Harvard economist Kenneth Rogoff says beating US inflation might require a 6% interest rate - and a severe recession is looming
- The Fed might have to raise interest rates above 6% to squash inflation, Kenneth Rogoff said.
- The Harvard economist warned there's a sizeable risk of a severe US recession.
Conquering red-hot inflation could require lifting US interest rates above 6%, and a severe recession is looming, Kenneth Rogoff has warned.
The Harvard University economist shared his bleak assessment after the Federal Reserve raised its benchmark interest rate by 75 basis points to a range of 3.75% to 4% on Wednesday.
Fed Chair Jerome Powell signaled rates could surpass 5% for the first time since 2007, as the US central bank fights to bring down inflation from 40-year highs to its target level of 2% a year.
"If they really wanted to get inflation down in the 2% to 3% range on a sustained basis, they might need a fed funds rate of 6% or higher," Rogoff told Fox Business on Thursday.
"I don't think they're going to go there, but that conversation is yet to come."
The Fed rapidly hiked rates from nearly zero in March to their current level, heaping pressure on the US economy, Rogoff said.
He predicted higher borrowing costs would eventually curb monthly job gains and increase unemployment. He also noted that strong labor-market data hasn't translated into economic growth or productivity gains.
The former chief economist of the International Monetary Fund (IMF) added that international headwinds are also threatening US growth.
"You really have to look at the world, which is in bad shape," he said, pointing to mounting signs of recessions in Europe, China, and Japan. "It's very hard for the United States to resist that."
The grim outlook has increased the risk that the US economy suffers a painful and protracted downturn, he said.
"I worry that not only are we going to get a mild recession, I think the chances that we get a significant recession are really pretty high," he said.
Still, the veteran professor emphasized the full impact of the Fed's rate hikes won't be felt for a while, given the continued strength of US consumer spending, and the typical lag before higher rates hurt employment and output.
"I think it's a 2023 story," he said. "That all lies ahead."
Read more: A housing economist shares estimates of where mortgage rates will be by the end of this year and next — and lists the states that may see the most price corrections.
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