Nobel laureate economist Christopher Pissarides sees no need for the Fed to continue raising interest rates in the coming months, saying Fed policymakers should take a break from their battle against inflation.
his comment was published shortly after data Data released on Wednesday showed that U.S. inflation fell sharply to 3% in June, the lowest level in two years. The data appeared to underscore the Fed’s relative success in stemming rising prices after a rapid rise in interest rates.
The Fed has previously signaled its intention to tighten monetary policy further.
Pissarides, a professor at the London School of Economics, said: “These measures will take time to have their full effect, so given that inflation is going in the right direction and interest rates are high, I’ll just wait and see what happens next ,” told CNBC’s “European Signposts” on Thursday.
“I don’t expect anything to happen that makes them want to raise rates further, but this time I’m definitely going to wait,” he added.
Pissarides was co-awarded the Nobel Prize in Economics in 2010 for his work on the economics of unemployment.
Federal Reserve Chairman Jerome Powell speaks during a news conference after the Federal Open Market Committee meeting in Washington, DC, June 14, 2023.
Mandel Yan | AFP | Getty Images
Last month, the Fed kept its key borrowing rate steady at a target range of 5% to 5.25%, but policymakers told the meeting that a further half-percentage-point tightening by the end of 2023 was possible.
Fed Chairman Jerome Powell has underscored that message several times, telling a forum in late June that he expects many rate hikes ahead, and possibly at an aggressive pace.
“Inflation is coming down and the labor market is not as tight as it used to be, or at least not getting tighter, so I don’t see inflationary pressures coming from that direction,” Pissarides said.
“Overall, I don’t think at least (the U.S.) needs to raise rates further, maybe it’s different in Europe, but not (the U.S.).”
‘We need clarification’
Pissarides acknowledged that his call for a moratorium contrasted with the views of some. economist and investors, but he said “if I was there, I would do it.”
Investors see more than a 92% chance the central bank will raise rates by 25 basis points at the end of its two-day policy meeting on July 26, according to Fed data. CME’s Fedwatch tooland then cut back from early next year.
Asked whether the main reason the Fed might consider further rate hikes was to push inflation to 2 percent as quickly as possible, Pissarides replied: “It could be, but look, we need more patience.”
He added, “You’re absolutely right, the last bit is always harder than the beginning, especially when you’re high, it’s easy to come down very quickly.”
Still, persistent inflation around 3 percent (rather than the Fed’s 2 percent target) is unlikely to pose problems for the U.S. economy, Pissarides said, adding that the “difference is too small.”
“Be patient. If businesses think we’re going to get there eventually, they’ll respond better, they’ll pursue long-term investment plans. If that doesn’t work, we’ll get there faster,” Pizza said. Reedus said.
“We need clarification,” he continued. “They might say, we’re going to see a soft landing coming and we’re going to see a delay to the drop to 2% because that last bit is always going to be hard, but so far we’ve done a good job letting the economy run its course . A free market, well-functioning economy.”