Former NY Fed Pres Dudley says it is time for 50 foundation factors

It’s been quite a turn for former New York Fed President Bill Dudley. Back in late May, he was calling for the Federal Reserve to hike rates further but now he’s saying they should be cutting by 50 basis points.

The two objectives of the Fed’s dual mandate — price stability and
maximum sustainable employment — have come into much closer balance,
suggesting that monetary policy should be neutral, neither restraining
nor boosting economic activity. Yet short-term interest rates remain far
above neutral. This disparity needs to be corrected as quickly as
possible.

He cites the 0.8 percentage point rise in the unemployment rate and fading inflation and argues the downside risks to employment outweigh the upside risks to inflation.

“I expect the Fed will do 50,” Dudley writes. “Monetary policy is tight, when it should be neutral or even easy. And a
bigger move now makes it easier for the Fed to align its projections
with market expectations, rather than delivering an unpleasant surprise
not warranted by the economic outlook.”