Rising Criticism of Federal Reserve’s Money Printing

Former Federal Reserve and Treasury Department leaders are leading a chorus of criticism against the Federal Reserve Board for having allowed inflation to rapidly accelerate, putting the central bank into a position where it may struggle to regain control over prices and the economy. 

The past president of the Federal Reserve Bank of New York, William Dudley, argues the Fed erred by beginning only in November to gradually taper its money-printing policy of injecting billions of dollars into the financial system every month through purchases of government-backed bonds.

“They have made a mistake in the sense of being so slow to start the taper,” Dudley told Bloomberg Radio. The former New York Fed President, who participated in guiding monetary policy, says the Fed has put itself “between a rock and a hard place.” To attempt to rein in inflation the Fed would need to stop pumping money into the economy and likely begin raising interest rates. But Fed Chairman Jay Powell and his policy team have committed to gradually tapering the bond purchases each month by $15 billion through the summer of 2022. Only then, the Fed has telegraphed, would it begin raising interest rates. That may be too late, with inflation already running at a three decade high. But, Dudley adds, the Fed may be unwilling to accelerate the tapering because, “that’s an admission of a policy error.”

Former Federal Reserve Vice Chairman Roger Ferguson warns central bank policy makers will likely be late in responding to rising inflation. “They’re going to wait until inflation is a clear and present danger,” he recently told a financial webinar.

Larry Summers, the former U.S. Treasury Secretary is more blunt in his critique of the Fed’s money printing. The Fed’s historical role is to “remove the punchbowl just before the party starts,” he recently told an investment conference, making the analogy between a loose monetary policy and an open bar. “Now the party’s gotten great and the Fed’s not removing the punchbowl until they’ve seen…conclusive evidence that everyone’s going to get plastered.”