5 days ago
Rajan Urges Fed Rate Hikes, Says Rupee Faces No Panic
Raghuram Rajan thinks the US central bank should raise interest rates more than it has so far.
He says prices are still rising too quickly.
He believes the US economy remains strong because businesses are investing, the government is spending, and people are still buying things.
Higher interest rates can make borrowing more expensive and may slow spending.
Investors think the Federal Reserve could raise rates later this year, possibly in September or December.
They are waiting for Kevin Warsh to explain his plan.
Rajan says Warsh wants to fight inflation but needs to communicate that plan more clearly.
Rajan also said India’s rupee has strengthened somewhat and is not in a crisis situation.
Former RBI Governor Raghuram Rajan urged the US Federal Reserve to raise interest rates more aggressively to contain persistent inflation.
Rajan said US financial conditions remain insufficiently restrictive amid strong data-center investment, a large fiscal deficit and continued consumer spending.
Markets expect a possible Fed rate increase in December, while rising bond yields have raised speculation about a September move.
Investors are awaiting Fed Chair Kevin Warsh’s Jackson Hole speech for a clearer plan to control inflation and guide future policy.
Rajan said the rupee was around 95.50 per dollar, improved from nearly 97 in May, and was not in a panic situation.
- Who
- Raghuram Rajan, former Governor of the Reserve Bank of India, and the US Federal Reserve, led by Chair Kevin Warsh.
- What
- Rajan urged the Federal Reserve to raise interest rates to contain persistent inflation and said India’s rupee was not in a panic situation.
- Where
- Jackson Hole, Wyoming; Rajan also discussed the rupee in India.
- When
- The comments were made during the annual Jackson Hole gathering; markets were considering possible rate increases in September or December.
- Why
- Rajan said US financial conditions were not restrictive enough because economic activity and consumer spending remained strong, while inflation stayed elevated.
More Aggressive Rate Policy
Current Fed Approach
How quickly to raise rates
More Aggressive Rate Policy
Rajan argued that the Federal Reserve should raise rates or should already have done so because inflation remains elevated and financial conditions are not sufficiently restrictive.
Current Fed Approach
The Federal Reserve’s current position is less hawkish than Rajan’s, while markets were still assessing whether a rate increase would come in September or December.
Economic conditions
More Aggressive Rate Policy
Rajan said strong investment, fiscal spending and continued consumer demand suggest the US economy is not being held back enough by monetary policy.
Current Fed Approach
The existing policy stance has not yet been described in the articles as requiring an immediate additional increase, leaving the timing of the next move uncertain.
Policy communication
More Aggressive Rate Policy
Rajan said investors need Warsh to clearly explain how the Fed plans to bring inflation back to target.
Current Fed Approach
Warsh has avoided detailed forward guidance, a strategy that has left investors uncertain and was followed by a rise in long-term bond yields.
Key facts
- Rajan’s position
- He said the Federal Reserve should already have raised rates and that he would be more hawkish than its current stance.
- Possible rate timing
- Markets expected a potential rate increase in December, while bond yields indicated some possibility of a September move.
- US economic factors
- Rajan cited strong data-center investment, a large fiscal deficit and continued consumer spending.
- Warsh’s communication
- Investors said Warsh’s limited forward guidance after the July meeting made the Fed’s policy direction unclear.
- Bond yields
- Long-term bond yields rose to a level described as the highest in roughly two decades.
- Rupee level
- The rupee was reported at around 95.50 per dollar, compared with nearly 97 in May.
- Expected foreign-currency inflows
- Governor Sanjay Malhotra said the Reserve Bank of India expected at least $80 billion from recent measures.
Quotes
Raghuram Rajan
Former Reserve Bank of India governor and co-leader of a Federal Reserve task force
“The Fed should be raising rates or should have raised rates already. I would be more hawkish than where the Fed is right now.”
theprint.in
NDTV
“At this point, I don’t think the currency is that far out of whack. I don’t think it’s a panic situation.”
theprint.in
NDTV
Sources
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