According to former Fed Vice Chairman Richard Clarida, the Federal Reserve will definitely raise rates to 4% or more because policymakers have no room for error in their fight against inflation.
The central bank’s aims to control prices are clear, especially after President Jerome Powell’s hawkish speech in Jackson Hole last month, he told CNBC Friday, noting that “failure is not an option.”
What’s unclear now is how high rates will skyrocket and for how long they’ll stay there, said Clarida, who is now chief executive and global economic adviser at fixed income giant PIMCO.
“I think they go 4% to hell or high tide, if I had to put it in two boxes,” he said. “They’re data dependent, but that’s why they’re going to 4%. Inflation is way too high.
The federal funds rate currently sits between 2.25% and 2.50%, and central bankers are expected to approve a further 0.75 point increase at their September 20-21 meeting.
On Thursday, Powell said the effort “will take time and will require using our tools forcefully to balance demand and supply.”
And until inflation cools, Clarida also said the Fed would effectively have a single mandate instead of its official dual mandate of price stability and maximum employment.
“The president was clear: the Fed knows that if you waste price stability, it’s very difficult to achieve and maintain maximum employment,” he said. “So I think they’re data driven, and the data says inflation is too high. So I think they’re going to at least 4%.”