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Citi's Buiter: 'Confusing' Fed will never reach normal

Citi's Buiter: 'Confusing' Fed will never reach normal

The U.S. Federal Reserve will fail to raise its benchmark interest rate to 2 percent before the next recession takes hold and will likely opt for negative interest rates in the next downturn, according to the Citigroup's chief economist.

"We know that there are going to be few rate increases (by the Fed), and not to a very high level," Willem Buiter told CNBC Friday.

"We may be at barely 1 percent at the end of 2016 and I don't think that in this cycle we are going to see 2 percent. We will be back at the zero lower bound before you can say 'cyclical downturn'."

Buiter criticized the U.S. central bank, which he believes has been engaged in "systematic forward misguidance" and "maximizing the degree of uncertainty."

A central bank should not "communicate by committee," according to Buiter, who added that Federal Reserve members have been personally sending mixed messages at consecutive speeches or interviews.

"It's been singularly unhelpful," he said. "There is just no consistent message, which is not data-dependent it is confusion dependent."

His comments come a day after Fed Vice Chairman Stanley Fischer hinted that "some major central banks" could move away from near-zero interest rate policy "in the relatively near future."

Traders continue to seek guidance on whether the Fed will move from near-zero rates at its policy meeting next month. The U.S. central bank has held the federal funds rate there since the aftermath of the global financial crisis.

Buiter said he believes that Fed will now have to move in December to be perceived as still being consistent. He said that global central banks will "at best" be able to move benchmark rates back up to 2 percent, whereas historically a normalization would have seen rates above 4 percent.

"The next time a (cyclical downturn) happens, the Fed too will be going negative as will the Bank of England," he said.

The economist has purveyed a bearish view of the global economy recently, telling CNBC in October that the world faces a period of contraction and declining trade next year. He believes that China, Brazil and Russia are all edging towards an economic downturn.

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