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The Federal Reserve must act quickly and aggressively to address rising inflation, said former Minneapolis Fed President Narayana Kocherlakota on Tuesday.
Specifically, the Fed should launch “meeting-by-meeting” interest rate increases in January-June and “keep going until inflation comes back down near 2%,” Kocherlakota said in a Bloomberg opinion piece.
The steep monetary policy tightening could take short-term rates well above the 2.5% level that Fed officials consider to be neutral, he noted.
Analysts think the Fed is planning to raise interest rates at a much more gradual pace – only getting short-term rates up to 2.5% by the end of 2024.
See: 5 things to watch from Fed meeting
Kocherlakota, who became a leading policy dove on the central bank during his tenure, said the currently expected passive pace of tightening will risk a repeat of the Great Inflation of the 1970s.
In his essay, Kocherlakota said the rapid shift in inflation this year has an historical parallel that occurred at the beginning of 1965 when inflation rose rapidly after the escalation of the Vietnam War and fostered an inflationary psychology.
Read: Americans expect higher inflation
“For years, the Fed failed to respond aggressively enough to this self-reinforcing upward spiral,” he said. As a result, only by subjecting the U.S. to a brutal recession with double-digits unemployment in the late 1970s was the Fed ultimately able to bring price rises back under control, he noted.
