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Reuters Business
Private-Sector Panel Urges Fed Rate Rise
WASHINGTON (Reuters) - A panel of U.S. private-sector economists on Monday urged the Federal Reserve to raise interest rates promptly, saying a failure to do so would risk higher inflation.
``The negative real federal funds rate and excess liquidity are incompatibile with stable, low inflation and a sustained healthy economic expansion,'' the Shadow Open Market Committee said in a statement.
The group, which made its statement at a news conference, gathers in Washington periodically to discuss its views.
The shadow panel consists of academic and business economists who put heavy emphasis on monetary aggregates as gauges of future inflation and economic trends. Over the past decade, the Fed has tended to play down the usefulness of the aggregates as a barometer of the appropriate monetary policy, although it did focus on them in the 1980s.
``The Fed must promptly raise short-term interest rates,'' said Mickey Levy, chief economist at Bank of America and a member of the SOMC panel.
``Failure to do so on a timely basis risks exacerbating future swings in interest rates and nominal aggregate demand, generating more erratic economic performance.''
He said prompt, steady reversal of the Fed's crisis-related rate cuts of last year is preferable to a delayed but subsequently very sharp tightening.
``The growth of both narrow and broad monetary aggregates accelerated to their most rapid rate since 1983,'' Levy said.
The Fed cut borrowing 11 times last year in one of its most aggressive rate-slashing campaigns. The federal funds rate, which governs overnight loans between banks, now stands at 1.75 percent, a 40-year low.
Many private economists believe the Fed will need to ``normalize'' the rate by bringing it higher. But some analysts think there is no urgency to do that until at least June, or perhaps later, because inflation is low and because there are some questions about how robust economic growth may be over the next few months. |
