How much interest rate hike will it take to suppress inflation? Two heavyweight former Fed officials disagree with Ball

Two outgoing Federal Reserve officials have recently launched an onslaught of fire at the current chairman, calling for the U.S. to raise interest rates much higher than currently expected, with the result being a recession.

Both officials recently stepped down as vice chairmen, one was Richard Clarida, who set monetary policy for Fed Chairman Powell until January, and the other was in charge of financial oversight until the end of December. Randal Quarles. The pair never advocated for a big rate hike during their tenures at the Fed.

Clarida is currently a professor of economics at Columbia University and returns to the investment firm he founded. He argued that the Fed would need to raise interest rates to at least 3.5 percent — or 1 percentage point above neutral — to bring inflation back to its 2 percent target, with the result that the U.S. economy might slip into recession.

Quelz is more hawkish than Clarida, saying that the Fed should have raised rates long ago in September of last year, and now that inflation pressures are tight, unemployment is low, and market demand exceeds supply, the Fed has only begun to raise rates rapidly, which may make the The U.S. economy is in recession.

The Fed announced a 2-yard rate hike (50 basis points) on Wednesday, and Powell said that at least June and July will have the same rate hikes, with the aim of quickly raising the overnight lending rate to a “neutral” range of 2.25% to 2.5%. ” range, and further increase if necessary.

Powell also said that such an approach would guide inflation to cool and the economy would still have a soft landing rather than a recession.

The Fed’s two outgoing vice chairs have rarely publicly criticized Chairman Powell’s policies. (Photo: AFP)

The two former Fed officials are not alone. Bill Dudley, who was president of the Federal Reserve Bank of New York until 2018, said recently that the Fed is raising interest rates too slowly and a recession is inevitable.

“Criticism like this is rare,” said Ethan Harris, head of global economics at Bank of America. “The Fed can’t come out and say, ‘We’re doing it wrong,’ but I think they know they’ve waited too long.I think these criticisms are justified, and may instead help build consensus within the Fed and escalate the strength of inflation.」

Clarida and Quelz’s criticism of former colleagues was arguably the sharpest since the 1970s. In the 1970s, when U.S. inflation hit 10 percent, Fed chairmen Arthur Burns and William Miller were criticized by economists for “don’t know how to deal with inflation.”

Although Clarida had an important influence on monetary policy during his tenure, he was also limited by the difficulty of expressing views far from Powell’s in public. The Fed has the tools to meet the challenge, he said, and the task at hand is complex and faced with difficult trade-offs.

Quelz said that the uncertainty of the Fed’s leadership personnel is related to the delay in raising interest rates. If the personnel are confirmed earlier, the Fed may be able to act earlier. US President Biden nominated Ball for re-election as chairman in November last year, but it has not yet been voted due to factors such as the diagnosis of congressmen.

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