NEW YORK (Reuters) - The Federal Reserve's decision to cut interest rates in response to the U.S. financial market crisis of the past year is a bad mistake that will lead to higher inflation, a former Bank of England official said on Saturday.In a paper presented at the Federal Reserve's annual conference in Jackson Hole, Wyoming, the London School of Economics professor William Buiter, comes down hard on the Fed for misjudging the effects of the U.S. housing market slump.
"The Fed over-reacted to the slowdown in economic activity," Buiter writes. "It cut the official policy rate too fast and too far and risked its reputation for being serious about inflation."
"The official policy rate is a rather ineffective tool for addressing liquidity and solvency issues," he adds.
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