SMBC Chief Economist and former U.S. Treasury Department official Joe Lavorgna said the Federal Reserve should raise interest rates in September and suggested the central bank is likely to move in that direction.
Speaking on CNBC, Lavogna assessed the U.S. economy’s strong growth momentum, the recovery in manufacturing and volatility in real interest rates.
U.S. economic growth strengthens
Lavorgna said the U.S. economy has entered a growth trajectory approaching 5% in the third quarter. He argued that the Fed’s 75 basis point interest rate cuts last year, which were introduced amid concerns about the labor market, are no longer necessary.
“I believe the Fed should and will raise interest rates in September. Given the economic outlook and growth expectations, reversing the extra rate cuts made last year would be a logical step.”
Higher short-term rates could reduce market risks
In response to a question about how an interest rate increase could be negotiated with the U.S. president, Lavorgna said higher short-term interest rates would reduce the market risk premium and could push long-term bond yields lower.
He also said short-term rate increases would offer higher returns to depositors and Treasury bond investors, potentially supporting the economy over the medium to long term.
This is not investment advice.
