The president of the Federal Reserve Bank of Atlanta has warned of disastrous economic consequences similar to those seen during the financial crisis of the 1970s if the Fed loosens policy prematurely. Noting that “inflation is still too high,” he emphasized: “We don’t want a repeat, so we must beat inflation now.”
Fed Officials on Rate Hikes and Fighting Inflation
Federal Reserve Bank of Atlanta President Raphael Bostic warned of “disastrous” economic consequences if the Fed loosens policy prematurely in an essay published by the Atlanta Fed on Wednesday.
“I think inflation is still too high,” he wrote, emphasizing the need for the FOMC to raise interest rates more aggressively. Commenting on a narrative that the Fed should consider “reversing its course of raising the fed funds rate so we don’t go too far and cause undue economic hardship,” Bostic opined:
While that perspective is understandable, history teaches that if we ease inflation before it is fully brought under control, it can flare up again. That happened with disastrous results in the 1970s.
“After the FOMC relaxed policy prematurely, it took about 15 years to bring inflation under control, and only after the fed funds rate hit 20%,” the Atlanta Fed president warned. “We don’t want a repeat, so we must beat inflation now.”
Bostic continued: “We must now determine when inflation is moving irrevocably downward,” explaining:
We’re not there yet, which is why I think we’ll need to raise the fed funds rate to between 5% and 5.25% and leave it there well into 2024.
“This will allow tighter policy to filter through the economy and ultimately better balance aggregate supply and demand and therefore reduce inflation,” he said.
Federal Reserve Bank of Minneapolis President Neel Kashkari also spoke about interest rate hikes at a business event in Sioux Falls on Wednesday. Kashkari said he has an “open mind” on whether the Fed will raise interest rates by 25 or 50 basis points at the next FOMC meeting. Citing last month’s data of “higher-than-expected inflation and a strong jobs report,” Kashkari said:
These are worrying data points that suggest we are not making as fast a progress as we would like.
However, he cautioned against overreacting to “a month’s worth of data, even if the data is worrisome.”
Do you think the Fed should be more aggressive in raising interest rates to combat inflation? Let us know in the comments section.
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