Former U.S. Treasury Secretary Lawrence Summers said he supports the Federal Reserve’s continued action to tighten monetary policy even if raising interest rates poses financial risks.
“It would be a mistake to decide not to take necessary monetary policy because of concerns regarding financial stability,” Summers said in an interview. “While there is a risk of some kind of financial trauma, I think the event is big enough to divert the Fed. The chances of attention are really low.”
The Fed has continued to raise interest rates so far in March, driving the dollar higher and weighing on the global economy, as has heated discussions regarding whether central banks should slow the pace of tightening.
However, Summers disagrees with the assertion that “long-term inflation expectations have been relatively stable, which means the Fed does not have to raise interest rates so aggressively.” He believes that long-term price stability expectations can be shaped because Fed policymakers Commitment to continue tightening monetary policy, and getting this done is very important.
“While inflation is high, inflation expectations are not yet entrenched, and the more that is the case, the more important it is now to aggressively fight inflation so that (inflation) expectations don’t become more entrenched,” he said. “
Summers also said that the non-farm payrolls report released on Friday (7th) highlighted the problem of inflation. While the number of jobs increased by 263,000 and the unemployment rate hit a new low in more than 50 years, the average hourly wage in September was higher than last year. Growth of 5% over the same period, he believes the economy is too strong for inflation to cool down.
“We’re heading towards some sort of conflicting situation that has to be handled carefully, and the sooner we start dealing with the slowdown, the better we’ll do,” he said.
Financial markets expect the Fed to raise interest rates by 3 yards for the fourth consecutive time in November and another 2 yards in December. Summers agreed with the forecast, saying such a rate hike would be appropriate even if inflation fell further.
