David Malpass Advocates for 0.5% Fed Rate Cut, Citing "Outdated" Economic Models

David Malpass, the former World Bank President and a figure recently mentioned as a potential candidate for Federal Reserve Governor, has sharply criticized the U.S. central bank's current monetary policy, advocating for significant interest rate reductions. As noted by Sara Eisen in a recent tweet, Malpass presents an "interesting and unique take on Fed policy." He argues that the Federal Reserve's methods are "outdated" and are hindering economic growth, despite what he perceives as a strong economy.

Malpass specifically called for a half-point interest rate cut, stating that current rates are "still too high" and are negatively impacting small business lending and U.S. competitiveness. He contends that the Fed continues to rely on "models from the last century such as data dependency, the Phillips Curve, the NAIRU tradeoff, and failing to defend the dollar." This reliance, he suggests, signals the Fed is "lagging behind" and needs fundamental reforms.

His critique extends to the Fed's approach to inflation, with Malpass previously asserting that the central bank was "late in their hikes." He believes that "pro-growth reforms and decisive interest rate cuts" are essential to rebuild supply chains and foster a more robust economy. Malpass's views align with a broader perspective that emphasizes market-based data and a smaller, more focused Federal Reserve.

Malpass, who served as World Bank President from 2019 to 2023, has a long history of involvement in economic policy, including as a senior economic advisor to the Donald Trump 2016 presidential campaign. His name has surfaced in discussions regarding potential successors to Jerome Powell or as a candidate to join the Federal Reserve board, possibly to replace Lisa Cook. His consistent advocacy for lower interest rates and a reevaluation of the Fed's operational framework positions him as a prominent voice in the ongoing debate over U.S. monetary policy.