Check out this recently published USA Today article regarding the Fed's decisions on interest rate hikes.
http://www.usatoday.com/story/money/2016/04/06/fed-global-economy-markets-posed-big-risks/82698080/
"The Fed, which lifted its near-zero benchmark rate in December for the first time in nine years, has stood pat at two meetings since. Its cautious stance has led many economists to rule out a hike at a meeting later this month and thrown into doubt even a June move.
In forecasts released after the March meeting, policymakers indicated they anticipate just two quarter-percentage-point increases this year, down from the four estimated in December. "
Based on what we've discussed in class, it seemed like there was a consensus opinion that the Fed did the right thing by exercising caution and making the rate hikes gradual. After all, we've seen in the past how damaging it can be if interest rates are raised prematurely during a recovery period.
But we can't keep the rates low forever.
"The Fed’s overall cautious view surprised economists, especially since stocks and other financial indicators had improved and a key measure of inflation had edged up toward the Fed’s annual 2% target. Yet the minutes show policymakers fretted that markets remained vulnerable and that the rise in inflation may well prove temporary."
Lucas, I have been wondering the same thing for a while. I remember that back in late 2015 the Fed was beginning to talk about raising interest rates and the market was reacting negatively, but there really hasn't been too much action since that claim was made. When I think about this in context with what we've learned in class (that the Fed uses low interest rates in times of economic weakness), it makes me wonder if the Fed still thinks that there is still too much economic turmoil in the global economy to push interest rates back up.
ReplyDeletehttp://www.usatoday.com/story/money/2016/03/29/yellen-fed-move-cautiously-rate-hikes/82375722/
This article seems to suggest exactly that. The Fed seems to express the tone that they don't know which way the economy is going to go, so they will move cautiously in the face of this recent expansion.
I agree with Mario. This reminds me of the book that we read for the class this week. One of the reasons that there had been several recessions after the Great Depression was because the Fed's premature decision to tighten monetary and fiscal policy. Its action backfired and resulted in recessions even though they were not serious as the one in 1929. Low interest rates have been lasted for a long time, but it is very challenging to find the right time to enforce the optimal policy. The Fed won't make a quick move when the economy is not completely stabilized.
ReplyDeleteFed does not want to screw up economy by radically raising the interest rate. In order to make sure the economy is fine, economy issue in China should be solved. Also, the other U. S. Economy indicators should prove enough that the economy is coming back.
ReplyDeleteI would also point to China and their current instability. The case with interest rates is that eventually they come to haunt the Fed. I feel that what is happening now with the interest rates is eerily similar to Greenspan's plan of action.
ReplyDelete