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News Tip: Expert Discusses If Fed Rate Cut Will Mitigate Potential Downturn

The Federal Reserve Board is expected this week to cut interest rates for the first time since 2008, when the country was in a recession.
 

  • Quotes
    “Americans may be somewhat confused about why the Federal Open Market Committee is contemplating a rate cut, and why now. After all, unemployment is low, and Fed policymakers have not been raising red flags about the performance of the economy,” said Sarah Bloom Raskin, a Duke University professor who is both a former Treasury official and governor of the Federal Reserve Board. “Indeed, looking at Fed policymaker projections, most of them did not project that there would be rate cuts in 2019.”

    “Traditional text book monetary policy -- Econ 101, so to speak -- says that when the economy is overheating you cool it with higher interest rates. When the economy is slowing, you swiftly cut rates. So is the economy indeed slowing, bringing to an end the longest economic expansion that began under President Obama?”

    “Sorting this out has been the challenge of Fed communications of late. For example, second quarter GDP has dropped to 2.1 percent, down from 3.1 percent in the first quarter. Business investment continues to weaken, and the Fed now appears to be concerned about the impact of trade tensions and weaker global demand. The result: the Fed now says that the rate cut should be done to keep a potential downturn from becoming super bad.”

    "But is it precaution or is it politics? If economic data was looking weak, why is the Fed only now taking this step? And if things are turning bad, is a 25 basis point cut enough? The Fed is supposed to be independent, but if Americans don’t understand exactly what is happening and why, they may think that Chairman Powell is caving into presidential bullying.”

  • Bio: 
    Sarah Bloom Raskin is a Rubenstein Fellow at Duke Law School and served as the former deputy secretary of the U.S. Department of the Treasury from March 2014 to January 2017, where she oversaw the entire Treasury Department and its various agencies and departments. Prior to her confirmation as deputy secretary, Raskin served (2010-2014) as a governor of the Federal Reserve Board where she helped conduct the nation’s monetary policy and promote financial stability. She also served as the Commissioner of Financial Regulation for the State of Maryland from 2007 to 2010.

    For additional comment, contact Professor Raskin at sarah.raskin@duke.edu