary Fund, [Date Accessed]
Note: This article is based on the provided information and existing knowledge. It is important to consult with financial professionals for personalized advice.
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