Federal Reserve should cut rates now

OPINION:

When President Reagan took office in 1981, the U.S. economy was in crisis. Interest rates hovered near 20%, inflation was rampant, unemployment was surging, and public confidence had collapsed. At the time, I was managing a high-tech company in Detroit, where unemployment had hit a staggering 21%. The outlook was bleak.

Reagan responded with bold measures: tax cuts, inflation control and interest rate relief. These policies sparked one of the most enduring economic expansions in American history. That era taught us a critical lesson: In moments of economic fragility, hesitation is far more damaging than decisive action.

Today, we find ourselves at a similar crossroads.

In June, the Federal Reserve held the federal funds rate steady at 4.25% to 4.50% for the fourth consecutive meeting, far above Switzerland’s 0.25% and Japan’s 0.50%. Fed Chair Jerome Powell cited uncertainty over the impact of President Trump’s fiscal and trade policies and opted for a “wait and see” approach, but the data already demands a shift.

Inflation is clearly easing. It has declined to 2.67%, down from 2.97% last year, and below the historical average of 3.28%. The Fed’s forecast expects it to fall to 2.4% by 2026. Meanwhile, unemployment is projected to rise to 4.5%, with signs of slowing investment, tighter credit conditions and weakening consumer demand.

In April, Mr. Powell remarked at the Economic Club of Chicago: “The U.S. economy is still in a solid position. The labor market is at or near maximum employment. Inflation has come down a great deal but is running a bit above our 2% objective.” He closed with a quote from Ferris Bueller: “Life moves pretty fast.” Indeed, it does, but monetary policy appears stuck in the past.

The Fed was right to raise rates in 2022 and 2023 amid surging inflation, but those emergency conditions no longer apply. Now, the Fed’s dual mandate — price stability and maximum employment — is threatened not by inflation but rather by inertia.

Mr. Trump has called for rate cuts of 1 to 2 percentage points, citing their potential to stimulate growth and ease the mounting cost of federal debt. He is right. High rates raise borrowing costs for families and businesses and add billions of dollars in quarterly interest expenses to the national balance sheet.

Some argue that cutting rates now could appear politically motivated, but monetary policy must be governed by data, not optics. Mr. Powell’s responsibility is not to manage headlines; it’s to safeguard economic stability.

The Fed’s credibility depends on acting when evidence justifies it. Clinging to restrictive rates as inflation cools and the labor market softens risks triggering a self-inflicted recession.

We already see the consequences: hiring freezes, delayed investments, stagnant housing markets and waning consumer confidence. As a venture investor and former operating executive, I’ve seen how rate policy ripples across the economy from a young couple delaying their first home purchase to an entrepreneur postponing expansion.

This is not a call for recklessness. It’s a call for responsive, data-driven leadership. A measured rate cut beginning now would alleviate pressure, support employment and reduce taxpayer burdens, all without reigniting inflation.

Reagan’s team understood this. It endured short-term discomfort to build long-term resilience. That same clarity of purpose is needed again.

Delaying action in the name of political neutrality is, paradoxically, a political act that prioritizes perception over performance.

The window is open. The Fed should move. A modest rate cut today would reinforce the recovery before it slips out of reach.

• Igor M. Sill is the founding partner of Geneva Venture Partners, a technology venture capital investment firm. He previously managed U.S. investments for AXA, Societe Generale, Financiere de Brienne and the Francois Pinault family office. He holds an MBA from the University of Oxford Merton College. He completed executive studies in economics and financial markets under professor Robert Shiller  and law studies at Yale University.