Former U.S. Treasury Secretary Lawrence Summers said investors need to prepare for the possibility of the Fed raising rates at all of its remaining seven meetings this year, or even more than 25 basis points in one go.
“The market has to prepare for the possibility of a rate hike at every meeting, the possibility of a one-time rate hike of more than 25 basis points due to the inflation situation,” Summers said on Friday.
Summers said the Fed was “too late” and that anyone who didn’t believe the Fed could raise rates in a row over the course of the year “underestimated the range of possibilities.”
Bank of America forecasts that the Fed will raise interest rates for the remainder of the year’s policy meetings, the highest forecast among major Wall Street banks. Nomura drew attention last week when it predicted the Fed would raise interest rates by 50 basis points for the first time since 2000.
“Serious error”
“The data is very uncertain and we all have to admit and remain humble,” Summers said Friday.
Summers praised Fed Chairman Jerome Powell, calling him “humble” and “flexible” in setting policy, but also warned that the central bank may need to tighten policy more sharply than currently expected.
“The bigger risk is that we don’t tighten monetary policy enough and end up with core inflation above 4 percent — and then only do what Paul Volcker had to do in the late 1970s,” Summers said. “It would be a very real and serious mistake to cause inflation to become entrenched.”
Data on Friday provided further evidence of rising inflationary pressures, with the January nonfarm payrolls report showing average hourly earnings rose 0.7% from December, the largest gain since late 2020.
“It looks like wage inflation in the U.S. is very strong right now,” Summers said. “We’re heading towards a situation where inflation remains elevated well above the 2% target.”
Source: Finance WorldReturn to Sohu, see more
Editor:
Disclaimer: The opinions of this article only represent the author himself, Sohu is an information publishing platform, and Sohu only provides information storage space services.