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Warning Against Overly Tight Policy: Rate Hikes Risk Unnecessary Recession

Published July 28, 2026 at 12:03 PM UTC

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The economy is already slowing under the weight of trade wars and global uncertainty. Holding rates high hurts consumers through higher borrowing costs and depresses business investment. Inflation is moderating, with core PCE dropping toward 2%, suggesting the Fed's work is done. Keeping rates tight could tip the economy into recession, especially as Trump's erratic trade policies further dampen confidence. The Fed needs to be flexible, not dogmatic. Cutting rates now would provide a cushion against potential shocks. Overly hawkish moves like those Warsh advocates risk repeating the 2019 slowdown, when the Fed had to reverse course after overtightening.