House Democrat calls on Fed to 'immediately' cut interest rates, warns of recession

Rep. Ritchie Torres joined the chorus calling on the Federal Reserve to make emergency cuts to interest rates on Wednesday and warned that without swift action, the Fed would be increasing the risk of a recession.

The lawmaker argued in a letter to Fed Chair Jerome H. Powell that emergency cuts should be made in response to a “softening” in the labor market following a lackluster July jobs report that showed unemployment increase to 4.3%, the highest rate in nearly two years. 

Mr. Torres, New York Democrat, said that the startling jobs report and concerns in the stock market that mirrored the beginning of the COVID-19 pandemic and 2008 financial crisis were more than enough reason to make an emergency cut. 

“Time is running out. The longer the Fed takes to cut interest rates, the greater the risk of a recession. We may be fast approaching the point of no return,” Mr. Torres wrote. “A recession is not an inevitability. It is a policy choice over which the Fed has singular power.

“The Fed must stop playing recessionary Russian roulette and save the economy from an increasingly self-destructive monetary policy that has kept interest rates too high for too long,” he wrote.

Mr. Torres’ plea followed sharp losses in the stock market earlier this week that triggered panic and sell-offs among investors. 

The markets rebounded Tuesday but slid again on Wednesday. The S&P 500 fell by 0.7%, while the Dow Jones Industrial Average dropped 0.8% and the Nasdaq slipped 1%. 

Some lawmakers, particularly Democrats, have called for an emergency rate cut, in part out of concern that a weakening economy will hurt their election prospects in November.

Mr. Powell opted to not make a cut to interest rates during the Fed’s two-day policy meeting last month, setting a target for a likely rate cut in September during the central bank’s next meeting. He argued during a press conference that lowering interest rates too soon could prompt an increase in inflation. 

“I think it’s a difficult judgment to make, and what you see as the judgment of the committee is that that time is drawing near,” he said. “That time could be in September, if the data supports that.”

Meanwhile, many economists are cautioning that emergency action by the Federal Reserve could cause panic among investors, worsening the recent sell-offs.

Dean T. Smith, an economist at the College of Charleston, said on X that “an 'emergency' cut by the Fed would worsen, not improve, the situation.”