Former New York Fed President Dudley: "To Control Inflation, US Interest Rates Must Rise Above 5%"

[Asia Economy Reporter Park Byung-hee] Bill Dudley, former president of the New York Federal Reserve Bank, argued that the U.S. benchmark interest rate needs to be raised above 5% to control inflation.

According to Bloomberg on the 11th, Dudley appeared on Bloomberg TV and said, "Six months ago, I thought the benchmark interest rate needed to be around 3-4% to control inflation, and now I think it should be 4-5%." He added, "I would not be shocked if the benchmark interest rate is raised to 5-6% within the next few months," emphasizing the need for a benchmark interest rate in the 5% range soon.

Former President Dudley also pointed out that Federal Reserve (Fed) officials should stop saying only what sounds good. Although a much higher benchmark interest rate than the current level is needed to control inflation, Fed officials are advocating only moderate rate hikes, possibly to avoid shocking the market.

James Bullard, president of the St. Louis Fed, is classified as a representative hawkish Fed official, but the benchmark interest rate he argued should be raised to by the end of this year is 3.5%, which is much lower than the over 5% suggested by Dudley. In this regard, Dudley criticized current Fed officials as being excessively moderate.

Dudley argued that the Fed needs to tighten monetary policy aggressively enough to slow the economy and raise unemployment. He also insisted that the American public should be honestly informed that some increase in unemployment and economic slowdown must be accepted to control inflation.

Dudley further warned that trying to sugarcoat the situation could loosen financial market conditions and ultimately undermine trust in the Fed.

The U.S. Department of Labor announced that the consumer price index (CPI) inflation rate for April was 8.3%. This was 0.2 percentage points lower than the 8.5% peak recorded in 1981. The decline in the U.S. CPI inflation rate is the first in eight months since August last year. However, it exceeded the 8.1% economist forecast compiled by Bloomberg, confirming that inflationary pressures remain higher than market expectations.