US Economic Expert: "Interest Rates Must Rise This Month... Warning Signal of Financial Instability if Not Raised"

Emphasis on the Need for US Interest Rate Hikes at BOK International Conference

Lee Chang-yong, Governor of the Bank of Korea, is attending the 2023 BOK International Conference held on the morning of the 1st at the Bank of Korea Annex in Jung-gu, Seoul, under the theme "Policy Challenges After the Pandemic," engaging in a policy discussion. From left to right: Lee Chang-yong, Governor of the Bank of Korea; Professor Narayana Kocherlakota; Professor Thomas Sargent. Photo by Joint Press Corps

Narayana Kocherlakota, former president of the Federal Reserve Bank of Minneapolis and professor at the University of Rochester, and Thomas Sargent, Nobel laureate in Economics and professor at New York University, expressed the view next month that the U.S. Federal Reserve (Fed) should raise its policy interest rate.

Professors Kocherlakota and Sargent emphasized the need for further interest rate hikes in the U.S. at an international conference held on the 1st at the Bank of Korea in Jung-gu, Seoul, under the theme "Policy Challenges After the Pandemic."

In a "three-person policy discussion" with Lee Chang-yong, governor of the Bank of Korea, when asked what decision the Fed should make at the upcoming Federal Open Market Committee (FOMC) meeting on the 13th and 14th, both professors took the same position, saying "the interest rate should be raised."

Professor Kocherlakota stated, "I don't think this is the time to just wait for people to believe that inflation will stabilize again around 2%," adding hawkish remarks, "The right question at this point is not whether to raise rates or not, but whether to raise by 0.25 percentage points or 0.50 percentage points."

He added, "What is important now is not simply whether to raise rates or not, but to send a signal about the Fed's intentions," and "If the Fed does not raise rates, it will be signaling concerns about financial market instability."

Professor Sargent also said, "I support a large increase in interest rates," and added, "In the 21st century, central banks have not only acted as lenders of last resort but have also used asset purchases as a policy tool, which was taboo in the past. Going forward, it is necessary to clarify the roles of the government, central banks, and legislatures in policy responses to economic shocks."

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