Former Treasury Secretary Larry Summers Slams Fed's September Rate Cut Saying It Was A Mistake: 'Today's Employment Report Confirms Suspicions That...'

Former Treasury Secretary Larry Summers has expressed disapproval of the Federal Reserve’s decision to cut interest rates last month, terming it a misstep in the face of the latest US job growth data.

What Happened: On Friday, Summers took to X, formerly Twitter, and voiced his disagreement with the Federal Reserve’s decision to slash interest rates by 50 basis points in September.

He labeled this action as a “mistake,” particularly in light of the recent data that shows U.S. job growth exceeding all predictions.

“Today’s employment report confirms suspicions that we are in a high neutral rate environment where responsible monetary policy requires caution in rate cutting,” he said.

See Also: Lawrence Summers Calls For SEC Investigation Into Unprecedented VIX Movement

Today's employment report confirms suspicions that we are in a high neutral rate environment where responsible monetary policy requires caution in rate cutting. With the benefit of hindsight, the 50 basis point cut in September was a mistake, though not one of great consequence.…

— Lawrence H. Summers (@LHSummers) October 4, 2024

Why It Matters: The September jobs report exceeded expectations, showing a 254,000 increase in U.S. payrolls and a surprising drop in the unemployment rate to 4.1%.

Wage growth also outpaced predictions, climbing 0.4% from the previous month and 4% over the past year.

Joseph Brusuelas, principal and chief economist at RSM US LLP, highlighted the strong wage increases and dismissed recession concerns, pointing instead to a “mid-cycle economic expansion.”

Aditya Bhave, U.S. economist at BofA Securities, adjusted his November forecast to smaller rate cuts (25 basis points) due to the robust economic data.

Bhave predicted a terminal rate of 3.0%-3.25%, with the potential for it to rise further, given the unexpectedly strong productivity growth.

Before the September rate cut, Federal Reserve Chairman Jerome Powell had stated that future interest rate cuts would hinge on economic data. His comments at the time added uncertainty to the market, causing stocks to slip.

Read Next:

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Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.

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