The Fed’s decision this week appears inconsistent and may have been influenced by its internal politics, Larry Summers said.
The former Treasury chief told Bloomberg that he found the central bank’s late announcement of policy confusing.
The Fed left rates unchanged this week, but signaled it could raise them twice more before the end of the year.
The Federal Reserve’s decision this week to hold interest rates and immediately signal future increases reflects an inconsistent approach that may have been influenced by the central bank’s internal politics, former Treasury Secretary Larry Summers said. .
“This meeting made me feel like I was driven as much by the internal political dynamics of the Fed as any cohesive and coherent reading of the economic situation and that confused me a bit,” Summers told Bloomberg on Thursday. , following the Fed’s FOMC. meeting.
The U.S. central bank decided to keep rates unchanged on Wednesday, taking a break after 10 straight hikes over the past 15 months. But he also planned two more quarter-point increases before the end of the year.
This new approach — dubbed by many market participants a hawkish pause — does not reflect consistent decision-making or a clear approach by the Fed that takes into account the current state of the U.S. economy, according to Summers.
“I found the Fed’s action a little confusing. I understand the arguments for not raising that at this meeting. But those arguments wouldn’t point to the signal for two more rate hikes, they wouldn’t point to a significant revision in forecasts towards a stronger economy and more inflation,” he told the outlet.
“I understand the arguments for going the other way,” Summers continued. “But I don’t really understand the internal consistency of an approach of pausing this meeting, but then signaling two more rate hikes down the road and signaling that they no longer expect that unemployment is rising as much as before.”
The former Treasury chief recently said the Fed should consider a big rate hike in July if it pauses this month, and warned it should be mindful of the overheating US economy. The Fed has raised rates from near zero to over 5% since last spring in an effort to rein in inflation, which is now cooling from four-decade highs in 2022.
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