Fed acting 'hyperactively' on rates-Nobel economist
The latest interest rate cuts by U.S. Federal Reserve do not appear warranted by economic conditions and the ECB should not follow suit, Nobel prize winner Edmund Phelps was quoted as saying on Wednesday.
By Agencies |
VIENNA: The latest interest rate cuts by U.S. Federal Reserve do not appear warranted by economic conditions and the ECB should not follow suit, Nobel prize winner Edmund Phelps was quoted as saying on Wednesday.
"I'm not really thrilled by the Fed's interest rate cuts," Phelps told Austrian daily Die Presse when asked if a further rate cut by the U.S. central bank was the right way forward.
"The U.S. central bank is acting hyperactively at the moment. I see neither a decline in investments nor a huge drop in consumer spending that would explain such big interest rate cuts," he said according to comments published in German. Financial markets are pricing in another 50 basis point cut when the Fed announces the outcome of its latest meeting at 1915 GMT on Wednesday.
It cut by 75 basis points last week, taking its benchmark rate to 3.5 percent, in a highly unusual move between scheduled meetings. "Private consumption has been anything but catastrophic of late," Phelps said of the Fed decision.
"The problem just now is the financial market shock caused by the banking crisis. A central bank can't solve this problem." Phelps is an American professor at Columbia University who won the 2006 Nobel prize for economics.
He said the European Central Bank, which has kept rates on hold at 4 percent since last June, should not follow the Fed's example. "The European Central Bank should do nothing at all for the time being and leave its key rate unchanged. The Fed is responding to politicians calling for lower interest rates.
The ECB should not follow this line," he said. Phelps said rates should be cut when economic conditions warranted it, and that he did not see this in Europe. "The European economy is performing better than the U.S. economy. Furthermore, the ECB's remit is clear: it must keep inflation in check," he added. "One shouldn't ask too much of the ECB. A central bank can't keep inflation under control and create jobs."
"I'm not really thrilled by the Fed's interest rate cuts," Phelps told Austrian daily Die Presse when asked if a further rate cut by the U.S. central bank was the right way forward.
"The U.S. central bank is acting hyperactively at the moment. I see neither a decline in investments nor a huge drop in consumer spending that would explain such big interest rate cuts," he said according to comments published in German. Financial markets are pricing in another 50 basis point cut when the Fed announces the outcome of its latest meeting at 1915 GMT on Wednesday.
It cut by 75 basis points last week, taking its benchmark rate to 3.5 percent, in a highly unusual move between scheduled meetings. "Private consumption has been anything but catastrophic of late," Phelps said of the Fed decision.
"The problem just now is the financial market shock caused by the banking crisis. A central bank can't solve this problem." Phelps is an American professor at Columbia University who won the 2006 Nobel prize for economics.
He said the European Central Bank, which has kept rates on hold at 4 percent since last June, should not follow the Fed's example. "The European Central Bank should do nothing at all for the time being and leave its key rate unchanged. The Fed is responding to politicians calling for lower interest rates.
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The ECB should not follow this line," he said. Phelps said rates should be cut when economic conditions warranted it, and that he did not see this in Europe. "The European economy is performing better than the U.S. economy. Furthermore, the ECB's remit is clear: it must keep inflation in check," he added. "One shouldn't ask too much of the ECB. A central bank can't keep inflation under control and create jobs."
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