The fact that the CPI and PPI data in the USA were below the expectations did not change the outlook regarding the interest rate decision on July 26. Although there is an above-expected decline in inflation, the markets continue to expect a 25 basis point increase in interest rates from the FED.
In the preservation of this expectation lies Powell's hawkish statements that they could make two more rate hikes at the previous meeting.
Speaking on CNBC today, Nobel Prize-winning economist Christopher Pissarides doesn't think like members of the Fed. According to the famous economist, the FED no longer needs to increase interest rates. Pissarides believes the Fed should take a break from fighting inflation and monitor the situation.
Pissarides, a professor at the London School of Economics, stated that the effects of tightening are seen over time and that it is necessary to wait and watch for a while.
“It takes some time for the rate hikes to take their full effect. Given that inflation is on a downward trend and interest rates are high, it is only necessary to wait and watch what happens next.
I do not see a situation that will require the FED to increase interest rates, but I expect them to increase interest rates.
Inflation is falling. The labor market is not as tight as it used to be. I don't see any inflationary pressure.
In the light of these data, I do not think that there is a need for further rate hikes in the USA. In Europe the situation may be different, but in the USA there is no need.”
Acknowledging that he thinks differently from FED members, Pissarides said, “If I had voted there, I would have decided in this direction.”
Stating that the FED may have taken a decision in this direction to reach the 2% inflation target faster, Pissarides told the presenter:
“Maybe. At this point you see they have to be more patient. The last piece is always harder than the beginning.”
According to Pissarides, there is no significant difference between inflation being 2% and 3%, and businesses can adjust themselves accordingly.