Harvard professor and former International Monetary Fund First Deputy Managing Director Gita Gopinath said the Federal Reserve may need to keep interest rates higher for longer as inflation remains elevated, arguing that "everything points to the need for tighter monetary policy."
Gopinath said in a CNBC "Squawk on the Street" interview on Monday that she expects more increases if inflation continues. She said the market has already priced in a December increase.
Gopinath on Higher Rates
Asked about rising borrowing costs, Gopinath said the elections and the Middle East add uncertainty. She said a diplomatic solution or an escalation of the war there could make inflation "a whole lot worse." She also cited recent wobbles in the AI boom.
"If we have this current outlook that we have right now, that’s going to involve interest rates going up and staying higher for longer," she said.
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Consumer Spending and Savings
Asked how the American voter is faring, Gopinath said that "Consumer spending is still very strong despite all the concerns about affordability." She said growth is 3.4%, but households are dipping into savings, which she said have dropped to a 4% rate.
Gopinath on the Deficit
Asked whether she is struck that the deficit has not been an issue this midterm cycle, Gopinath added, "Nobody seems to be concerned about the deficit." She said Congress will not take enough action after the midterms to put it on a durable path, and called the bet on AI-driven growth "a very risky strategy."
Fed Rate Backdrop
Her remarks come after the Fed raised its benchmark rate by a quarter point in September, its first increase in more than three years, before holding rates steady in October.
Chicago Fed President Austan Goolsbee had said supply shocks were proving more persistent, while Boston Fed President Susan Collins had said it would be "appropriate" to raise rates "a bit further" before year-end. A Bureau of Labor Statistics report had shown consumer prices rose 3.7% year-over-year in September, above the 3.6% economists expected.
Disclaimer:This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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