Pro: Federal Reserve Will Need To 'Explain Themselves To The History Books'

The Federal Reserve has "some explaining to do" if it speeds up the pace of interest rate cuts, CNBC quoted Chris Rupkey, chief financial economist at MUFG, as saying in a note.

What Happened

The Federal Reserve's recent interest rate cut in late July looks "more out of line than ever" given no immediate signs of a recession, the economist wrote.

The central bank faces pressure from President Donald Trump, who publicly blasted Fed Chairman Jerome Powell on multiple occasions to lower rates even more.

If the Fed cuts rates even further at a rapid pace, it will need to "explain themselves to the history books," Rupkey said. 

The Case For 'Very, Very Aggressive' Action

On the same day the Federal Reserve cut its rate in July, the spread on the two-year and 10-year Treasuries was 20 basis points, but within two weeks it shifted to negative territory, Pento Portfolio Strategies founder Michael Pento told CNBC.

This suggests the Federal Reserve needs to take "very, very aggressive" measures — as much as a 75-basis point cut for the long-term rate to rise, he said. 

Economist: Feed Must Avoid This Mistake

The Federal Reserve has the necessary tools to "act quickly" how it sees fit, but low interest rates typically limit how much stimulus it can create, CNBC quoted Nomura economist Lewis Alexander as saying in a note.

"The Fed could overestimate the strength of the economy and keep policy too 'tight,'" he added. "This has happened, on several occasions in the past. That said, the Fed seems intent on avoiding this mistake."

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