Economists Urge Fed to Make Emergency Rate Cut to Help Ailing Economy

As the US economy worsens, the experts advise the Federal Reserve to prioritize cutting the interest rates to shield the world’s largest economy from a recession.

Following the release of the US employment data early last week, the crypto and stock market reacted to the news by shedding its value. The poor economic performance has sparked fear among investors that the economy might drift to a global recession.

The economic slowdown in the US has called for the attention of experts to examine possible ways to restore American economic stability.

Economists Push for Emergency Rate Cuts

In an August 5 report, the Wharton School of Business professor Jeremy Siegel urged the Federal Reserve to consider lowering the rate below 4% to assist the ailing economy.

Currently, the American rate ranges from 5.25% to 5.5%, contributing to the collapse of the US economy. To maintain the interest rate below 3.5% to about 1.5%, Siegel urged the Fed to immediately initiate a 75 basis point emergency cut and another 75 basis point cut in September.

Siegel’s report came days after the release of the US employment report that ignited fear of a looming recession. Subsequently, the Bank of Japan raised its interest rate above the o%, which triggered a sudden downtrend among most of the stock and crypto assets.

Reports show that Bitcoin recorded its lowest $50,000 on August 04. Analysts noted that the crypto assets, including Bitcoin and Ethereum, dropped to their March 2020 reading.

At that time, the crypto market witnessed high selling pressure due to the impact of the Covid-19 pandemic. In response to the COVID-19 pandemic and economic slowdown, most central banks provided adequate liquidity and lowered the interest to support the recovery of crypto and the stock market.

From his vast experiences in economic matters, Siegel urged the Feds to prioritize cutting the interest rates.

How Does Feds’Does Interest Rate Reduction Impact the Crypto Market?

Citing a report from the Fed, Siegel noted that when inflation reached 2% and unemployment hit 4.2%, the interest rate should be slightly below 2.8%. From the July employment report, the economist noted that unemployment reached 4.3% and CPI inflation hit 2.97% in June.

This implies that the Fed has to react to the situation. Siegel criticized the Fed for taking no action during the economic slowdown. The professor projects that Fed inaction could be disastrous to the economy.

He revisited the Fed’s mistake and noted that the agency was reluctant to increase the fund rate, which turned out to be the worst policy error in the past 50 years.

He blamed the Fed for being reluctant to act when the economy was worsening. Siegel’s recommendation mirrors experts’ views on the need for the Fed to cut the rates.

Factors Contributing to Economic Slow Down

In a recent report, the head of research at Coinshares, James Butterfill, expects the Fed to cut the interest rates to 1.5% by next month. The executive project had a 50 basis point cut in September.

Butterfill predicts that the Fed was cautious in its reaction despite its role in maintaining a stable market. However, the executive anticipates an August rate cut if the markets deteriorate further.

Upon contacting the Chicago Federal Reserve, President Austan Goolsbee, failed to comment on whether the bank planned to cut an emergency rate.

Coinshare ranks among the top analysts who are optimistic that the interest rate reduction would trigger a bullish steam to crypto assets such as Bitcoin.

As the Investment Director at   AJ Bell, Russ Mould believes that the looming recession signals lousy news for equities. Citing the 2000-2002 and 2007-2008  incidents, Mould noted that the Fed rate cut failed to prevent the bears from invading crypto and the stock market.

He explained that the scenario occurred due to an economic tumble and a sudden drop in corporate earnings. The CME Fed watch shows an 83% possibility of the Fed lowering the rate to 50 basis points.