"What we can’t know for sure is how much concerns about the global economic outlook are drivers of those developments.” The elephant in the room is not inflation, but whether the EU and euro will survive this uncontrolled migration disaster. No need for the Fed to put on the brakes when the Eurozone can do the job for us.
Economist Dean Baker responds to the last part of this column with a "Huh?", adding "None of the standard models shows a rapid acceleration of inflation as a result of the Fed being "too late." "
The idea that if the Fed waits to be absolutely certain it should raise rates before doing so this will "probably be too late", reported here as something Fischer said, and cited by Irwin as simply fact, is anything but. What did Fischer actually say, Baker wonders, and what models lead to the conclusion given by Irwin?
The idea that if the Fed waits to be absolutely certain it should raise rates before doing so this will "probably be too late", reported here as something Fischer said, and cited by Irwin as simply fact, is anything but. What did Fischer actually say, Baker wonders, and what models lead to the conclusion given by Irwin?
1
Waiting to see if the economy performs the way the Fed's models predict, seems to imply there might be doubts in those models. Given the miss prior to the Great Recession, doubt shows they have learned something at least. What remains to be seen is whether the choices the Fed has made in trying to keep this economy afloat ultimately were the right ones. Only time will tell.
We have been wondering: What determines Federal Reserve policy? Employment and inflation, or is the Fed influenced by external factors and market sentiment? The answer we found out yesterday was the latter.
It's time to stop printing more and more monopoly money. I keep hearing there's no inflation. Well, maybe not in prices generally but how about the inflation in the stock market or the inflation in housing prices, especially in money center cities (has anyone checked the value of real estate un NYC!) or the inflated prices (and LOW, LOW yields) of bonds.
We're playing with fire thinking that we are so brilliant that we can keep "manufacturing" really, really cheap money without consequences. And I'm also tied of hearing that you can create jobs by flooding the marketplace with cash. You employ people by building products and providing services consumers want to buy not with a tsunami of dollars. That only allows the casino gamblers at banks and hedge funds to use that cash, NOT to invest in manufacturing and businesses, but to play their typical financial games to make more money on the cheap money they've been handed.
What a mess!
We're playing with fire thinking that we are so brilliant that we can keep "manufacturing" really, really cheap money without consequences. And I'm also tied of hearing that you can create jobs by flooding the marketplace with cash. You employ people by building products and providing services consumers want to buy not with a tsunami of dollars. That only allows the casino gamblers at banks and hedge funds to use that cash, NOT to invest in manufacturing and businesses, but to play their typical financial games to make more money on the cheap money they've been handed.
What a mess!
2
Misleading title; no blinking going on-- Ms. Yellen is very well informed and made a well justified strategic decision.
2
A minor increase - the 25 basis points that was anticipated - shouldn't have had any major effects on a market that has been waiting and preparing for some rise for about 2 years now. It wouldn't shake the bond or stock markets, and might have been a tiny step anticipating the future. I've seen some arguments suggesting that some raise might result in banks making more business and home loans, which would stimulate the economy.
So it looks like another year and a half before a rate change at all. So now lets get on to worry about fallout from the pending gov't shutdown. . .
So it looks like another year and a half before a rate change at all. So now lets get on to worry about fallout from the pending gov't shutdown. . .
With just a little bit of protction and care, you can block the entrance to a hornet's nest with your hand without getting stung. What you can't do is take your hand away again.
1
The Fed to the American people: "Our policies haven't brought about the results we desire and our forecasts have been pretty bad, but by all means let's keep doing the same thing".
All these words, all this smoke and mirrors. For seven years the establishment mouthpieces continuously tell the public about "recovery". There is no recovery. Please stop listening. Look at what the Fed actually has done, and what it is actually doing now, rather than carefully parsing every pronouncement to divine the course upcoming policy decisions. Every failure to raise rates is a open admission that everything that Bernanke said, everything Yellen says, and anything one of the regional governors has said or will say, about the supposed "recovery" has been and is the Big Lie, the one if spoken loudly enough, and repeated often enough, by people in positions of authority, will be believed if only because it is thought that people with such good reputations and credentials would never lie about something so important. Watch what they do, not what they say. Any of you who are misinformed about the real state of the economy should just research online the real rate of inflation (and not the manipulated gov rate), and fold that honest rate into the supposed slow GDP growth rates over the past seven years, and an annual GDP contraction as measured in real dollars results, in the neighborhood of 4% annually. Things are really seriously bad out here, but, as Jean-Claude Junker explained: "When it becomes serious, you have to lie". True, but those hearing the lies don't have to believe them or use them as the starting point for public debate.
Raising the short-term interest rate now is a bad idea. Wait until a tight labor market and our wages improve enough to spark a 4% inflation rate for awhile. The Fed can always step on the brakes. We need their foot on the accelerator.
1
Instinct and experience also play their parts in the decision.
Its's too late, already. The Fed needs to change some of their models. They need to reconvene before their next schedule meeting and raise rates yesterday!
2
Right, because inflation is out of control and we are all going to die!
4
Uh, the Fed didn't raise interest rates because inflation is too low. The models the Fed uses are outmoded and one reason inflation has been so low for so long is because interest rates are kept low. That is why they need to raise rates. Savers are suffering because of poor rates. Investors are hruting because of the recent correction and, most probably, it will take a while for them to regain their recent losses. Young adults are financially beleagured in a manner not seen in at least two generations. The elderly are beleagured because they are on fixed incomes and are losing money in the market and not making money on savings.
1
Will the Fed ever raise rates? Ever is a long time, so within 'ever' the Fed will likely raise rates.
