Obama-Era Economic Adviser Calls For Economic Policy To Be 'Less Restrictive,' Warns Of 'Tightening Financial Conditions' If Fed Doesn't Cut Rates In September

Jason Furman, a prominent figure in former President Barack Obama‘s administration, suggested that the current economic conditions may warrant a less restrictive policy, in a recent social media post.

What Happened: In a recent post on X, Furman, who is currently a Professor of Practice at Harvard and previously served as the Chair of President Obama’s Council of Economic Advisers, pointed out a notable shift in economic indicators.

According to Furman, inflation has decreased while the unemployment rate has risen, suggesting that economic “policy should be less restrictive than it was.”

He noted that the Goldman Sachs Financial Conditions Index indicates nearly half of the financial restraint has been reversed, with the Federal Reserve Staff measure showing similar trends.

Furman emphasized that this does not mean the Federal Reserve should halt its actions. He warned that if the Fed does not cut rates in September, it could lead to tighter financial conditions due to market disappointment.

“This doesn’t say the Fed shouldn’t do more. And if it doesn’t cut in Sep the disappointment could lead to tightening financial conditions,” Furman said.

See Also: June Jobs Figures Beat Expectations But Unemployment Rate Rises With Slower Wage Growth

He also acknowledged the possibility of the Federal Reserve implementing further measures, but suggested that the current situation is preferable to debating the Federal Funds Rate (FFR).

Why It Matters: Furman’s observations align with recent discussions about the Federal Reserve’s monetary policy. There have been differing opinions on the appropriate response to the changing economic landscape.

Bank of America, for instance, has maintained a hawkish stance on rate cuts, despite recent benign inflation reports. However, this position may be softened if the upcoming Consumer Price Index (CPI) report confirms a return towards the 2% target.

Meanwhile, U.S. Federal Reserve Chair Jerome Powell is expected to face pressure on interest-rate cuts and bank regulations from members of Congress on Tuesday and Wednesday as he provides his semiannual testimony before both chambers.

The call for a potential rate cut is not isolated. Mohamed El-Erian, chief economic adviser at Allianz, recently suggested that the Federal Reserve should consider a rate cut in July if the PCE inflation data is favorable. However, he expressed doubts about the Fed taking this step, citing the uncertainty in the current economic climate.

Moreover, Federal Reserve Gov. Lisa Cook has recommended lowering the interest rate “at some point,” though she has not specified when. With significant progress on inflation and the labor market cooling gradually, Cook believes it will be appropriate to reduce the level of policy restriction to maintain a healthy balance in the economy.

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Photo by Gerald R. Ford School Of Public Policy on Flickr

This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote