Inflation is poison to the economy, Atlanta Fed President Jack Guynn said Tuesday (Aug. 22) in his farewell speech as a central banker, according to CBS MarketWatch.
Guynn is retiring on Oct. 1 after a 40-year career at the Atlanta Fed. His speech Tuesday looked back on his career and offered some final words of advice to his colleagues not to forget the lessons of the 1970s that inflation is “poisonous” to an economy.
“I am sure future policymakers will remember the lessons we learned in the past 40 years about what happens when you start down the slippery slope of trading inflation for growth,” Guynn said in remarks prepared for delivery to the Kiwanis Club of Atlanta.
Guynn’s warning on inflation comes as the Fed debates whether to raise interest rates again to combat a higher-than-desired inflation rate, or whether to allow a slowing economy to remove inflationary pressures over time.
The Fed held interest rates steady earlier this month, and most analysts expect a similar pause at the Sept. 20 meeting of the Federal Open Market Committee (FOMC). However, some economists believe high inflation rates will ultimately force the Fed to raise overnight interest rates at least one more time from the current 5.25%.
“As we should now know, a bit of inflation can get out of hand quickly, especially when consumers and businesses expect more price increases, waste time and effort trying to beat inflation, and then rush to spend more money in a vicious inflationary cycle,” he said.
“The consequences of high inflation were and remain economically poisonous: increased uncertainty and risk, the added incentive to consume instead of invest, cost of living adjustments, and other marketplace distortions,” Guynn said.
Guynn has been the head of the Atlanta Fed since 1996. He worked his way up through the bank after he joined it in the mid-1960s. He is a voting FOMC member this year.
Guynn said the Fed was able to avoid the spotlight until the early 1980s, when Fed chairman Paul Volcker hiked interest rates into double digits to break the back of high inflation.
Guynn’s remarks highlight how uncomfortable the Fed remains with so much media and market attention focused on its actions and communication.
He said he was often surprised by market reactions to Fed comments.
“Clearly, more central bank communications are helpful, but there is ample room to debate how to reflect the range of views and uncertainties that are inherent in the policymaking process,” Guynn said.