Larry Summers Backs Fed's 25 Bps Rate Hike: 'Carrying Through Was Broadly The Right Thing To Do'

Former Treasury Secretary Lawrence Summers said the Federal Reserve was right in going with a 25 basis-points rate hike and it would have been a panic signal if the central bank had decided to pause.

"This was the right choice. If the Fed had stopped raising interest rates when it clearly had the plan to increase interest rates, I think the risk would have been that it was signaling panic and alarm. And if the Fed was that alarmed, the market and everyone else would be as well. So I think carrying through was broadly the right thing to do. That was what the market expected the Fed to do, and I think it was appropriate," Summers told CNN.

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Summers also believes the Fed is right to be signaling enormous uncertainty going forward. The former Treasury Secretary believes there are two possible paths going forward.

"One is that there’s going to be some real durability in these banking problems and the economy is going to turn down. The other is that this will be weathered and very much contained. And what the Fed’s going to need to do going forward is going to depend on which of those paths we end up on, which I don’t think anybody can know," he said.

Summers said he probably would have allowed more room for concern about inflation and "left the door a bit more open to multiple rate hikes, given the strength of the recent inflation data than the Fed did in their statement."

On being asked about Sen. Elizabeth Warren's (D-Mass.) criticism of Fed Chair Jerome Powell, Summers explained that although she is on strong grounds in criticizing the central bank's oversight of Silicon Valley Bank, that was not directly Powell’s responsibility.

"Chairman Powell’s biggest mistakes in his most important responsibility were that he didn’t recognize the inflation threat soon enough and didn’t move strongly enough to counter that threat,” he said.

“And Senator Warren was even less concerned, and the very progressives were even less concerned about inflation than he was. So I think those criticisms are quite unfair.”

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