Lawrence Summers: Fed Should Keep Open to Half-Point Hike in March

Former Treasury Secretary Lawrence Summers says the Federal Reserve should “have the door wide open to a 50 basis-point move in March.”

“No need to be committed to that until we see the next employment figures, until one sees what happens in markets but if markets are now saying 22% that means the door isn’t open to that possibility and there’s a very significant chance that that’s going to be the right thing to do,” Summers said Friday on Bloomberg Television’s “Wall Street Week” with David Westin.

“The main reason to move slowly in monetary policy is because you want to preserve the option of moving less far. It’s looking less and less likely that the right thing to do is to not raise rates by at least another 50 basis points and if that is the right thing to do, it’s best for credibility and its best for ultimate stability to make that move more quickly,” he added.

“So, I’ve been very disappointed to see some of the speeches coming out of the Fed to leave March off the table as a possible place for 50 and I hope the senior leadership of the Fed will guide to agnosticism on the possibility of a 50-basis point move in March and will do that sometime very soon.”

The Fed, he added, “has not been this far behind the curve for a year or so.”

The Federal Reserve’s preferred inflation gauge rose in January at its fastest pace since June, an alarming sign that price pressures remain entrenched in the U.S. economy and could lead the Fed to keep raising interest rates well into this year.

A report one week ago from the Commerce Department showed that consumer prices rose 0.6% from December to January, up sharply from a 0.2% increase from November to December. On a year-over-year basis, prices rose 5.4%, up from a 5.3% annual increase in December.

Excluding volatile food and energy prices, so-called core inflation rose 0.6% from December, up from a 0.4% rise the previous month. And compared with a year earlier, core inflation was up 4.7% in January, versus a 4.6% year-over-year uptick in December.

The report also showed that consumer spending rose 1.8% last month from December after falling the previous month.

January’s price data exceeded forecasters’ expectations, confounding hopes that inflation was steadily decelerating and that the Fed could relent on its campaign of rate hikes. It follows other recent data that also suggested that the economy remains gripped by inflation despite the Fed’s strenuous efforts to tame it.

A key Fed official on Thursday said the Federal Reserve will have to raise its key interest rate even higher than projected if inflation persists.

“Recent data suggest that consumer spending isn’t slowing that much, that the labor market continues to run unsustainably hot, and that inflation is not coming down as fast as I thought,” Fed Governor Christopher Waller said in remarks he planned to deliver at a meeting of the Mid-Size Bank Coalition of America.

“If those data reports continue to come in too hot, the policy target range will have to be raised this year even more to ensure that we do not lose the momentum that was in place before the data for January were released,” Waller said.

Information from the Associated Press was used in this report.