(Bloomberg) - The Federal Reserve may have to eventually raise rates above 4.3% to control inflation, Former Treasury Secretary Lawrence Summers said Thursday.
Speaking at an event at the Harvard Kennedy School, Summers said that markets, which once reflected expectations for the Fed’s benchmark rate to climb to 3%, now see policy makers going above 4.3%.
“My guess is that if they want to securely control inflation, they’re going have to raise rates further than that,” said Summers, who’s now a Harvard University professor and paid contributor to Bloomberg Television. “But that’s not a decision they need to make right now.”
Summers had said on Tuesday that if there were a choice between a 50 basis-point move and a 100 basis-point one at the Sept. 20-21 policy meeting, the Fed should choose “a 100 basis-points move to reinforce credibility.”
At the event, moderated by Linda Henry, managing director of Boston Globe Media Partners, Summers said, “it was very clear that doing 75 basis points, which is what the Fed has now said it’s going to do next week, is better than doing only 50 basis points. And I’m sure they’re going have to continue to raise interest rates.”
Summers also reiterated his criticism of the Fed’s projections for the economy. Policy makers will release a fresh set of forecasts alongside next week’s rate decision. The central bank should be “more realistic and honest in its projections,” the former Treasury chief said.
By Romy Varghese
