SMBC Chief Economist and former US Treasury Department official Joe Lavorgna argued that the Fed should raise interest rates in September and will take a step in that direction.
Appearing on CNBC, Lavorgna made critical statements on current events, evaluating the strong growth momentum in the US economy, the revival in the manufacturing sector, and the volatility in real interest rates.
Lavorgna stated that the US economy has entered a growth trajectory close to 5% in the third quarter, and that the 75 basis point interest rate cuts the Fed implemented last year due to concerns about the labor market are no longer needed.
“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.”
Responding to a question about how interest rate hikes could be negotiated with the US President, Lavorgna stated that raising short-term interest rates would lower the risk premium in the market and could bring down long-term bond yields.
He also argued that short-term interest rate increases would provide higher returns to deposit and Treasury bond investors, thus supporting the economy in the medium to long term.
