Reinhart said the Fed had been signaling a modest tightening by historical standards but could shift gears given recent data. “I am of the opinion that if the tendency is to delay action and be more circumspect, it is basically pushing the problem to the horizon”he added.
Reinhart has been arguing for about a year that the rise in inflation is unlikely to be temporary because supply chain shocks have affected commodity prices, transportation costs, global shipping and other sectors. Escalating tensions between Ukraine and Russia were exacerbating inflationary pressures that had caused oil prices rose 77% since December 2020 until last month.
“All of that is not temporary, and inflation shows that very few things in life are permanent, but many are quite persistent,” he said, in an interview with Reuters.
Officials at the US Federal Reserve remain divided on how aggressively to start the next interest rate hikes at their March meeting. The president of the Federal Reserve Bank of St. Louis, James Bullardon Monday reiterated calls for a faster pace of Fed rate hikes, but other officials have been less willing to commit to a half-point hike.
Meanwhile, in an article published last week, Reinhart and World Bank economist Clemens von Luckner they pointed out that a more timely and robust response from major central banks would increase funding costs for emerging markets and developing economies and could worsen existing debt crises.
However, they asserted that the long-term costs of delaying action would be large. Because the United States and other advanced economies failed to quickly tackle inflation during the 1970s, they ultimately needed much more draconian policies, which then triggered America’s second largest recession after World War II and the debt crisis of developing countries, they wrote.
Source: Ambito
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