Should the Fed take back some rate cuts to strengthen the dollar and fight inflation?

The Federal Reserve's leading inflation hawk told CNBC that interest rates will have to rise soon in order to keep a lid on rising prices.

Background information:


We asked our panel:

Should the Fed take back some rate cuts to strengthen the dollar and fight inflation?


NO 6

The Kudlow Caucus Breakdown

Stefan AbramsManaging Partner, Bryden-Abrams Investment Management
The Fed should continue to slow the growth of the Money Supply, which it has been doing since March. A small boost in the Federal Funds rate would have only a temporary effect on the Dollar. A sustained rise in that rate would kill the economy. Let’s face it: the Fed is in a serious bind. There is no way it can achieve all its mandates in the short to intermediate term. The Fed has NO control over the prices of oil or any other commodity.

Joe Battipaglia
Market Strategist, Stifel Nicolaus
But the Fed risks worsening soft economic conditions in the process. Rate hikes at a time of rising joblessness, a housing recession and other structural problems are a risk particularly for this Fed which has misjudged the economy for quite some time.

Jared Bernstein
Senior Economist, Economic Policy Institute
Downside risks to growth should still be their primary concern. They should sit tight for now: “the pause is the cause.”

Jerry BowyerChief Economist, Benchmark Financial Network
But don’t take my word for it…

"I think it is the height of unsound policy to devalue yourself into competitiveness." Clinton Treasury Secretary, Robert Rubin

“A great nation has a great currency’ Ronald Reagan

"The security of the dollar involves the security of us all.” JFK, speech to IMF

“Every time a currency fluctuates in value, harm is done.” Abraham Lincoln, report to Congress

“You shall have an honest balance, honest weights, an honest ephah, and an honest hin.” Moses, the Torah

Vince FarrellScotsman Capital Management
Absolutely. Inflation is the biggest danger. With headline CPI at 4% and the Fed Funds rate at 2% the Fed could easily raise rates. The dollar would rally and oil would correct.

Jim LaCampPortfolio Manager, Portfolio Focus, RBC Wealth Management
Co-Host, Opening Bell Radio Show, Biz Radio Network
I think the economy can't take rate hikes. That would be higher rates, oil and next year, taxes. Looking at the dollar/oil relationship since the March dollar lows, there is not a direct relationship between dollar and oil. Oil is more about perceived supply demand.

Banks aren't lending, so you have to attract capital investment. Cap gains and corporate tax cuts (I know, I am dreaming).

Art LafferFmr. Reagan Economic Advisor
Chief Investment Officer, Laffer Investments
The federal funds target rate should be more geared to the current real economy.

Donald L. Luskin Chief Investment Officer, Trend Macrolytics LLC
Most of the Fed's rate cuts were a mistake, made in the absence of better and more targeted tools to help ease the credit crisis (such as TAF, TSLF and PDCF). Now that those new tools (that work) are in place, the old tools (that don't work) can stop being used. Which means that the Fed should move as soon as possible toward equilibrium in rates, which is at least 4% at this point.

Steve MooreSr. Economics Writer, The Wall Street Journal Editorial Board
The dollar weakness is the starting line of almost all the economic problems we face. The most important policy goal of the Fed right now should be to reverse the decline in the dollar, and one way to do that is by raising interest rates.

James Pethokoukis
Sr. Writer, U.S. News & World Report (Money & Business)
Look at it this way: Rising prices are the ninjas of the economics world. They are the silent killers, the deadly assassins of consumer incomes. Tighter money might not only tamp down inflation -- and boost real incomes -- but also strengthen the dollar and lower oil prices. When? How about December 16, the first Fed meeting after the presidential election.

Robert Reich
Former Labor Secretary
Professor of Public Policy, UC Berkeley
The danger of recession is far higher than the danger of inflation right now. Employees have very little bargaining power. Companies don't have the power to raise prices. The Fed should stop obsessing about inflation and take a look at what's happening in the real economy.

Gary Shilling
A. Gary Shilling & Co. President
No, because the economy will probably weaken considerably as consumers retrench following the spending of their tax rebates. They no longer have home equity to support spending in excess of incomes and they've maxed out their credit cards.