Fed Should Consider Half-Point Hike in July
The Federal Reserve should consider a half-point interest rate hike in July if it decides to skip a June increase, according to former Treasury Secretary Lawrence Summers.
Fed’s Rate Hike History
The Fed has raised rates four times since December 2015, when it began to normalize monetary policy after seven years of near-zero rates. The central bank has held the benchmark rate in a range of 1.5 percent to 1.75 percent since March 2018.
Summers’ Suggestion
Summers, who served as Treasury Secretary under President Bill Clinton, said the Fed should consider a half-point hike in July if it decides to skip a June increase. He said the move would be a way to signal that the central bank is serious about its commitment to normalizing monetary policy.
“If the Fed decides not to raise rates in June, it should consider a half-point increase in July,” Summers said in an interview with Bloomberg Television. “That would be a way of signaling that it is serious about its commitment to normalizing monetary policy.”
Economic Growth
The U.S. economy has been growing at a solid pace, with the unemployment rate at a 17-year low and inflation near the Fed’s 2 percent target. But the central bank has been cautious about raising rates too quickly, citing concerns about the potential for a trade war and other risks to the economy.
Fed’s Cautious Approach
The Fed has signaled that it is in no rush to raise rates, with Chairman Jerome Powell saying last month that the central bank is “very carefully monitoring” the economy and will act “as appropriate” to sustain the expansion.
The central bank has also indicated that it is in no rush to raise rates, with Powell saying last month that the central bank is “very carefully monitoring” the economy and will act “as appropriate” to sustain the expansion.
Market Expectations
The market is currently pricing in just one rate hike this year, with the odds of a June increase seen as slim. But Summers said the Fed should consider a half-point hike in July if it decides to skip a June increase.
“The Fed should not be in the business of trying to manage market expectations,” he said. “It should be in the business of trying to manage the economy.”
Inflationary Pressure
Summers said the Fed should be mindful of the potential for inflationary pressures to build if it does not act soon. He noted that the U.S. economy is currently operating at full employment, and that the labor market is tight.
“The Fed should be aware that if it waits too long, it could find itself in a situation where it has to raise rates more quickly than it would like,” he said.
Risks to the Economy
Summers also cautioned that the Fed should be mindful of the potential risks to the economy, including the potential for a trade war and other geopolitical risks.
“The Fed should be aware that if it waits too long, it could find itself in a situation where it has to raise rates more quickly than it would like,” he said.
Conclusion
Former Treasury Secretary Lawrence Summers suggested that the Federal Reserve should consider a half-point interest rate hike in July if it decides to skip a June increase. The Fed has raised rates four times since December 2015, when it began to normalize monetary policy after seven years of near-zero rates. The U.S. economy has been growing at a solid pace, with the unemployment rate at a 17-year low and inflation near the Fed’s 2 percent target. The market is currently pricing in just one rate hike this year, with the odds of a June increase seen as slim. Summers cautioned that the Fed should be mindful of the potential risks to the economy, including the potential for a trade war and other geopolitical risks. He also noted that the Fed should be aware that if it waits too long, it could find itself in a situation where it has to raise rates more quickly than it would like.