The Federal Reserve shouldn’t hold back on raising interest rates in reaction to Russia’s incursion into Ukraine, according to renowned Wharton School finance professor Jeremy Siegel.
Presumably, the Fed could hold back on tightening to protect the economy from negative fallout coming from the Ukraine conflict.
But the Fed should stand fast in its battle to quell inflation, Siegel told CNBC. “It would be a big mistake if the crisis reduced the amount of tightening we need to control inflation,” he said. “I think the Fed rate hike is 10 times as important as what’s going on in Russia right now.
The Fed has indicated it will begin to lift rates next month. Economists predict it will move as many as seven times this year, pushing rate up to 175 basis points higher.
The central bank will have to act decisively to beat back inflation, Siegel said. Consumer prices soared 7.5% in the 12 months through January, the highest level in almost 40 years.
“There has just been way too much money growth and stimulation, and the Fed is way behind the curve,” Siegel said.
The Ukraine crisis could actually boost inflation if Russia’s oil and natural gas exports are cut off and oil prices rise. Europe receives much of its energy from Russia. March U.S. crude oil futures closed at $92.27 Tuesday on the New York Mercantile Exchange, up 1.32%
“Oil was heading up way before the Ukraine crisis, and many experts called for $100 oil before the Ukraine crisis. So that just adds fuel to the fire,” Siegel said.
