Warsh Warned: Rate Hikes May Spark Economic Reckoning
New Federal Reserve boss Kevin Warsh is being cautioned against raising interest rates as he prepares to take office, amidst growing anxiety over the Iran war and its potential impact on inflation. Central bankers worldwide are concerned that high oil prices could pump up all prices higher, but experts argue this is not the case.
The recent surge in global inflation has left many policymakers worried, but according to economists, it's a result of central banks' own actions during the COVID pandemic. In 2020 and 2021, they massively increased the money supply, diluting its value and leading to higher prices.
US consumer price index (CPI) inflation climbed from 2.4% in January to a high of 4.2% in May, but when energy prices are excluded, CPI growth slowed significantly. In fact, excluding energy, June's CPI was only 2.7% versus a year ago, which is not far off the Fed's goal.
Experts warn that aggressive interest rate hikes could cause global yield curves to flatten or invert, choking lending and driving economic declines. They advise Warsh and his team to take it easy with tightening, rather than making hasty decisions based on flawed assumptions about inflation.