Former Treasury Secretary Lawrence Summers praised European Central Bank President Christine Lagarde for raising interest rates by a half percentage point Thursday and said the Federal Reserve should follow with its own, smaller, move next week.
(Bloomberg) — Former Treasury Secretary Lawrence Summers praised European Central Bank President Christine Lagarde for raising interest rates by a half percentage point Thursday and said the Federal Reserve should follow with its own, smaller, move next week.
“Lagarde gets an A+ today,” said Summers, a Harvard University professor and paid contributor to Bloomberg Television.
Not only did Lagarde follow through with a rate increase in the face of recent financial-market turmoil, she delineated monetary policy from financial-stability concerns and made clear that the ECB had different tools for addressing each, Summers said.
Speaking in a webinar organized by Princeton University, he said he was “very strongly of the view” today that the Fed should raise rates by a quarter percentage point next week.
While US banks may be less generous in providing credit to the economy in the wake of recent troubles in the sector, Summers said he didn’t think the impact would be big enough to justify a pause in rate increases by the Fed, given the inflation problem it faces.
A rate pause might not only heighten inflation expectations, it could also boost the odds of a recession by spooking consumers and companies into believing that the economy is worse off than they thought, he said.
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