The Fed board is unclear whether it is damned if it does raise rates and damned if it doesn't.
When it finally raises rates may be too late to steer the economy away from a course the Fed would rather not think about (as now).
Despite the Chicago school of Economics, stock market prices do not perfectly rationally embody the worth of listed firms or of synthetic securities. If it did then their values would vary wildly. The emotional stock market mostly overshoots or undershoots. For as far back as we can recall, it has overshot and it is past time to let some air (actually a lot) out of the stock market.
The Fed cannot say for sure what it will do before it meets, but Yellen can make statements that forewarn small business borrowers, those whose main asset is their house or those wanting to enter that group. As is the Fed has a wolf, which it cannot handle, by the ears,
The Fed board is unclear whether it is damned if it does raise rates and damned if it doesn't.
When it finally raises rates may be too late to steer the economy away from a course the Fed would rather not think about (as now).
Despite the Chicago school of Economics, stock market prices do not perfectly rationally embody the worth of listed firms or of synthetic securities. If it did then their values would vary wildly. The emotional stock market mostly overshoots or undershoots. For as far back as we can recall, it has overshot and it is past time to let some air (actually a lot) out of the stock market.
The Fed cannot say for sure what it will do before it meets, but Yellen can make statements that forewarn small business borrowers, those whose main asset is their house or those wanting to enter that group. As is the Fed has a wolf, which it cannot handle, by the ears,
On the backs of the workers!
1
You cannot raise rates when you fail as a regulator to the bank holding companies. Real players of the market are aware that same criminals sharks have not been prosecuted and are still in the water. The goal for the Fed is to get the sideline money back into the market, however 18,000 to 9,000 was fabricated by $20 trillion loans to bank and the Fed buying securities & bonds!
Example of crime is Wells Fargo Bank taking the Washington Mutual Bank (WaMu) Ginnie Mae created Mortgage Backed Securities (MBS), and illegally foreclosing on all these loans with forged titles! You cannot have simply laying out there, a crime so big against the Federal Government that the $264 billion or so Ginnie Mae MBS recovery of the Madoff Ponzi type deal where the MBS never had any underlying collateral because Ginnie Mae cannot and does not purchase the loan debts!
Feb 2014 Lynn Szymoniak files a Qui Tam lawsuit against the banks but the Dept of Justice failed to join in on the case that already was reported to them by way of the Whistleblower program in 2011 & 2012 but here we are in Sept 2015 a full 7yrs after WaMu was seized and declared a "fail bank" by the FDIC. Wells foreclosed on WaMu loans without being able to legally after Sep 25, 2008.
So MERS who US Atty Gen Holder had a conflict of interest as with the large banks also because Covington & Burling (which Holder works for) representing all of cel block, and did no bring charges against.
Example of crime is Wells Fargo Bank taking the Washington Mutual Bank (WaMu) Ginnie Mae created Mortgage Backed Securities (MBS), and illegally foreclosing on all these loans with forged titles! You cannot have simply laying out there, a crime so big against the Federal Government that the $264 billion or so Ginnie Mae MBS recovery of the Madoff Ponzi type deal where the MBS never had any underlying collateral because Ginnie Mae cannot and does not purchase the loan debts!
Feb 2014 Lynn Szymoniak files a Qui Tam lawsuit against the banks but the Dept of Justice failed to join in on the case that already was reported to them by way of the Whistleblower program in 2011 & 2012 but here we are in Sept 2015 a full 7yrs after WaMu was seized and declared a "fail bank" by the FDIC. Wells foreclosed on WaMu loans without being able to legally after Sep 25, 2008.
So MERS who US Atty Gen Holder had a conflict of interest as with the large banks also because Covington & Burling (which Holder works for) representing all of cel block, and did no bring charges against.
1
Because a lower valued dollar will help us compete in the world economy, I think it's a good thing to delay this extremely modest rate hike. I know those with cash savings are disappointed because you can't live on the interest, but raising rates makes buying treasuries more attractive...and that will be bad for jobs.
1
Over many different fed chairpersons the fed has NEVER been correct predicting the economy the or markets. I for one can guess based on data. My guess is that the economy is gang busters and the market is going to crash. And I do not have an economics degree.
1
Why would any sane economist think that one size fits all? Compare the median incomes in rural Maine and the Boston suburbs: they are two different worlds.
1
Paying attention to words from the Federal Reserve's Janet Yellin on raising interest rates reminds of waiting for Godot, a some-day bride, or the other shoe to drop. Fortunately, the suspense is not killing us. But it is an aggravation to the markets and general public alike that the Fed must say something just to look busy. Few (if any) question the need and worthiness of a central bank. Sadly, however, the verbal pyrotechnics-cum-meringue of former-chief Alan Greenspan turned the Fed into a weapon and his heirs-to-date haven't gotten over it. So, here's the deal to Ms. Yellin: Put more emphasis on the word "reserve" in your business identity and less on anticipation. Unlike more personal stuff, the latter is not 90% of the pleasure.
2
35 years of wage stagnation should have been enough.
3
The entire debate a 25BP rise is sure insanity and shows how completely ungrounded the financial markets( ha! games) really are.
Look at shipping, raw materials, electrical production and consumption. Look at world geopolitics, look at (lack of) investment. Now tell me the next few years will be rosey. The Fed is on the sidelines because they can not really affect the game.
people that want good paying jobs, better paying jobs should create goods and services that people want; that people need and that create some measure of goodness. waiting for the corporates or the fed to create jobs is just being lazy.
