If Robert Kaplan still had influence, he would advocate for a half percentage point interest rate cut at the upcoming Federal Reserve meeting.
Kaplan, the former Dallas Fed president, stated during a CNBC interview on Tuesday that opting for a more substantial 50 basis point reduction would better equip policymakers for the latter part of the year and future economic challenges.
“If I were at the table, I would be advocating for 50 basis points at this meeting,” Kaplan remarked during a “Squawk Box” interview. He added, “I believe the Fed may be slightly behind schedule, and if I could redo it, I might have preferred starting the cuts in July rather than September.”
According to the CME Group’s FedWatch tool, market participants currently estimate the odds at about 2-to-1 in favor of the Federal Open Market Committee approving a 50 basis point reduction, rather than the previously anticipated 25 basis point cut. One basis point equals 0.01%.
Currently, the Fed funds rate, which is the central bank’s benchmark overnight lending rate, stands at 5.25% to 5.50%.
If the committee opts for the more aggressive move, Kaplan emphasized that it would then be important for Fed Chair Jerome Powell to communicate during the post-meeting press conference on Wednesday that any future rate cuts are “likely to be more measured.” The Fed’s two-day policy meeting begins on Tuesday.
“From a risk management perspective, 50 basis points makes the most sense,” Kaplan said. “If the decision-making group is divided, much will depend on what Jay Powell personally thinks and his ability to achieve a unanimous decision.”
Kaplan served as the Dallas Fed president from 2015 to 2021 and is currently vice chairman and a member of the management committee at Goldman Sachs.
