Fed is trailing behind the risk curve, says former NZ central bank governor

The US Federal Reserve runs the risk of walking behind the curve on interest rates, a former governor of the Reserve Bank of New Zealand told CNBC on Friday.

“Inflation is rising significantly, labor markets in the US are tight, and the question is how much is temporary, and how much is not,” Donald Brash said on CNBC.Squawk Box Asia,

Brash, who was governor of New Zealand’s central bank between 1988 and 2002, said that the Fed is not only hiking rates, but they are still pumping money into the economy and that this will continue for well into next year. is ready.

“I’m a little concerned that they are behind the curve,” he said.

after them meeting in early NovemberFed officials said the US central bank would begin slowing its bond purchases at a pace of $15 billion a month, effectively ending the bond-buying program in mid-2222. After that, the door will be open for the Fed to begin. lifting rate.

but, Meeting Minutes for November Session Noted that Fed members will be willing to raise interest rates sooner than expected if prices continue to rise.

Market participants now expect The central bank will discuss at next month’s meeting whether it should end its bond-buying program more quickly.

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The Fed took unprecedented steps to ease policy when the coronavirus pandemic hit early last year. It slashed rates to zero and established a $120 billion monthly bond-buying program to support financial markets and the US economy.

Other central banks have started dialing back some of the extraordinary levels of support provided to their respective economies due to the pandemic. for example, bank of korea, ns State Bank Of Pakistan And this Reserve Bank of New Zealand Recently raised rates. The recent rate hike by New Zealand’s central bank was the second in as many months.

business and geopolitics

In a comprehensive interview, Brash also addressed the ongoing development around the Comprehensive and Progressive Trans-Pacific Partnership – an 11-nation mega trade agreement involving New Zealand, formed in 2018. Donald Trump US pulls out of Trans-Pacific Partnership one year ago.

China, the United Kingdom and Taiwan have applied in recent months to join a trade deal for greater market access. But analysts say: US allies such as Australia, Canada and Japan may block Beijing’s application because they see China as a “strategic threat”.

“Well, personally, I’d like to see more countries join the CPTPP,” Brash told CNBC, adding that the trade deal was a “better trade deal” than the China-led Regional Comprehensive Economic Partnership. .

Asked if tensions between the US and China could escalate, Brash said there was a serious risk of that happening.

“China is clearly a rising power,” he said. Brash explained that if China’s per capita income rises to even half the level of the US, the Chinese economy will become significantly larger, which “obviously” creates tension.

Tensions between the two countries escalated under former US President Donald Trump, beginning with trade and tariffs on billions of dollars in goods and in other areas such as technology and geopolitics.

us President Joe Biden and the Chinese president Xi Jinping literally In a close dialogue between the leaders of the two countries, met this month. Ever since Biden took office.

, CNBC’s Patti Dom contributed to this report.


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