Tags: Paul | Ryan | Fed | Hike | Interest | Rates | fight

Rep. Paul Ryan: Fed Must Hike Interest Rates Right Now

Tuesday, 08 Feb 2011 01:18 PM

The Federal Reserve needs to raise interest rates to stave off inflation, says Rep. Paul Ryan, R-Wis. "I'm worried they're not going to pre-empt inflation," the House Budget Committee Chairman tells CNBC.

"I'm worried they're going to see it too late and we're going to have a problem."

The Federal Reserve recently decided to stick with low interest rates and to proceed with its $600 billion government bond buyback program to fuel economic growth by circulating more money in the financial system.

Rep. Paul Ryan
That could cause inflation, Ryan says, and higher interest rates are the tool to avoid higher consumer prices.

"My fear is they're going to try to mop up all this excess money after the cow is out of the barn, after the inflation expectations have been formed," Ryan says.

"Credibility and perception is everything when it comes to monetary policy, and my fear is sound money is secondary toward short-term employment growth. The irony of this is sound money is a necessary precondition toward sustainable economic growth."

Even some Fed officials say it's time to rethink the $600 billion bond buyback program, known as quantitative easing.

"The distinct improvement in the economic outlook since the program was initiated suggests taking that re-evaluation quite seriously," says Federal Reserve Bank of Richmond President Jeffrey Lacker, according to Bloomberg.

"That re-evaluation will be challenging, because inflation is capable of accelerating, even if the level of economic activity has not yet returned to pre-recession trend."

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