If Robert Kaplan still had a say in the matter, he’d be pushing for a half percentage point interest rate reduction at this week’s Federal Reserve meeting.
The former Dallas Fed president told CNBC on Tuesday that making the bolder move of 50 basis points would better position policymakers heading into the latter part of the year and the economic challenges ahead.
“If I were sitting at the table, I would be advocating for 50 in this meeting,” Kaplan said during a “Squawk Box” interview. “I think the Fed may be a meeting or so late, and if I had a do-over, I might prefer we had started the cutting in July, not September.”
Markets currently are putting about 2-to-1 odds that the Federal Open Market Committee will approve a 50 basis point reduction, as opposed to the 25 basis point cut they had been pricing in leading up to Friday, according to the CME Group’s FedWatch tool. One basis point equals 0.01%.
Fed funds, the central bank’s benchmark overnight lending rate, currently stand at 5.25% to 5.50%.
Should the committee decide to make the more aggressive move, Kaplan said it would then be incumbent on Chair Jerome Powell in his post-meeting news conference on Wednesday to indicate that additional cuts ahead are “likely to be more measured.” The Fed’s two-day policy meeting gets underway Tuesday.
“From a risk management point of view, 50 makes the most sense,” Kaplan said. “If the group is split, a lot of this will depend, actually, on what Jay Powell personally thinks, what is his personal disposition on all this, and then his ability to wrangle everybody to a unanimous decision.”
Kaplan ran the Dallas Fed from 2015-21 and is now vice chairman and member of the management committee at Goldman Sachs.