Experts Agree: Fed Should Think Twice Before Raising Interest Rates Again

October 18, 2022

Experts Agree: Fed Should Think Twice Before Raising Interest Rates Again

Ahead of the Federal Open Market Committee meeting, a growing chorus of experts is raising questions about the Federal Reserve’s sledgehammer approach to reining in inflation. Here’s what they are saying:

Adam Tooze | European Institute at Columbia University: 

“Raising interest rates is not going to bring more gas or microchips to market, but rather the contrary. Reducing investment will limit future capacity and thus future supply…If the generation of young people whose educations were blighted by Covid lockdowns finish their training only to find labor markets closed by a global downturn, it will be an inexcusable failure of policy.”[10/4/22]

Ayhan Kose | World Bank: 

“As central banks across the world simultaneously hike interest rates in response to inflation, the world may be edging toward a global recession in 2023 and a string of financial crises in emerging markets and developing economies that would do them lasting harm.” [9/15/22]

Barry Sternlicht | Starwood Capital Group:

“If the Fed keeps this up they are going to have a serious recession and people will lose their jobs” [9/15/22]

Brian Sack | D.E. Shaw, former Federal Reserve Bank of New York official: 

“Moving in these 75-basis-point steps was effective when the Fed had a long way to go. It becomes more problematic when they need to calibrate policy more carefully, and I believe we’re approaching that point.” [10/8/22]

Cathie Wood | Ark Invest: 

“Without question, food and energy prices are important, but we do not believe that the Fed should be fighting and exacerbating the global pain associated with a supply shock to agriculture and energy commodities caused by Russia’s invasion of Ukraine.”

“The Fed seems focused on two variables that, in our view, are lagging indicators––downstream inflation and employment––both of which have been sending conflicting signals and should be calling into question the Fed’s unanimous call for higher interest rates.” [10/10/22]

David Kelly | J.P. Morgan Asset Management:

“In the long history of Federal Reserve mistakes, one general error stands out. They tend to wait too long and then do too much… They appear to be well on their way to repeating this error today.” [10/12/22]

“The Fed is in grave danger of tipping this economy into a recession by being more hawkish than they need to be right now.” [9/12/22]

Greg Mankiw | Harvard University, former George W. Bush Administration official: 

“…it’s easy for a novice to overreact, and then if you turn too much in the other direction, it can be a source of instability rather than stability.” [10/11/22]

Jeremy Siegel | Wharton School of Business:

“(Powell) is going to crush the wages, which have fallen behind inflation…you can’t blame wages for inflation when they are two, three, five points behind inflation…I think the Fed is just way too tight.” [9/24/22]

Joseph Stiglitz | Nobel Prize-winning economist: 

“Will raising interest rates lead to more oil, lower prices of oil, more food, lower prices of food? Answer is clearly not. In fact, the real risk is it will make it worse… Why? Because what we need to do is to make investments to relieve some of these supply-side bottlenecks that are causing such havoc on our economy. It’s going to make it more difficult.” and “…raising interest rates in non-competitive markets may lead to even more inflation…” [9/2/22]

Katie Nixon | Northern Trust Wealth Management: 

“So I’m not as nervous about a deep recession, but I do think that this latest dot plot and the summary of economic projections points to a Fed going a lot further than, perhaps, they need to go, given the inflation outlook, and that they are doing so at a time when the economy is quite vulnerable to a slowdown. It’s not just the US economy, it’s the global economy and this might be a bridge too far.” [9/12/22]

Kurt Rankin | PNC: 

“Unfortunately, wage growth in the U.S. economy has already begun to fizzle while inflation has remained stubbornly high. The Fed’s ‘demand destruction aims will only serve to weaken workers’ bargaining positions in the labor market as consumer demand is undercut and businesses see less need to hire in response to slowing demand for their goods and services.” [10/14/22]

Liz Shuler | AFL-CIO:

“There are some bad ideas floating around out there (to bring down inflation) like the idea that working people, who have kept the country running are to blame for inflation.”

“Nothing could be further from the truth.” [9/21/22]

Michael Darda | MKM Partners: 

“I think households here are also caught in the Fed’s crosshairs because the tightening is likely to keep going until it kills the labor market…They [the Fed] will kill inflation, but they are going to end up killing the labor market.” [10/14/22]

Pierre-Olivier Gourinchas | International Monetary Fund: 

“Monetary policy could miscalculate the right stance to reduce inflation. Policy paths in the largest economies could continue to diverge, leading to further US dollar appreciation and cross-border tensions. More energy and food price shocks might cause inflation to persist for longer. Global tightening in financing conditions could trigger widespread emerging market debt distress.” [10/11/22]

Rebeca Grynspan | United Nations Conference on Trade and Development: 

“The current course of action is hurting vulnerable people everywhere, especially in developing countries. We must change course.”

“If you want to use only one instrument to bring inflation down…the only possibility is to bring the world to a slowdown that will end up in a recession.” [10/3/22]

Email to speak to Dr. Rakeen Mabud about the Fed’s interest rate hikes and what they spell for our economy.