Former Treasury Secretary Larry Summers says more rate hikes may be needed to kill inflation despite a banking crisis
REUTERS/Jonathan Ernst
- Former Treasury Secretary Larry Summers suggested more interest-rate hikes may be needed to cool inflation.
- "I probably would have allowed more room for concern about inflation and left the door a bit more open to multiple rate hikes," he said.
- The Fed made a decision Wednesday to hike interest rates by 25 basis points amid an ongoing banking crisis in the US.
Former Treasury Secretary Larry Summers said more interest-rate increases may be needed to bring down inflation despite a banking crisis in the US.
"I probably would have allowed more room for concern about inflation and left the door a bit more open to multiple rate hikes, given the strength of the recent inflation data" Summers told CNN on Wednesday.
Nevertheless, Summers voiced support for the Federal Reserve's latest interest-rate decision. "This was the right choice. If the Fed had stopped raising interest rates, when it clearly had a plan to increase interest rates, I think the risk would've been that it was signalling panic and alarm," he said, referring to the recent turmoil in the US banking system.
The US central bank pressed ahead with rate increases at its Wednesday meeting, hiking the fed funds rate by 25 basis points, to match market expectations. The rate now stands at 4.75%-5%.
Its decision comes in an effort to reduce inflation that remains stubbornly high at 6.0%. It was a tough call to make, as investors fear further rate hikes could damage an economy that is already showing signs of cracks after the collapse of three US banks – Silvergate Capital, Silicon Valley Bank and Signature Bank.
According to Summers, the US economy is faced with two paths amid the current banking chaos. "One, I think there is going to be some real durability in these banking problems and the economy is going to turn down. The other is that this will be weathered and very much contained," the former Harvard president said, adding that the Fed's next decision will depend on the path that comes true.