Tags: Summers | rates | Fed | central bank

Summers: Era of 'Central Bank Improvisation' as 'World's Growth Strategy Coming to End'

By    |   Thursday, 22 January 2015 12:43 PM

Former U.S. Treasury Secretary Larry Summers doesn't expect the Federal Reserve to raise interest rates, and he doesn't think it should given the lack of inflation.

Many economists expect the Fed to begin lifting rates around mid-year. It has kept its federal funds rate target at a record low of zero to 0.25 percent for six years.

The central bank has an inflation target of 2 percent. But its favored inflation gauge, the personal consumption expenditures price index, climbed only 1.2 percent in the 12 months through November.

But Summers thinks low rates could come back to bite the Fed in a way that most economists haven't discussed. A low-rate environment could give the Fed little room to lower rates the next time the economy gets in trouble, he said at The World Economic Forum in Davos, Switzerland, CNBC reported.

"Are we anywhere near getting ourselves to a place where there's going to be 3 to 4 percentage points of running room to cut the next time a problem happens? I don't think so," Summers noted.

"We have to recognize that the era when central bank improvisation can be the world's growth strategy is coming to an end."

Financial markets reacted positively to the 1.1 trillion-euro ($1.3 billion) quantitative easing program announced by the European Central Bank (ECB) Thursday.

But David Malpass, president of Encima Global research firm and former adviser to Ronald Reagan, isn't too impressed with monetary stimulus programs around the globe.

"Central banks are ratcheting up their existing policies, making matters worse," he wrote in an article for Forbes before the ECB move.

"Extending the zero interest rate policy, one of the Fed's options, would be harmful because the zero interest rate freezes interbank markets and re-channels credit away from the economy's growth engines — new businesses," Malpass explained.

"The zero interest rate is a government-imposed price control. The result is a credit rationing process in which credit flows to well-connected borrowers at the low price but avoids new and small businesses."

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
Finance
Former U.S. Treasury Secretary Larry Summers doesn't expect the Federal Reserve to raise interest rates, and he doesn't think it should given the lack of inflation.
Summers, rates, Fed, central bank
334
2015-43-22
Thursday, 22 January 2015 12:43 PM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved