Tags: James Bullard | Larry Summers | Policy-making | Federal Reserve

James Bullard to Larry Summers: Leave US Policy-making to the Fed

James Bullard to Larry Summers: Leave US Policy-making to the Fed

Monday, 21 September 2015 11:09 AM

A top Federal Reserve official criticized Lawrence Summers and others who had warned against an interest rate hike last week, saying the former U.S. Treasury Secretary should "know better" than to make such recommendations when the Fed needs to start tightening policy.

"I want to say this forcefully because I think the debate has drifted away," St. Louis Fed President James Bullard said on CNBC television on Monday, his voice rising.

"You have sensible people that should know better like Larry Summers out there saying, 'Oh my god, the world is coming to an end.' This is going to be an easy policy over the next three years no matter what we do," he added. "So don't come to me and say we need more accommodation."

The unusual public appeal comes after Bullard, one of 17 Fed policymakers, opposed the U.S. central bank's decision on Thursday to leave rates near zero.

While the decision had near-unanimous backing, a handful of hawkish policymakers like Bullard did not have a formal vote, and comments by Fed officials over the weekend suggested it was a close call.

The comments by Bullard - who also shot back at Jim Cramer, an outspoken CNBC host who had criticized Bullard last month - suggests frustration may be brewing within the Fed over the intensity of public debate over so-called rates "liftoff."

Summers, in TV appearances and open letters ahead of last week's Fed meeting, argued that raising rates would be wrong given recent market turmoil caused by worries over China's economy, and the absence of U.S. inflation.

Summers, who in 2013 was in the running for the job of Fed Chair before Janet Yellen landed it, told Reuters last week that he was weighing in publicly because he felt the case to stand pat on policy was "unusually clear."

In leaving rates unchanged, the Fed cited risks from abroad and downward pressure on U.S. inflation from a high dollar and low commodities as reasons to stand pat, causing investors to push out the probability of a rate hike into next year.

Bullard however said there is "a powerful case to be made" for beginning to tighten policy after nearly seven years of rock bottom borrowing costs, given labor market improvements and stable albeit low prices. He expects unemployment to fall below 4.5 percent from 5.1 percent last month.

There is "a chance" the Fed could lift rates at an October meeting, he said, adding it is time to leave behind "emergency" policy settings.

The International Monetary Fund and the World Bank had also publicly advocated for the Fed to be patient last week.

Asked whether he or any firm he advises had a financial interest in U.S. rates remaining unchanged last week, Summers said, "no."

"Like others (I) have a stake in the economic success in the U.S.A. and world," he said in an email.

© 2020 Thomson/Reuters. All rights reserved.


   
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A top Federal Reserve official criticized Lawrence Summers and others who had warned against an interest rate hike last week, saying the former U.S. Treasury Secretary should know better than to make such recommendations when the Fed needs to start tightening policy.
James Bullard, Larry Summers, Policy-making, Federal Reserve
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2015-09-21
Monday, 21 September 2015 11:09 AM
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