Former Fed Vice President Donald Kohn Fears Inflation Risks Rise

(Bloomberg) – Former Federal Reserve Vice Chairman Donald Kohn on Tuesday expressed concern that the US central bank is not well placed to deal with a growing threat of accelerating economic growth. ‘inflation.

“There are upside risks to inflation,” said Kohn, who served 40 years at the Fed, including four as vice president.

He told a webinar sponsored by the American Enterprise Institute that a new monetary framework adopted by policymakers last year increased the chances of faster price gains.

This is “a framework that is not designed to deal with upside risks to inflation,” said Kohn, who is now a senior researcher at the Brookings Institution. “This is the disturbing room.”

The danger is that the central bank will end up having to raise interest rates further and faster to control inflation, he added.

As part of its new modus operandi, the Fed is deliberately aiming to push inflation above its 2% target after years of falling short of that target. He also gave up on raising interest rates just to keep unemployment from falling to levels he would have considered too low in the past.

Kohn said he doesn’t think the Fed should change policy just yet. But he wants officials to openly acknowledge the inflationary dangers they face and factor them into their next round of quarterly economic projections.

“The Fed needs to be more open and honest than I think in the last round of projections about what it actually expects to do,” he said. “That in itself will be a constructive step. “

The Federal Open Market Committee will release updated economic forecasts following its policy-making meeting next week. In March, a preponderance of policymakers saw the Fed raise interest rates from their current near zero level only after 2023.

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