The Fed is irrelevant and reactionary, not wrong, not right. just tomorrows fish wrap.
Look at shipping, raw materials, electrical production and consumption. Look at world geopolitics, look at (lack of) investment. Now tell me the next few years will be rosey. The Fed is on the sidelines because they can not really affect the game.
people that want good paying jobs, better paying jobs should create goods and services that people want; that people need and that create some measure of goodness. waiting for the corporates or the fed to create jobs is just being lazy.
The Fed is irrelevant and reactionary, not wrong, not right. just tomorrows fish wrap.
3
The banks have been able to go to the "Fed Window" for 7 years and borrow at close to 0% interest. That was supposed to have jump-started the economy. It didn't work, the economy has followed a slow-crawl to growth approaching what it was before the very same banks decided to crash the housing market with their mortgage based derivatives. That brought the economy to a near standstill and the banks got the punishment of having to pay 0% interest on their borrowing.
7 years later and the banks have become addicted to free money and are making whatever case they can to keep that 0% in place forever. Unless the Fed decided to go with negative interest where they pay the banks for borrowing.
In the meantime the economy sputters along with credit to Americans who are willing to try and make things happen as well as those who simply have to replace worn out goods. Banks pay nominal, if any, interest on savings while the Fed beats up on citizens for not saving more. All the while crying about the besotted bank who created the mess we cannot raise their borrowing costs, it might hurt their feelings.
Where do you go when your bonds and CD's mature? To the loving arms of some hotshot broker with a deal that is just too good to be true, perhaps some mortgage backed securities with a high coupon value. GOTCHA!
7 years later and the banks have become addicted to free money and are making whatever case they can to keep that 0% in place forever. Unless the Fed decided to go with negative interest where they pay the banks for borrowing.
In the meantime the economy sputters along with credit to Americans who are willing to try and make things happen as well as those who simply have to replace worn out goods. Banks pay nominal, if any, interest on savings while the Fed beats up on citizens for not saving more. All the while crying about the besotted bank who created the mess we cannot raise their borrowing costs, it might hurt their feelings.
Where do you go when your bonds and CD's mature? To the loving arms of some hotshot broker with a deal that is just too good to be true, perhaps some mortgage backed securities with a high coupon value. GOTCHA!
6
As has been pointed in the article, the reduction in unemployment rate over the past 6 to 7 years is, in today's economy, a weak measure of progress - absent supporting behavior in other measures such as median incomes, labor force participation.
Another data point that could be of interest is how personal income taxation revenues are doing.
In todays times, going simply by the headline unemployment rate can de deceptive as it is a short term measure of unemployment more suited to normal business cycles.
Its time that BLS re-looked at the rate and see how it can be improved to give a better pulse of the economy than it does today - even U^ measure could be improved. Income level of the 99% is an important indicator of the dynamicism of the economy.
Another data point that could be of interest is how personal income taxation revenues are doing.
In todays times, going simply by the headline unemployment rate can de deceptive as it is a short term measure of unemployment more suited to normal business cycles.
Its time that BLS re-looked at the rate and see how it can be improved to give a better pulse of the economy than it does today - even U^ measure could be improved. Income level of the 99% is an important indicator of the dynamicism of the economy.
9 to 1 vote. Good for the Fed.
4
“The decision to hold off on rate increases this week suggests Ms. Yellen and the Fed want a little more evidence that the economy is on the mend…”
This is the attitude, Janet Yellen twirling her hair saying “I dunno”, after 6 years without a rate hike. Meanwhile middle class savings dwindle with inflation rates higher than interest rates, and companies don’t invest in their own futures, making false-profits by buying back their own stock.
And when the whole thing crashes again, the only government tool available will be the like of $85 billion in tax-payers’ TARP money to Citigroup to avoid liquidity lock-up, again.
Like Hilary Clinton’s email and Donald Trump’s mouth, I’m tired of hearing about Janet Yellen’s interest rate. Raise the rate or get off the QE money-pot, already.
This is the attitude, Janet Yellen twirling her hair saying “I dunno”, after 6 years without a rate hike. Meanwhile middle class savings dwindle with inflation rates higher than interest rates, and companies don’t invest in their own futures, making false-profits by buying back their own stock.
And when the whole thing crashes again, the only government tool available will be the like of $85 billion in tax-payers’ TARP money to Citigroup to avoid liquidity lock-up, again.
Like Hilary Clinton’s email and Donald Trump’s mouth, I’m tired of hearing about Janet Yellen’s interest rate. Raise the rate or get off the QE money-pot, already.
5
"Inflation may have been persistently below the central bank’s 2 percent target the last few years, but it is on track to steadily rise in the year ahead."
I'm sorry, no. We just had negative print! Inflation is on track to stay below 2% indefinitely. Check the TIPS spreads if you need to be convinced.
I'm sorry, no. We just had negative print! Inflation is on track to stay below 2% indefinitely. Check the TIPS spreads if you need to be convinced.
2
Please Fed, don't get up. Unless of course it's to lie down.
For the past several years, the Fed has pursued policies that took money out of e pockets of middle class retirees and put it into those of the top 0.1%. So their unwillingness to move yesterday should not be surprising. It is hard to rage that there is any difference to the economy in the medium term of increasing the rate in September, October, or December, so that is not a real issue. However, their unwillingness to fulfill their responsibility now makes one really worry about an ability to make unpopular decisions in 2016, an election year.
8
There is the nagging sense that there will always be an excuse for not raising the interest rate. Lowering the rate to near zero never helped the poor, the unemployed/underemployed and the majority of the elderly. It has driven investors to the stock market and over inflated stock values. It continues to suppress wages and better paying jobs for college graduates. The 1% have to thank the Federal Reserve for making more money for them at the expense of the middle class and the poor.
