Mnuchin Joins In... US Inflation Debate Intensifies

Mnuchin "Concerns Over Continued Inflation Rise"... Regional Fed Presidents' Views Also Diverge

Former U.S. Treasury Secretary Steven Mnuchin
[Photo by AP News]

[Asia Economy Reporter Byunghee Park] Following former U.S. Treasury Secretary Larry Summers, former Treasury Secretary Steven Mnuchin has also joined the inflation debate. Since the Federal Reserve (Fed) hinted at an early interest rate hike last week, controversy over monetary policy has been growing both inside and outside the Fed.

On the 21st (local time), Mnuchin gave an interview to Bloomberg TV at the Qatar Economic Forum, expressing concern that "recent price increases may not be temporary." He pointed out that Fed Chair Jerome Powell's judgment that inflation is temporary could be wrong.

Mnuchin noted that the Fed has relied on large-scale stimulus measures that could cause inflation and advised that the Fed should respond cautiously to rising prices, while investors should also be aware of inflation risks. Mnuchin served as Treasury Secretary under the Donald Trump administration.

Before Mnuchin, Summers, who served as Treasury Secretary under the Bill Clinton administration and as White House Economic Advisor under the Barack Obama administration, also emphasized the risks of inflation again on the same day. Attending the Qatar Economic Forum, he stressed in a discussion with Ray Dalio, founder and co-Chief Investment Officer (CIO) of Bridgewater Associates, that "there is a risk of sustained price increases," highlighting that his view on inflation differs from the Fed's. Summers pointed out, "Most Fed officials expected inflation to slightly exceed 2% this year as of February, but it has already surpassed that level in the first five months of this year."

Ray Dalio also agreed, saying, "Concerns about 3% inflation are relatively less, but I am worried about the significant rise in financial asset prices." He added, "I think an asset bubble is forming."

As prices rise sharply, disagreements over the current economic situation and monetary policy are growing even within the Fed.

James Bullard, President of the St. Louis Fed, said at an event hosted by the think tank Official Monetary and Financial Institutions Forum (OMFIF) on the same day, "Because prices are rising, the Fed should begin considering reducing the scale of quantitative easing." Robert Kaplan, President of the Dallas Fed, who also attended the event, expressed a similar view, saying, "It is better to discuss adjusting asset purchases sooner rather than later."

Meanwhile, Fed Chair Jerome Powell is scheduled to testify before the House on the 22nd. The Wall Street Journal (WSJ) cited a draft of his speech released that day, reporting that Powell will reiterate his previous stance that the U.S. economy is steadily recovering and inflationary pressures are temporary. Powell is expected to emphasize that the labor market recovery is uneven and that COVID-19 remains a variable due to slowing vaccination rates.

John Williams, President of the New York Fed, sided with Chair Powell. At an event hosted by the American Bankers Association (MBCA) on the same day, Williams said, "It is clear that the economy is recovering very quickly and the medium-term outlook is very optimistic," but added, "The recovery is not sufficient for the Fed to change its monetary policy stance."