Even as the U.S. is finally seeing interest rates tighten, slightly, the blame games are continuing.
With Fed now launched on a rate-hike cycle, even as inflation is accelerating, pundits and market watchers are offering their critiques of the central bank.
Comments from former Secretary of the Treasury Larry Summers suggesting that the Fed will need to raise rates to 4%-5% to gain control of inflation struck a nerve with Real Money Columnist Stephen “Sarge” Guilfoyle.
“Is it not fair to say that inflation probably would have moderated a great deal right about now (either March or April) without the war in Europe?” Guilfoyle wrote recently. “You take the errors in energy policy made early in 2021, compound that with overtly loose fiscal and monetary policy, and a pandemic that just would not quit, and the recipe was powerful.”
To be sure, “The Fed was right to get the FFR off of the zero bound,” Guilfoyle wrote. However, “I don’t think that they have to be that aggressive on increasing short term interest rates in order to blunt demand. It won’t take much to damage economic activity.”
Guilfoyle added that “The Fed made two key mistakes in my opinion. Neither one is dragging their feet on interest rates.”
In the first place “the Fed kept buying mortgage backed securities for more than a year after it was plainly obvious that there was no need for such support. This only blew up the balance sheet beyond what was necessary.”
And “Secondly, I was profoundly disappointed to see that the [March Fed statement] only mentioned balance sheet reduction in passing. My opinion is that much can be done and should have been prioritized, by draining excess liquidity from the monetary base. This almost “back door” way of addressing the issue at hand would have a more profound impact on risk assets than on Main Street. Higher interest rates will damage Main Street just as much if not more than Wall Street.”
