If Robert Kaplan still had a say on the matter, he would be calling for a half-point rate cut at this week's Fed meeting.
The former Dallas Fed president told CNBC on Tuesday that taking the bolder step of raising interest rates by 50 basis points would help policymakers better position themselves for the latter half of the year and the economic challenges ahead.
“If I were at the table, I would be in favor of cutting rates 50 percent at this meeting,” Kaplan said during an interview with “Squawk Box.” “I think the Fed is probably going to be an hour or so later, and if I had a second chance, I would probably prefer that we start cutting rates in July rather than September.”
Markets are now pricing in about a 2-to-1 chance that the Federal Open Market Committee will agree to cut rates by 50 basis points, compared with the 25 basis point cut they had been expecting before Friday, according to CME Group’s FedWatch tool. One basis point equals 0.01%.
The federal funds rate, the central bank's benchmark overnight lending rate, is currently between 5.25% and 5.50%.
If the committee decides to take a more aggressive step, it would be incumbent on Chairman Jerome Powell to signal in his post-meeting news conference on Wednesday that further cuts are “likely to be more moderate,” Kaplan said. The Fed’s two-day policy meeting begins Tuesday.
“From a risk management perspective, 50 makes the most sense,” Kaplan says. “If the group splits, a lot of that will really depend on what Jerome Powell personally believes, what his personal position is on all of this, and then his ability to get everyone to come to a unanimous decision.”
Kaplan was a director of the Federal Reserve Bank of Dallas from 2015 to 2021, and is now a vice chairman and member of the management committee at Goldman Sachs.
