Economic Commentaries

Entries for September 2015

24

With so much attention being directed at this coming week's FOMC policy meeting, we think a few underlying considerations should be kept in mind. These reflect themes we have repeatedly enunciated.

The Federal Reserve has made it very clear that it wants to raise short term interest rates and begin some sort of glide path toward a normalized interest rate environment. Proponents of this desire use two basic arguments. One is that the Fed needs to raise rates so that it would have room to ease in the event of an economic downturn. A second is that with uninterrupted economic growth for the past several years and the jobless rate having declined significantly, there is no longer an economic emergency and thus no need for an emergency interest rate.

A move toward policy would have been facilitated long ago if fiscal and regulatory policies had been growth oriented, but unfortunately this has not been the case. Thus, an emergency rate has been necessary. Nonetheless, raising rates now so they can be cut later if necessary is like banging one's head against a wall to see if it hurts.

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Posted in: General