Harvard Prof., Ex-IMF Chief Economist Rogoff: ‘Loose’ Gov’t Spending Is ‘Holding up Interest Rates’

On Tuesday’s broadcast of CNN International’s “Quest Means Business,” Professor of Economics at Harvard University and former International Monetary Fund Chief Economist Ken Rogoff said that while we’ve had tight monetary policy with extremely high interest rates, “our government spending fiscal policy is very loose,” and this loose fiscal policy is “both holding up the economy and holding up interest rates.”

Rogoff said that the October CPI report “was better than people had expected.” And will be enough for the Fed to avoid hiking rates in December.

He continued, “As you say, Richard, it’s not quite where the Fed wants it, but it’s been coming down, and, at this point, they have to be more worried about tipping into recession than having inflation bump up a bit. But, on the other hand, although monetary policy has a very high interest rate, our government spending fiscal policy is very loose, and so that’s both holding up the economy and holding up interest rates.”

Rogoff added, “I think the interest rate is high enough at this point that, if you leave it there for a very long time, inflation will still come down, of course, barring other things happening. But it’s a very high interest rate. I mean, the interest rate’s well above inflation, much more than usual. I think we’re going to still land at higher interest rates than people are used to, even after inflation comes all the way down. But no, I think they’re eventually going to bring interest rates down.”

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