Nobel laureate in economics and former Chief Economist of the World Bank, Paul Romer, believes that after the US economy accelerated growth and inflation continued to slow down last quarter, the Federal Reserve should start cutting interest rates.
He said in an interview, "Raising interest rates at this time is crazy. I think they should start cutting interest rates and explain to people that we will reach the 2% target within one year, and we need to be prepared to stabilize
Government estimates released earlier on Thursday showed that the annualized growth rate of US gross domestic product (GDP) in the third quarter was 4.9%, more than double the previous quarter. Meanwhile, data shows that a closely monitored potential inflation indicator has dropped to its lowest level since 2020 during the same period.
The core PCE price index increased by 2.4% year-on-year (YoY), lower than market expectations of 2.5% and 3.7% in the previous quarter. This key data indicates that even in a hot consumer environment, the high interest rates of the Federal Reserve still partially limit the upward pressure on prices.
The latest data indicates that strong consumer spending continues to boost the US economy, despite the Federal Reserve raising interest rates significantly to curb inflation, and the market generally expects policy makers to keep benchmark interest rates unchanged at next week's meeting. Many economists expect economic growth to slow in the fourth quarter as borrowing costs limit people's purchases of large goods, and student loans have also resumed payment.
Romer said, "In theory, inflation can only be reduced when the economy slows down, but this is not the case at present. So now we are in a period where we only need to look at the facts and not be confused by some theories that have been proven wrong
Recently, Romer is far from alone in calling for the Federal Reserve to immediately start cutting interest rates. Barry Sternlicht, CEO of Starwood Capital and billionaire, recently stated that the biggest victim of the Federal Reserve's interest rate hike may be the US government. In his view, interest rates must start to decline from now on.
In my opinion, the Federal Reserve will have to relax because they have no other choice, "he said. No Western democratic country can maintain such high interest rates. They can't afford it. You end up printing money endlessly to pay for the interest expenses of the deficit