To Hike Or Not To Hike?


Calls for the Federal Reserve to raise rates are getting louder, especially in the face of a declining dollar.

Over the weekend, the Barron's cover story called on Ben Bernanke to do exactly that, to "raise rates to prevent the dollar from collapsing and inflation getting out of control".

But is this enough to call the Fed to action?

Maria Bartiromo discussed this very important and topical issue in her exclusive interview with Roger Ferguson, President and CEO of TIAA-CREF. Ferguson is also the former Vice Chairman of the Federal Reserve, and he said that talk of the Fed raising rates right now is premature.

However, he isn't surprised that many are calling for higher rates as "there is a lot of liquidity in the system."

Still, Ferguson thinks that the "economy is still fragile and the Fed should and will take its time in raising rates." He added that while it's too "early for the Fed to have a definitive date in time, they should be thinking about the exit strategy."

On the topic of the dollar, Ferguson says it's "almost unimaginable that the dollar will not be the world's reserve currency."

He also agreed with Treasury Secretary Geithner's comments that the U.S. needs to start the process of getting our fiscal house in order. He thinks discussions on the dollar losing it's status are premature, saying instead "the right question is what the U.S. has to do to guarantee the dollar's status."

He stressed two key points to answer that question:

1. Getting our economy out of the recession

2. Showing fiscal discipline and responsibility

Looking out to 2010, Ferguson sees "a year of a slow, gradual and definitive recovery." Unlike noted economist Nouriel Roubini who is predicting a double-dip recession, he doesn't think that is the most likely scenario. Why not? Ferguson the Fed is "well aware of that risk and is making sure it doesn't happen."

Ferguson is also not too concerned about inflation risks. He thinks that isn't a factor 2010 or 2011, but perhaps "we'll see an uptick of those risks" in 2012.

Liza Tan contributed to this article.



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