Vivien Lou Chen is a Markets Reporter for MarketWatch. You can follow her on Twitter @vivienlouchen.
Just hours ahead of a widely anticipated pause on interest rates by the Federal Reserve on Wednesday, a former top official for the central bank offered a warning about the risks of taking no action on interest rates.
Bill Dudley, who led the Federal Reserve Bank of New York between 2009-2018, wrote in a Bloomberg column that he sees “four potential flaws” in policy makers’ thinking and that “they could be making a big mistake” by keeping rates on hold. Traders see an overwhelmingly likelihood that the policy-making Federal Open Market Committee will keep its main interest-rate target at a 22-year high of between 5.25%-5.5% on Wednesday. Reasons for such a pause include progress that’s been made in bringing down U.S. inflation, the likelihood that past Fed rate hikes haven’t worked their way through the system yet, and the recent steep rise in long-term Treasury yields which is helping to tighten financial conditions.
In a nutshell, Dudley said that Fed Chairman Jerome Powell is risking a repeat of the 1970s-1980s, when inflation spiraled out of control under Arthur Burns and required a severe U.S. recession under Paul Volcker.Dudley has been a nonexecutive director at Swiss bank UBS UBS, +1.75% since 2019. His views came as U.S. stocks DJIA SPX COMP traded higher Wednesday afternoon ahead of the Fed’s 2 p.m. Eastern time policy statement. Meanwhile, Treasury yields were broadly lower after weaker-than-expected manufacturing data from the Institute for Supply Management raised the possibility that the economy may be losing momentum.
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