Raising interest
rates too late is safer than acting too early, an influential Federal
Reserve official said on Friday, endorsing a high-profile research paper
that argues the U.S. economy, given time, can rebound to the strong
growth rate to which Americans are accustomed.
The paper by four top U.S. economists, presented on Friday to a roomful of powerful central bankers in New York, argues the Fed would be wise to keep rates at rock bottom for longer than planned and then tighten monetary policy more aggressively.
New York Fed President William Dudley, who offered a critique of the paper, cited currently low inflation and warned against being too anxious to tighten monetary policy.
The risks of hiking rates "a bit early are higher than the risks of lifting off a bit late," he told a forum hosted by the University of Chicago's Booth School of Business. "This argues for a more inertial approach to policy."
The U.S. central bank is in the global spotlight as it weighs when to lift rates after more than six years near zero, and how quickly to tighten policy thereafter.
Some policymakers, like Cleveland Fed President Loretta Mester, caution against waiting too long, given concerns about potential financial stability and an erosion of public confidence in the economy.
Fed Vice Chair Stanley Fischer, answering a question at the forum, said without hesitation that the central bank will hike rates this year despite some second-guessing among investors. The first rate hike is "getting closer," he said, adding that the central bank will not follow a pre-determined path of tightening thereafter.
The paper's authors, like Dudley, offer a somewhat dovish solution to the dilemma of when to begin.
They conclude that the Fed cannot be certain to what level it should aim to ultimately raise its key rate.
But this equilibrium level, they say, has not fallen as low as claimed by those who warn of a "secular stagnation" in the United States.
The paper by four top U.S. economists, presented on Friday to a roomful of powerful central bankers in New York, argues the Fed would be wise to keep rates at rock bottom for longer than planned and then tighten monetary policy more aggressively.
New York Fed President William Dudley, who offered a critique of the paper, cited currently low inflation and warned against being too anxious to tighten monetary policy.
The risks of hiking rates "a bit early are higher than the risks of lifting off a bit late," he told a forum hosted by the University of Chicago's Booth School of Business. "This argues for a more inertial approach to policy."
The U.S. central bank is in the global spotlight as it weighs when to lift rates after more than six years near zero, and how quickly to tighten policy thereafter.
Some policymakers, like Cleveland Fed President Loretta Mester, caution against waiting too long, given concerns about potential financial stability and an erosion of public confidence in the economy.
Fed Vice Chair Stanley Fischer, answering a question at the forum, said without hesitation that the central bank will hike rates this year despite some second-guessing among investors. The first rate hike is "getting closer," he said, adding that the central bank will not follow a pre-determined path of tightening thereafter.
The paper's authors, like Dudley, offer a somewhat dovish solution to the dilemma of when to begin.
They conclude that the Fed cannot be certain to what level it should aim to ultimately raise its key rate.
But this equilibrium level, they say, has not fallen as low as claimed by those who warn of a "secular stagnation" in the United States.
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