12
You're absolutely right. The Fed continues to throw savers under the bus. People who know very little about investing in stocks have been forced to do so because it is the only possible way to not have your money eaten up by inflation which if you put it in anything safe now, it will be.
And considering that rents continue to rise at a rate far exceeding the official inflation rates, those official numbers are increasingly divorced from the reality many people face.
And considering that rents continue to rise at a rate far exceeding the official inflation rates, those official numbers are increasingly divorced from the reality many people face.
4
Low interest rates cause asset inflation but push down the prices of both labor and goods. Hard to understand that the fed doesn't understand that at very low interest a piece of capital equipment to replace labor is a better decision than at high interest rates; the result: less pressure on wages. Similarly, if the world is short of widgets (or oil), low interest rates encourage the investment in widget-makers (or drill rigs) to increase the supply - and the price of widgets (or oil) goes down.
So the fed is waiting for higher inflation while pursuing policies which restrain inflation (except in assets).
So the fed is waiting for higher inflation while pursuing policies which restrain inflation (except in assets).
2
The sole purpose of the Fed is to restrain wages. All the rest is crapola. Inflation numbers and job reports are understated fictions used to keep wages down. The real problem the Fed has is the excessive financialization of the economy that inhibits growth by producing nothing. Now that manufacturing is a virtual non factor, repressing wages for the service sector is a priority and any raise in interest rates will quell the recent public outcry for increased wages in that sector. Small businesses, especially, are having difficulty filling low wage jobs so it's time for the Fed to slow things down so the desperation of the of the least fortunate among us can be exploited.
4
With inflation at 0.2% there was absolutely no downside to the Fed holding its fire so it did. Duh. Hey look on the bright side. These sort of columns lets lots of loons rant about the evils of low rates and central banks.
8
By the Fed's own admission it would like to "normalize" interest rates, which means, by definition, that the current rate structure is abnormal. I will let you decide whether rates are abnormally low or high. I'll take the low.
So the Fed is saying that despite current economic conditions it was not prepared to take even the teeniest, tiniest first step to a normal interest rate structure. The Fed's agonizing and navel-gazing over this is absurd to the extreme.
Ironically, it will be the Fed's third, fourth, fifth or whatever rate increase which will ultimately tip the economy into recession and that increase will come with much less introspection from the Fed and much less attention by the media than this first one, which really has only symbolic significance rather than economic importance.
So the Fed is saying that despite current economic conditions it was not prepared to take even the teeniest, tiniest first step to a normal interest rate structure. The Fed's agonizing and navel-gazing over this is absurd to the extreme.
Ironically, it will be the Fed's third, fourth, fifth or whatever rate increase which will ultimately tip the economy into recession and that increase will come with much less introspection from the Fed and much less attention by the media than this first one, which really has only symbolic significance rather than economic importance.
4
Fed Chair Yellen is to be commended for being data-driven, taking into account the Fed's own research in the form of the May 2015 Peneva/Rudd paper showing that job increases do not power inflation:
http://economistsview.typepad.com/economistsview/2015/06/wage-increases-...
The Fed is correct to wait for actual inflation to show " the whites of its eyes " instead of a knee-jerk rate raise when the economy is not yet meeting the Fed's own inflation goals :)
http://economistsview.typepad.com/economistsview/2015/06/wage-increases-...
The Fed is correct to wait for actual inflation to show " the whites of its eyes " instead of a knee-jerk rate raise when the economy is not yet meeting the Fed's own inflation goals :)
12
I would call this entire article an apologist essay for central bank price control and market manipulation. The feds not worried about the stock market? Paaaleeeeze! Really! Really! The entire purpose of QE and Z.I.R.P. forever is for the stated goal of creating a "wealth effect." And it helps if you're already wealthy. Not forgetting a ongoing bailout of its member banks. Gotta keep those billions dollars in bonus flowing. Watching that "effect" go in reverse runs contrary to the fed plan to reflate asset prices and keep the millionaires and billionaires in their good graces.
It's all about stock prices folks and the hijacking honest price discovery and anyone that is telling you different doesn't know his backside from his elbow.
It's all about stock prices folks and the hijacking honest price discovery and anyone that is telling you different doesn't know his backside from his elbow.
7
ZIRP takes money from the savings accounts of retirees and hands it to traders at bank and non-bank financial institutions to keep asset bubbles inflated. The FED, which works for the banks, has kept rates low because their friends have told them that letting the helium out of the bubble would cause a cataclysm. That cataclysm is inevitable and the longer the can is kicked the worse it will be.
13
The discussion is balanced but the title clearly implies she failed to do something she should have. Poor wording when the title is at a significant % form their opinions on.
2
"Blinked" is needless, clumsy, and editorial.
Georgia blinked when Russia invaded; Apple blinked when Taylor Swift demanded royalties.
In contrast, Yellen and her colleagues took a decision that experts expected and agreed with. There was no capitulation. There was not even a threat to capitulate toward.
Doing what you should, in the mainstream of informed opinion, is not blinking. To suggest otherwise is journalistic and terminological malpractice.
Having said that, the Editorial Board today used the quote-unquote sentence: "Wait, what?" Oh the Times, oh the mores...
Georgia blinked when Russia invaded; Apple blinked when Taylor Swift demanded royalties.
In contrast, Yellen and her colleagues took a decision that experts expected and agreed with. There was no capitulation. There was not even a threat to capitulate toward.
