Federal Reserve policy makers risk making a mistake that will be difficult to correct if they raise interest rates on Wednesday, according to former U.S. Treasury Secretary Lawrence Summers and economist Nouriel Roubini.
“There are still substantial questions about the growth prospect, about the prospect of achieving the 2 percent inflation target, about uncertainties in financial markets,” Summers said in an interview with Bloomberg Television in Dubai, to be aired later on Tuesday. “In a world where error is inevitable, it’s much better to make easily reversed errors than to make difficult-to-reverse errors.”
The U.S. central bank is widely expected to start lifting benchmark borrowing costs even as inflation runs at an annual pace of 0.2 percent. The economy is likely to grow at 2.5 percent this year and next, little changed compared with 2014, according to economists estimates on Bloomberg.
“A decision to delay rates runs risks that are easily reversed by subsequently raising rates, whereas a decision to raise rates, if it proves to have been the wrong decision, is a much more difficult decision to correct,” Summers said.
Nouriel Roubini, chairman of Roubini Global Economics, echoed similar sentiments.
“Suppose that you are a bit more cautious and you start moving slowly and the economy becomes too strong and inflation picks up, you’ll be behind the curve but still you can tighten a bit faster,” he said in an interview in Dubai.
The dilemma facing the Fed is that “labor market data suggest it’s time to start hiking, but there is no sign of inflation in the economy,” Roubini said.