Instead of doing three separate rate cuts the market is pricing out, Kudlow says the Fed should cut in one “swoop” and that it would help reset the yield curve to be upward sloping again. That would equate to bringing its benchmark interest rate down by 75 basis points, not a quarter or half.
Kudlow’s comments come after President Trump lamented on the Fed again Friday, blaming the central bank for lower economic growth. “Q2 GDP Up 2.1% Not bad considering we have the very heavyweight of the Federal Reserve anchor wrapped around our neck,” he tweeted. “Almost no inflation. USA is set to Zoom!” he tweeted.
The Federal Reserve is widely expected to cut interest rates at the conclusion of its policy meeting July 31 by a quarter percentage point to keep the economic expansion humming in the face of tariffs and slowing global growth. JPMorgan Chase is among the firms that are forecasting a rate cut in July, followed by two others.
The economy grew 2.1% in the second quarter, down from a hefty rate of 3.1% in the first quarter but still ahead of what economists were forecasting. Trade was a drag on growth in the second quarter, as exports fell 5.2% in the quarter and business investment dropped for the first time since 2016. U.S. Trade Rep. Robert Lighthizer and Treasury Secretary Steven Mnuchin will head to China next week to restart trade talks which collapsed in May.
“The consumer and government spending drove all of the gain in GDP as trade, inventories and investment reversed first-quarter gains,” said Peter Boockvar, chief investment officer for Bleakley Advisory Group. “We know the consumer has been what has been holding things up in light of the global slowdown in trade and manufacturing and that is thanks to a tight labor market and rising wages.”