Doing what you should, in the mainstream of informed opinion, is not blinking. To suggest otherwise is journalistic and terminological malpractice.
Having said that, the Editorial Board today used the quote-unquote sentence: "Wait, what?" Oh the Times, oh the mores...
8
"Experts" ?
Janet Yellen blinked on interest rates because she expects Congress will shut down the government--again--throwing everything into chaos. She didn't need to add fuel to the fire. She will wait until the government is funded properly. Anything else is suicide.
10
What does the country need?
Well paying jobs.
If people are working, producing, and spending, we get a virtuous circle where the money they spend provides more decent jobs for other people. What do we need to provide these well paying jobs?
Well, gee, we need money, money in the private sector, money to pay for these well-paying jobs. More money must come into the private sector than goes out. Where does money flow from and to?
There are two places. First, the federal government. When it spends, it adds money to the private sector. When it taxes, it takes money out. The deficit measures how much it puts in net. When we have a surplus, we take money out net. THE FEDERAL DEFICIT IS INCOME FOR PEOPLE, BUSINESSES, AND STATE AND LOCAL GOVERNMENTS.
The other place is our trade balance. When it is positive, money is put in the private sector; when it is negative, money is taken out.
The net effect of these two sectors must be positive. If we have a large trade balance, we only need a small deficit or can even support a surplus like Germany. Today we have a large negative trade balance. We need a large deficit.
But when we get money into the Private sector, it must go to the right place. It does little good sitting in Scrooge McDuck's basement. It must go to the people who need it and will spend it. They way to do this is by deficit spending for worthwhile projects like fixing roads and bridges, grants for education, etc. Obviously this will also have long term benefits.
Well paying jobs.
If people are working, producing, and spending, we get a virtuous circle where the money they spend provides more decent jobs for other people. What do we need to provide these well paying jobs?
Well, gee, we need money, money in the private sector, money to pay for these well-paying jobs. More money must come into the private sector than goes out. Where does money flow from and to?
There are two places. First, the federal government. When it spends, it adds money to the private sector. When it taxes, it takes money out. The deficit measures how much it puts in net. When we have a surplus, we take money out net. THE FEDERAL DEFICIT IS INCOME FOR PEOPLE, BUSINESSES, AND STATE AND LOCAL GOVERNMENTS.
The other place is our trade balance. When it is positive, money is put in the private sector; when it is negative, money is taken out.
The net effect of these two sectors must be positive. If we have a large trade balance, we only need a small deficit or can even support a surplus like Germany. Today we have a large negative trade balance. We need a large deficit.
But when we get money into the Private sector, it must go to the right place. It does little good sitting in Scrooge McDuck's basement. It must go to the people who need it and will spend it. They way to do this is by deficit spending for worthwhile projects like fixing roads and bridges, grants for education, etc. Obviously this will also have long term benefits.
13
Only One Problem Len
If you watched the GOP debates, you know that they want that money sitting in Scrooge McDuck's basement - more tax cuts for billionaires or a "flat" tax that gives them even more money. Channeling money to the people who need it and will spend it is strictly against their religion and you know how important religion is to them!
If you watched the GOP debates, you know that they want that money sitting in Scrooge McDuck's basement - more tax cuts for billionaires or a "flat" tax that gives them even more money. Channeling money to the people who need it and will spend it is strictly against their religion and you know how important religion is to them!
Surely Paul M there are more problems with the Republicans than that.
What we need for well-paying jobs is to tax the oligarchy back into the middle class, and imprison those who resist. Our economy no longer reflects a single historical "American" economic value. We have forgotten that 49 paupers and one person with a $50 million income average out to $1 million per person.
1
When ordinary workers are making enough money that wages overall are outpacing the cost of living, then perhaps the Fed should raise rates. In the meantime, wages are stagnant, and why make things worse?
9
The Federal Reserve Bank is trying to keep the patient alive by feeding the tumor. If it just injects enough nutrient into the malignancy surely some of it will spill out to feed the patient.
This is insane. Truly.
The Fed is a tool of the financial markets and the health of these markets is the problem---NOT the solution.
This is insane. Truly.
The Fed is a tool of the financial markets and the health of these markets is the problem---NOT the solution.
9
As a saver who is a modest consumer - I wish there was some middle ground. My savings account is earning under 1% and the only way to get any return seems to be entering the high risk stock market. There has to be a way not to punish savers quite so much. Seniors and others depending on investment income (not the Wall Streeters - your grandma, for instance) are really suffering.
23
But in the long term the market is safe and returns 8 or 9 percent
1
I must say I find the terms "grandma" and "long term" to be somewhat incongruous.
Of course in the long term we all (including grandma) die.
2
7 Years at Zero Has Been NO PROBLEM
There is no threat of accelerating inflation, none. Labor markets are NOT too tight. Economic growth is sluggish. So what exactly is the reason to raise rates? Just to show you can? Nonsense.
There is no threat of accelerating inflation, none. Labor markets are NOT too tight. Economic growth is sluggish. So what exactly is the reason to raise rates? Just to show you can? Nonsense.
13
Perhaps not a problem to you but I think of the thousands upon thousands of dollars I have lost by rates being at zero percent. My mortgage is paid off so I am not benefiting from the reduced interest rates in any way. Also an asset bubble has most certainly occurred with people going out further on a limb to try and get something more than .05% on their money. We still don't know the consequences of this and what will happen when rates do rise, although that seems like it could be years away and during that time the bubble could further rise.
