Former US Treasury Secretary Lawrence Summers warned that: Federal reserve It will likely have to raise interest rates more than markets are currently anticipating due to high inflationary pressures.
“We still have a long way to go to get inflation below the Fed’s target,” Summers said, “I think they’re going to need more rate hikes than what the market is seeing right now.”
Interest rate futures indicate that traders expect the Fed to raise interest rates to around 5% by May 2023, up from the current range of 3.75% to 4%. Economists are expecting a 50 basis point hike at their December 13-14 policy meeting, when Fed officials are also expected to release new key rate forecasts.
Summers said, “6% is definitely a scenario we can write, and 5% would not be a best guess for key interest rates,” he told Bloomberg, and Al Arabiya.net reviewed it.
Summers’ speech came hours after the release of the latest monthly US jobs report, which showed an unexpected rise in average hourly wages. He said these figures show continued strong price pressures in the economy.
Average hourly wages increased 0.6% in November with a broad-based increase that was the largest since January and was up 5.1% from a year earlier. Wages of manufacturing workers and nonsupervisory workers rose 0.7% from the previous month, the highest rate in nearly a year.
Summers also pointed to housing market data, saying “there’s a point where the market changes abruptly from sellers putting their properties on the market when prices start to fall.”
On the economic downturn, he said: “I don’t know when it will come.” “But when it starts, I think it’s going to be pretty strong.”
The former Treasury secretary also warned that “this is going to be a relatively severe recession, not like the low-interest-rate recessions we’ve seen in the past.”
He stressed the need for the Fed to stick to its 2-3% inflation target, in part due to potential credibility issues after allowing inflation to rise to current levels over the past two years.