A great American economist accused Federal Reserve Bank By committing one of the biggest policy mistakes in its 110-year history, considering that the economic crisis looming on the horizon today is only the result of the big mistake committed during the past two years.
“The past two years have been one of the biggest policy mistakes in the Fed’s 110-year history by staying too easy when everything was booming,” said Jeremy Siegel, a professor of economics at the University of Pennsylvania’s Wharton School.
Commenting on what happened in the markets last Friday, Siegel said, “The Fed made a huge policy mistake last year by not moving to tighten monetary policy before inflation got out of control.”
According to an interview with CNBC, which was seen by Al Arabiya.net, Siegel mocked the Federal Reserve, as well as Federal Reserve Chairman Jerome Powell for his insistence that inflation would vanish quickly on its own.
Now, Siegel said, the Fed is making another mistake by raising interest rates and tightening monetary policy too hard.
He continued, “When all commodities rose at rapid rates, Chairman Powell and the Federal Reserve said we don’t see any inflation. We don’t see any need to raise interest rates in 2022, and now when the prices of all commodities and assets are going down he will say that stubborn inflation requires it, requires tightening. All the way to 2023.
As a result of all this, Siegel said, the central bank is making working- and middle-class Americans pay for what he expects to be a punishing recession.
Instead of continuing to raise interest rates until inflation falls back toward the central bank’s 2% target, Siegel said the Fed should let lower commodity prices bear more of the burden of fighting inflation.
Crude oil prices have fallen sharply from their highs reached earlier this year, as US crude fell on Friday by $4.75, or 5.7%, to settle at $78.74 a barrel, its lowest level since January 10, 2022.
“I think the Fed is too narrow,” Siegel added. “They’re making the exact same mistake on the other side that they made a year ago.”
The professor also criticized the Federal Reserve for trying to drive up the unemployment rate, and said that it’s not workers who are driving inflation with higher wages, they are just trying to catch up.
Siegel’s comments caused controversy among US economic followers, with many commenting on Twitter to agree with his assessment that the Fed had erred in keeping policy too loose for too long.
One commentator said the past three years of Fed policy are likely to be disrespected by historians.
