David Malpass: Fed’s methods ‘outdated’; rates should be cut by 0.5%

Former World Bank President David Malpass strongly criticized the Federal Reserve’s policies, describing the US central bank’s methods as outdated, and called on the Fed to cut interest rates and support the US dollar.

In a post on his account on X (formerly Twitter), Malpass wrote: “Once again, the Federal Reserve is acting cautiously, which signals it is lagging behind, relying on models from the last century such as data dependency, the Phillips Curve, the NAIRU tradeoff, and failing to defend the dollar.”

Malpass added that America needs pro-growth reforms and decisive interest rate cuts to rebuild supply chains. In a series of posts, Malpass continued that President Trump is right to criticize the Federal Reserve. Interest rates remain unnecessarily high, and the central bank is wasting money on excessive renovations instead of fixing its broken models.

The former World Bank chief — whose name has appeared in some reports as a potential successor to Jerome Powell at the helm of the world’s most powerful central bank — argued that the Fed needs a half-point rate cut in September and fundamental reforms, but the economics profession will resist change.

Malpass explained that the Federal Reserve clings to outdated, anti-growth models that penalize wage gains, supply chains, and affordability. Its June 18 model estimates potential GDP growth at just 1.85% annually.

The Fed views high interest rates as appropriate to keep growth rates low, but this hurts small-business lending and undermines US competitiveness. This is a golden opportunity for radical changes at the Fed that would strengthen supply chains, he noted.

The way forward is to anchor Fed policy on forward-looking, market-based data, while cutting rates, downsizing the Fed, and protecting the dollar. This is the foundation for faster growth, stronger factories, and a more prosperous America, he concluded.