Former Treasury Secretary Lawrence Summers said that at this point it would still make sense for the Federal Reserve to boost interest rates by 25 basis points next week, given the importance of defeating inflation.
(Bloomberg) — Former Treasury Secretary Lawrence Summers said that at this point it would still make sense for the Federal Reserve to boost interest rates by 25 basis points next week, given the importance of defeating inflation.
“My own judgment is that it would be a serious mistake for the Federal Reserve not to remain focused on its objective of containing inflation” and bringing it down toward the 2% target range, Summers said in an interview on Bloomberg Television. “My guess would still be that it will be appropriate for the Fed to move by 25 basis points at its meeting next week, though conditions are always subject to change.”
The Fed holds its next policy meeting on March 21-22. Asked about whether a 50 basis-point move should be removed from consideration, Summers said, “I wouldn’t take anything off the table right now,” though if the decision were being made as of Monday, 50 would “not be sensible.”
It will be important to see Tuesday’s consumer price index data and how financial markets develop in the coming week, he said.
At the same time, the financial turmoil following the collapse of two banks means that some of the monetary tightening the Fed thought it had to deliver is now being done for it, said Summers, a Harvard University professor and paid contributor to Bloomberg TV.
“When banks are nervous and scared — as they are now — they lend less,” Summers said. “We’ll have to see how this plays out from here, I’m sure there will be more financial aftershocks.”
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