If Robert Kaplan still had a say in the matter, he would advocate for a half-percentage point interest rate reduction at this week’s Federal Reserve meeting. The former Dallas Fed president expressed to CNBC that a bolder move of 50 basis points would better position policymakers for the economic challenges ahead in the latter part of the year.
During a “Squawk Box” interview, Kaplan mentioned, “If I were sitting at the table, I would be advocating for 50 in this meeting.” He also noted that he believes the Fed might be a meeting or so late in implementing the rate cut and that starting the cutting in July rather than September would have been preferable if given the chance for a do-over.
Currently, markets are indicating about 2-to-1 odds that the Federal Open Market Committee will approve a 50 basis point reduction, compared to the 25 basis point cut that had been anticipated leading up to Friday, according to the CME Group’s FedWatch tool. One basis point equals 0.01%. The Fed funds rate, the central bank’s benchmark overnight lending rate, currently ranges from 5.25% to 5.50%.
If the committee decides on the more aggressive move, Kaplan suggested that it would be important for Chair Jerome Powell to indicate during his post-meeting news conference on Wednesday that additional cuts ahead are likely to be more measured. The Fed’s two-day policy meeting begins on Tuesday.
Kaplan emphasized, “From a risk management point of view, 50 makes the most sense.” He also highlighted that the decision may hinge on Powell’s personal views and his ability to guide everyone to a unanimous decision.
Kaplan served as the Dallas Fed president from 2015 to 2021 and currently holds the position of vice chairman and member of the management committee at Goldman Sachs.