6
@ Rick
Fear mongering about asset "bubbles" has been the pastime of cons for the last 6+ years. They have been wrong the whole time and yet their lie continues. If you missed the entire stock market rally, then you just had your head in the sand. Meanwhile, low interest rates have resulted in 12,000,000 new private sector jobs over the past 5 years. I think that trade off is well worth it: 12,000,000 new jobs versus 2% interest for savers. The Fed's job, by law, is NOT to help savers; it is to create jobs.
Fear mongering about asset "bubbles" has been the pastime of cons for the last 6+ years. They have been wrong the whole time and yet their lie continues. If you missed the entire stock market rally, then you just had your head in the sand. Meanwhile, low interest rates have resulted in 12,000,000 new private sector jobs over the past 5 years. I think that trade off is well worth it: 12,000,000 new jobs versus 2% interest for savers. The Fed's job, by law, is NOT to help savers; it is to create jobs.
2
Rick, I and my friends, all retired, had put half of our money into the stock market (via mutual funds). Why don't you try it.
3
The Fed's decision should be a cause for profound worry. 0% rates to encourage consumption cannot persist without seriously negative consequences for the long term, from pension funds that are already stressed to increasing a debt burden that only encourages 0% rates to keep it sustainable (e. g. Japan). Unless there is an increase in productivity that has not materialized (and Stanley Fischer's "productivity is growing more than we think because we cannot measure it accurately" is hardly grounds for assurance) there is no future growth to suggest that the debt load will be sustainable in a "normal" rate environment. The collapse of EM bond markets/commodities/China may well be a consequence of the 0% policy rather than a rationale for continuing it ("looking for returns in all the wrong places"). The inability to generate inflation would seem to suggest that there an overcapacity problem that must be addressed. The belief that we still haven't printed enough money to stimulate consumption seems less and less compelling nine years on.
11
This comment is hard to understand. Take the last two sentences. The lack of inflation means we have not printed enough money to stimulate consumption. If we have overcapacity, that means if we print more money, we have the capacity to make stuff to soak it up without producing too high inflation.
Furthermore, if you account for the interest returned by the FED on the Treasury bonds it holds, debt service is currently running at 0.8% of GDP which is the lowest in 60 years. So interest rates can get a lot higher without hurting. Since debt service has never in all of our history been a problem, it seems that we shouldn't worry about it.
Furthermore, if you account for the interest returned by the FED on the Treasury bonds it holds, debt service is currently running at 0.8% of GDP which is the lowest in 60 years. So interest rates can get a lot higher without hurting. Since debt service has never in all of our history been a problem, it seems that we shouldn't worry about it.
18
The need to keep a 0% rate _should_ be a cause for worry. The fact that after 9 years there is still no inflation and the economy still has a lot of slack is why the 0% rate still works. The US government and large corporations have no problem borrowing at very advantageous terms, so apparently, the very low interest rates (by historic standards) are not making access to capital hard.
We have a lack of demand for funds (or an overcapacity of funds). Making funds more expensive will not increase demand to borrow more funds--but does generate a huge profit to those who buy artificially high-paying government securities, paid for by either cutting government programs or increasing the federal deficit.
Most of the productivity increases from the previous 2 decades has gone to the "investment class", as opposed to those who will actually spend the funds on more goods.
Had we used some of the funds generated by quantitative easing or just borrowing at the current very low rates to generate jobs (infrastructure projects, for example), we would have had more demand, more growth, and happier pension fund managers.
By keeping most of the gains from productivity increases in the form of hoarded capital, rather than increased jobs and salaries, we have a surplus of capital and a shortage of demand for goods and services.
We have a lack of demand for funds (or an overcapacity of funds). Making funds more expensive will not increase demand to borrow more funds--but does generate a huge profit to those who buy artificially high-paying government securities, paid for by either cutting government programs or increasing the federal deficit.
Most of the productivity increases from the previous 2 decades has gone to the "investment class", as opposed to those who will actually spend the funds on more goods.
Had we used some of the funds generated by quantitative easing or just borrowing at the current very low rates to generate jobs (infrastructure projects, for example), we would have had more demand, more growth, and happier pension fund managers.
By keeping most of the gains from productivity increases in the form of hoarded capital, rather than increased jobs and salaries, we have a surplus of capital and a shortage of demand for goods and services.
19
re: increasing a debt burden
^ raising interest rates by definition increases interest on debt which increases the debt burden.
fail.
^ raising interest rates by definition increases interest on debt which increases the debt burden.
fail.
3
If the US wants to raise interest rates, then it MUST institute a serious WPA size and scope jobs program, STAT!
You can't expect anything else to happen to break the death spiral, unless you want to wait for a world war. I don't recommend this option. And I really recommend cooling the aggression in Yemen, Syria, Ukraine, and God know where else we are fomenting war in the interests of Empire, before it all comes crashing down.
You can't expect anything else to happen to break the death spiral, unless you want to wait for a world war. I don't recommend this option. And I really recommend cooling the aggression in Yemen, Syria, Ukraine, and God know where else we are fomenting war in the interests of Empire, before it all comes crashing down.
22
Rates won't go up for a LONG time. Those whose political power is increased when government can borrow and spend more will not want to face the music when debt service hoovers up everything but entitlement spending.
Why reward saving? Borrowing and spending will keep the politicians and the bureaucrats powerful.
Rates therefore will stay low.
Why reward saving? Borrowing and spending will keep the politicians and the bureaucrats powerful.
Rates therefore will stay low.
10
Peter, you may be interested what has happened EVERY time the government has spent less than it took in for a while.
