The Federal Reserve must emulate Mario Draghi and do “whatever it takes” to bring inflation down, which means continuing to raise interest rates even in a recession, the former chairman of the Federal Reserve said on Friday. Richmond Federal Reserve, Jeffrey Lacker.
“Taking your foot off the brake before inflation goes down” is just a “recipe for another recession to come,” Lacker said, in an interview on Bloomberg Television.
How high should the Fed raise its benchmark interest rate?
Lacker said the Fed needs to raise its key rate above the “expected rate of inflation.” That means a federal funds rate around 6%, he said.
Traders in the fed funds futures market do not expect rates to come close to 6%.
According to the CME tool FedWatch, the market expects the central bank to raise its benchmark rate to a range of 3.25-3.5% by the end of the year and start to reduce the next summer as the economy weakens.
Lacker said he doesn’t think the Fed should slow down.
Lacker said he doubts inflation expectations will drop to 3.5-4% by the end of the year and that’s why the Fed will have to raise rates higher.
The central bank “might as well do it” and push rates up quickly, he said.
Lily: Will the Fed get lucky and avoid a hard landing?
At its July policy meeting next week, the Fed is expected to raise its key rate by 0.75 percentage points to a range of 2.25-2.5%.