21–30 of 65 posts
The author operates from the assumption that keeping rates low is stimulative. While true in many and most circustamnces, the Fed took rates to zero on an emergency basis in the 2007-2009 crisis. While originally stimulative over time the evidence that zero rates are providing stimulus is weak in fact it's likely that the harm it does to pensioners, savers and others dependent on the debt markets is not only anti sti…
Glad to hear that someone on the Fed has some sense. The confusion of "target" with "ceiling" has been disastrous for the economic recovery. Raising rates now is a terrible idea. Moderate inflation is good for an economy based on credit, _especially_ so when so many individuals are overburdened by overwhelming student loan debt and underwater mortgages. Running under 2% core inflation for the past nine years has dest…
Doe low rates necessarily cause wage inflation? It might cause inflation in the price of assets or goods while wages stay steady.
To be fair to your question, inflation does not necessarily mean any individual price will rise, but all of them generally more or less. For example, market forces may cause the price of labor to decrease while most other prices are increasing.
Glad to hear that someone on the Fed has some sense. The confusion of "target" with "ceiling" has been disastrous for the economic recovery. Raising rates now is a terrible idea. Moderate inflation is good for an economy based on credit, _especially_ so when so many individuals are overburdened by overwhelming student loan debt and underwater mortgages. Running under 2% core inflation for the past nine years has dest…
Inflation is good for borrowers and bad for lenders. I don't see any reason to prioritize borrowers.
Earlier quoted context omitted.
Doe low rates necessarily cause wage inflation? It might cause inflation in the price of assets or goods while wages stay steady.
Why would the price of labor be treated any differently than any other price. In general, inflation is more dollars chasing less goods and services(where services includes, but is not limited to, individual labor of any sort). To be fair to your question, inflation does not necessarily mean any individual price will rise, but all of them generally more or less. For example, market forces may cause the price of labor…
http://www.rollingstone.com/politics/news/bailout-architect-...
The author operates from the assumption that keeping rates low is stimulative. While true in many and most circustamnces, the Fed took rates to zero on an emergency basis in the 2007-2009 crisis. While originally stimulative over time the evidence that zero rates are providing stimulus is weak in fact it's likely that the harm it does to pensioners, savers and others dependent on the debt markets is not only anti sti…
The author is the President of the Minneapolis Federal Reserve.
Glad to hear that someone on the Fed has some sense. The confusion of "target" with "ceiling" has been disastrous for the economic recovery. Raising rates now is a terrible idea. Moderate inflation is good for an economy based on credit, _especially_ so when so many individuals are overburdened by overwhelming student loan debt and underwater mortgages. Running under 2% core inflation for the past nine years has dest…
When companies feel things are "normal" they will become less conservative with their investments. With a low interest rates, somewhat counter-intuitively, everyone has been in a fight or flight mode, sitting on troves of cash just because it seems too risky an environment to invest. My personal psychology here has been that if I can't get a good return on my investments I need to build them up rather than spend them. I am also concerned about exposing myself to bubbles. While in theory I should be encouraged to take risks in practice the risks in a low rate environment seem too high, especially if you consider one day the rates must go up.
Historically we've had high inflation with significantly higher rates so I don't think the argument that low rates are a necessary condition for inflation holds. If anything the low rates appear to create deflationary pressure. Wages aren't rising because people and companies are not spending. Japan had low rates for 20 years and that hasn't done them much good. The last 10 year we had unusually low rates and by all accounts other than keeping the ship afloat not too much to show for those. It's time to try something else.
Low rates inflate bubbles. Student loans. Car loans. Real estate. Stock market. Keeping rates too low for too long has many risks and those will grow. The current rates are still historically very low.
I don't agree with the premise (that the dual mandate set by Congress of maximum employment and 2% inflation should be the overarching goal of the Fed) or the conclusion (that the Fed should wait on raising interest rates), but I appreciate the transparency and attention to detail of Mr. Kashkari's analysis. More public officials should publish the reasoning behind their decisions.
> that the Fed should wait on raising interest rates I don't agree either. If the economy tanks again, there is almost nothing that can be done, being that one of the usual steps is to lower interest rates to spur growth.
(That's also why deflation is avoided like the plague - in that event, even a zero nominal interest rate is a positive real rate).
Glad to hear that someone on the Fed has some sense. The confusion of "target" with "ceiling" has been disastrous for the economic recovery. Raising rates now is a terrible idea. Moderate inflation is good for an economy based on credit, _especially_ so when so many individuals are overburdened by overwhelming student loan debt and underwater mortgages. Running under 2% core inflation for the past nine years has dest…
Or maybe we need a little more boom and bust to stay healthy, like the occasional isolated brush fire that prevents the whole prairie from going up in flames. It could be that Greenspan kept us too steady for too long. Mini-crashes burn away the rotten companies. Ok, I've changed my mind -- you're right, let it heat up.
Glad to hear that someone on the Fed has some sense. The confusion of "target" with "ceiling" has been disastrous for the economic recovery. Raising rates now is a terrible idea. Moderate inflation is good for an economy based on credit, _especially_ so when so many individuals are overburdened by overwhelming student loan debt and underwater mortgages. Running under 2% core inflation for the past nine years has dest…
Raising rates signals things are "normalizing". It may be what's necessary to convince everyone that they really are. A lot of this is about the psychology of the market and sometimes the psychology has to lead the change. When companies feel things are "normal" they will become less conservative with their investments. With a low interest rates, somewhat counter-intuitively, everyone has been in a fight or flight mo…
> One additional consideration that I think about is the possibility that low rates are scaring people and causing them to save more and invest less, while conventional wisdom is that low rates should lead to more investment and less saving. It is not a crazy argument because negative rates seem to be having unexpected results in some countries that have adopted them. If negative rates can scare people into saving more, perhaps very low rates can too? This would be an argument to raise rates just so people can feel more confident. However, it is hard for me to see how high rates by themselves can lead to more confidence, more spending and more investment. Take Japan: Should the Bank of Japan increase rates dramatically to send a confident signal? Does anyone think that would work in jump-starting Japan’s economy? I doubt it. A signal of confidence from higher rates must be coupled with strong underlying economic fundamentals. When the data indicate that we are approaching our dual mandate targets, I do believe markets will take some confidence from our rate increases because those higher rates will reflect strong economic fundamentals. I don’t find a strategy of raising rates purely as a psychological tool a compelling argument.