The federal government has balanced the budget, eliminated deficits for more than three years in just six periods since 1776, bringing in enough revenue to cover all of its spending during 1817-21, 1823-36, 1852-57, 1867-73, 1880-93, and 1920-30. The debt was paid down 29%. 100%, 59%, 27%, 57%, and 36% respectively. A depression began in 1819, 1837, 1857, 1873, 1893 and 1929.
Ya think the finances of a huge country that can print the currency its debts are in might be different than your own finances, perhaps?
The federal government has balanced the budget, eliminated deficits for more than three years in just six periods since 1776, bringing in enough revenue to cover all of its spending during 1817-21, 1823-36, 1852-57, 1867-73, 1880-93, and 1920-30. The debt was paid down 29%. 100%, 59%, 27%, 57%, and 36% respectively. A depression began in 1819, 1837, 1857, 1873, 1893 and 1929.
Ya think the finances of a huge country that can print the currency its debts are in might be different than your own finances, perhaps?
30
Low interest rates exist for the benefit of wall street and the hedge funds so they might force savers into gambling with their savings, allow corporate raiders to take over and plunder companies. and c.e.o.s to engage in buy backs to increase their paychecks as none of them since perhaps Hewlett and Packard have created a real company benefiting society at large as well as their employees, instead we now have the dregs of wall street creating one overhyped ,overvalued i.p.o. after another to reel in and fleece the average joe seeking to keep up with inflation that the fed denies.
24
I have a home equity line of credit directly tied to the interest rate. I am very poor. So you're wrong.
6
What inflation is that? The billion price index is in synch w the Fed. So is my cost of living, for years.
3
Interesting, because I've been retired for 12 years and track my spending/cost of living quite closely. My cost for everything except gas has gone up far in excess of the reported figures, which are nothing more than a sham.
But then again I used to live near Arlington. I'm guessing you haven't shopped for anything yourself in a while.
But then again I used to live near Arlington. I'm guessing you haven't shopped for anything yourself in a while.
3
Embedded in this debate is the thought that zero interests rates are 'unnatural,' presumably because the zeitgeist insists that we must fashion our culture so that we encourage delayed gratification, i.e. foregoing a dollar's expenditure today must, it really must, mean that what you get in the future must, it really must, be worth more, if at all possible a lot more. Oh, really? What we need to encourage is consumption not in the future but right now. Anyone read today's reports on the decline of median income in the U.S. over the last 15 years? Shouldn't the Fed pay attention to that rather than an embedded commandment that compound interest always and forever must result in future riches?
3
Yes, consumption here and now and not in the future is exactly what we need and exactly what the Fed is trying to encourage with low rates.
That does not mean zero rates are not 'unnatural' - they are. People should indeed be paid (interest) for delayed gratification in order to enable those looking for immediate gratification to obtain it. What is unnatural are the present economic conditions in which too many people are willing to delay gratification and too few wanting it now.
Today's decision shows the Fed is paying attention.
That does not mean zero rates are not 'unnatural' - they are. People should indeed be paid (interest) for delayed gratification in order to enable those looking for immediate gratification to obtain it. What is unnatural are the present economic conditions in which too many people are willing to delay gratification and too few wanting it now.
Today's decision shows the Fed is paying attention.
7
We need investment in public infrastructure and societal good, not consumption to just burn money. The Low interest rates of the past 7 years have only benefitted the financial engineers and their 15% tax. We need to tax properly and use those funds with low interest rates for first rate schools and roads which would bring back a real middle class.
1
Yeah, it'll be hilarious in 10-15 years when the sidewalks are littered with people who had what little they had set aside for retirement smashed in the stock market because bonds don't have a positive return. Once they're too old to work at a scrape-by job, everyone else will have to hop, skip and jump to get down the block.
Saving IS for suckers. Until its too late.
Saving IS for suckers. Until its too late.
Maybe Chair Yellen is looking at actual unemployment rates, which , as a total, are far higher than 5.5%.
15
Funny how conservatives didn't see it that way in 2001-2008
12
On the face of it there is absolutely no reason to raise rates. There is little inflation and wage growth stinks.
The only good reason for raising rates doesn't get talked about, which is if the Fed doesn't preemptively raise rates before the world, or most of it, follows China back into the Great Recession, they'll be out of bullets when it does.
But of course if they do raise rates, they risk abetting the Recession's return. In my uninformed view the Fed is clearly between a rock and a hard place, even if they're playing it cool.
The only good reason for raising rates doesn't get talked about, which is if the Fed doesn't preemptively raise rates before the world, or most of it, follows China back into the Great Recession, they'll be out of bullets when it does.
But of course if they do raise rates, they risk abetting the Recession's return. In my uninformed view the Fed is clearly between a rock and a hard place, even if they're playing it cool.
7
This seems a setup for failure.
The difference in waiting 30 or 60 days to raising an interest rate that's been at 0 for not quite a decade seems, dare I say, inconsequential. But delaying it now creates a situation where the effects becomes apparently apparent in the first quarter, where we seem to suspect anomalous downward distortions to occur.
But in a hotly contested election year, is a potential first quarter anomaly going to be the explanation that gets much play? Or is the idea that this was a bad decision by the current administration's Fed chief?
The difference in waiting 30 or 60 days to raising an interest rate that's been at 0 for not quite a decade seems, dare I say, inconsequential. But delaying it now creates a situation where the effects becomes apparently apparent in the first quarter, where we seem to suspect anomalous downward distortions to occur.
But in a hotly contested election year, is a potential first quarter anomaly going to be the explanation that gets much play? Or is the idea that this was a bad decision by the current administration's Fed chief?
