Summers: "Better to Move Quickly... Will Choose 1% Rate Hike on September"

[Asia Economy New York=Special Correspondent Joselgina] Larry Summers, a Harvard University professor who served as the U.S. Treasury Secretary under the Bill Clinton administration, supported a 1 percentage point interest rate hike at the Federal Open Market Committee (FOMC) meeting of the Federal Reserve (Fed) in September.

On the 13th (local time), Professor Summers stated on his Twitter, "I do not believe there is a realistic possibility of managing (inflation) unless the policy interest rate in the U.S. is raised to nearly 4%," adding, "In this context, I think moving quickly is better than moving slowly."

He said, "It seemed quite clear to me that a 0.75 percentage point increase in September was appropriate," and added, "If I had to choose between a 1.0 percentage point and a 0.5 percentage point increase in September, I would choose a 1.0 percentage point hike to strengthen credibility."

Earlier, right after the release of the U.S. Consumer Price Index (CPI) for August, Professor Summers pointed out, "Today's CPI report shows that the U.S. has a serious inflation problem." In particular, he confirmed concerns that inflationary pressures could persist long-term by mentioning that the core CPI was higher than the quarterly rate.

According to the U.S. Department of Labor, the August CPI increase announced that day was 8.3% year-over-year, slowing compared to June (9.1%) and July (8.5%) but exceeding market expectations (8.0%). Especially, the core CPI, which excludes the volatile energy and food sectors, rose 6.3% year-over-year.

Additionally, Professor Summers mentioned that it would be difficult to achieve the Fed's inflation target of 2% unless the U.S. unemployment rate exceeds 4.5%.

Despite the decline in oil prices, persistently high inflation has strengthened expectations for aggressive tightening in the futures market. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) rate futures market currently reflects a 68% chance of a 0.75 percentage point increase in September, right after the New York stock market closed. This is down from 91% the previous day and from 80% in the morning to around 60% now. Instead, the possibility of a 1 percentage point rate hike has surged from 0% the previous day and 18% in the morning to 32% currently.

As inflation and tightening concerns rose, the New York stock market plunged that day. On the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 31,104.97, down 1,276.37 points (3.94%) from the previous session. The S&P 500, focused on large-cap stocks, ended at 3,932.69, down 177.72 points (4.32%), and the Nasdaq, centered on tech stocks, closed at 11,633.57, falling 632.84 points (5.16%).

This content was produced with the assistance of AI translation services.