dashboard



Fed May Need to Raise Rates to 6%, Monetary Economist Taylor Says

(Bloomberg) -- The Federal Reserve needs to raise interest rates significantly higher, to perhaps 6%, to reduce inflation, influential monetary economist John Taylor said on Friday.

Most Read from Bloomberg

Musk Warns Twitter Bankruptcy Possible as Senior Executives Exit

Bankman-Fried’s Assets Plummet From $16 Billion to Zero in Days

Musk’s First Email to Twitter Staff Ends Remote Work

Bankman-Fried Resigns From FTX, Puts Empire in Bankruptcy

China Eases Quarantine, Ends Flight Bans in Covid Zero Shift

He told an economic conference in New York that rates were still “quite low” when measured in real, inflation-adjusted terms or when compared to monetary policy rules like the one he developed some 30 years ago and which bears his name.

“That’s a concern,” the Stanford University professor said via a teleconference call. “You’re not going to be able to get the inflation rate down unless you follow a policy which is similar to the policies of the past” that are set out in monetary policy rules.

The Fed’s current target range for the overnight federal funds rate is 3.75% to 4%. Policy makers in September penciled in an eventual increase to 4.6% next year, though Chair Jerome Powell suggested last week that rates might have to go higher than that.

Taylor highlighted the risk of a wage-price spiral developing that fuels an inflation rate that is now running three times higher than the Fed’s 2% target.

“One of the dangers going forward is that wages will increase and try to match the inflation rate more than they have already,” he told the conference organized by the Shadow Open Market Committee, a group of academics and former policy makers that monitor the Fed.

Former Fed Vice Chair Donald Kohn echoed that concern at the conference.

“I worry about price/wage/price interactions,” he said, adding, “how the labor market plays out is going to be key to where they raise the interest rate and how fast they can get it down.”

Kohn, who is now a senior fellow at the Brookings Institution, said it will probably take a mild recession to put inflation on a sustainable track to a range of 2% to 3%.

“Maybe this is wishful thinking,” he added, while stressing how uncertain the outlook is.

Most Read from Bloomberg Businessweek

Americans Have $5 Trillion in Cash, Thanks to Federal Stimulus

One of Gaming’s Most Hated Execs Is Jumping Into the Metaverse

A Narrow GOP Majority Is Kevin McCarthy’s Dream/Nightmare Come True

Peter Thiel’s Strategy of Pushing the GOP Right Is Just Getting Started

Small Businesses Find a Loophole in the New Tax Law: Zelle

©2022 Bloomberg L.P.
Click Here To Get Funded!