4
They have no intention of raising it this year. Most likely not next year or the year after that. But they have to keep yelling "BOO" once in a while to try and string things along.
Interest rate increases are a very effective way to cool an overheated economy reducing inflationary pressures. Our economy is still deflationary for most employees. We are nowhere near full employment--although those looking for work are now often able to find it--at the same or lower salary than before. We still have millions of discouraged workers, and still have no wage inflation.
Other than generating a nice recession just in time to blame it on Democrats for the election, and satisfying the "inflation hawks" (who have been wrong in every quarter for the past 8+ years in their predictions of inflation), there is is no reason to raise rates. If legitimate demand based inflation does creep above reasonable targets, then fine--but we are running below the Fed's targeted inflation.
The primary push to raise the rates could just be to put a nice tool for fighting recession back into the tool chest. (You can't cut rates that are already at zero to stimulate the economy.) However, creating an economy that needs stimulation with a rate cut by raising rates seems -- demented.
Read some Krugman. Learn some fact-based economics. Act on these.
Glad to see the Fed did not go all stupid on us this quarter. Hope they can somehow stay fact based in the face of all the punditry.
Other than generating a nice recession just in time to blame it on Democrats for the election, and satisfying the "inflation hawks" (who have been wrong in every quarter for the past 8+ years in their predictions of inflation), there is is no reason to raise rates. If legitimate demand based inflation does creep above reasonable targets, then fine--but we are running below the Fed's targeted inflation.
The primary push to raise the rates could just be to put a nice tool for fighting recession back into the tool chest. (You can't cut rates that are already at zero to stimulate the economy.) However, creating an economy that needs stimulation with a rate cut by raising rates seems -- demented.
Read some Krugman. Learn some fact-based economics. Act on these.
Glad to see the Fed did not go all stupid on us this quarter. Hope they can somehow stay fact based in the face of all the punditry.
36
i agree.
it's really simple. if you don't believe the economy is overheating - resulting in inflation due to limited supply - of labor - and everything else - - - then there is no reason to raise interest rates.
the fed deserves credit for not confusing itself with nonsensical and convoluted thinking.
it's really simple. if you don't believe the economy is overheating - resulting in inflation due to limited supply - of labor - and everything else - - - then there is no reason to raise interest rates.
the fed deserves credit for not confusing itself with nonsensical and convoluted thinking.
I don't understand this statement:
As the Fed vice chairman Stanley Fischer said in a television interview last month, if the Fed waits until it is absolutely certain it is time to raise rates, it will probably be too late.
Why will it be too late? What are the risks of waiting too long? That inflation will be at 3 or 4%? Is that a death of the economy?
C'mon Mr. Irwin, be a skeptic (of both positions).
Most Americans view the economy as terrible (see your article - http://www.nytimes.com/2015/09/17/upshot/why-americans-still-think-the-e... with a decade long stagnation in incomes and under-employment.
Against this, what's the risk in waiting to raise rates?
As the Fed vice chairman Stanley Fischer said in a television interview last month, if the Fed waits until it is absolutely certain it is time to raise rates, it will probably be too late.
Why will it be too late? What are the risks of waiting too long? That inflation will be at 3 or 4%? Is that a death of the economy?
C'mon Mr. Irwin, be a skeptic (of both positions).
Most Americans view the economy as terrible (see your article - http://www.nytimes.com/2015/09/17/upshot/why-americans-still-think-the-e... with a decade long stagnation in incomes and under-employment.
Against this, what's the risk in waiting to raise rates?
23
1) It becomes harder and harder to do so because businesses and individuals in the operating economy become more and more used to free money.
2) We have poor experience among business leaders in how to run their companies without being able to freely borrow and spend.
3) We have very few money management people in investment firms that have dealt with a positive rate environment. Their experience is from a textbook 8 to 10 years ago.
4) Near retirees can't shift their portfolios from high equity to high income because nothing pays a usable rate.
5) People in retirement have to chance money in equities when they should be mostly into income investments.
6) Forcing exposure of funds into risky investments where the risk isn't warranted or a good idea.
7) The fact that we do have high inflation but we're using mechanisms to measure it that hide the real numbers. My COL over the last 10 years is increasing by 2-3x the reported rate of inflation and thats WITH a lot of basket substitution.
8) If inflation does pop and rates follow it up 3-4% we'll have businesses and homeowners that won't be able to sell and move, even if its necessary or beneficial, because they're into more building at 3-4% mortgage rates and they'll have to pay double that if they move.
Want some more? Its basically that people who are on the burn end of their lives/careers (teens to 40's) don't see the harm.
2) We have poor experience among business leaders in how to run their companies without being able to freely borrow and spend.
3) We have very few money management people in investment firms that have dealt with a positive rate environment. Their experience is from a textbook 8 to 10 years ago.
4) Near retirees can't shift their portfolios from high equity to high income because nothing pays a usable rate.
5) People in retirement have to chance money in equities when they should be mostly into income investments.
6) Forcing exposure of funds into risky investments where the risk isn't warranted or a good idea.
7) The fact that we do have high inflation but we're using mechanisms to measure it that hide the real numbers. My COL over the last 10 years is increasing by 2-3x the reported rate of inflation and thats WITH a lot of basket substitution.
8) If inflation does pop and rates follow it up 3-4% we'll have businesses and homeowners that won't be able to sell and move, even if its necessary or beneficial, because they're into more building at 3-4% mortgage rates and they'll have to pay double that if they move.
Want some more? Its basically that people who are on the burn end of their lives/careers (teens to 40's) don't see the harm.
3
Excellent analysis.
1