Sunday, September 6, 2015

Should The Fed Raise Interest Rates?

There are two reasons why the Fed might raise interest rates:  If there was a reason to worry about  price inflation they might raise rates. They also may raise rates to cool down asset price inflation in capital markets.  There seems to be little indication of price inflation, and there are other ways to deal with asset price inflation.  This article suggests that the Fed is being pushed by inflation hawks who worry more about the potential for a tightening labor market, and an acceleration in wage growth, than they do about price inflation.  There is still slack in the labor market, despite the decline in the headline unemployment rate.  Moreover, wages could use a boost, and there is little reason to believe that this would harm the economy.

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