We talked about the varying views on interest rates yesterday among economists in different schools.
http://diaryofarepublicanhater.blogspot.com/2015/03/is-janet-yellen-about-to-take-us-off.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DiaryOfARepublicanHater+%28Diary+of+a+Republican+Hater%29
A lot of people think it's time to raise rates as unemployment is down to about 5.5%-they presume we're at or near to full employment (FE). However, some argue that we are still not near FE-Laurence Mishin argues that it's closer to 4%, if not lower:
"The most important economic policy decisions being made about job growth in the next few years are those of the Federal Reserve Board as it determines the scale and pace at which it raises interest rates. Let’s be clear that the decision to raise interest rates is a decision to slow the economy and weaken job and wage growth. There are many false concerns about accelerating wage growth and exploding inflation based on the mistaken sense that we are at or near full employment. Policymakers should not seek to slow the economy until wage growth is comfortably running at the 3.5 to 4.0 percent rate, the wage growth consistent with a 2 percent inflation target (since trend productivity is 1.5 to 2.0 percent, wage growth 2 percentage points faster than this yields rising unit labor costs, and therefore inflation, of 2 percent). The key danger is slowing the economy too soon rather than too late."
http://diaryofarepublicanhater.blogspot.com/2015/02/stephen-williamson-vs-laurence-mishkin.html
At least one key person on the Fed agrees, Chicago Federal Reserve President Charles Evans:
"The Federal Reserve should wait until the first half of 2016 before raising interest rates, a top U.S. central banker said on Wednesday, or risk undermining the very recovery it has helped engineer.
http://diaryofarepublicanhater.blogspot.com/2015/03/is-janet-yellen-about-to-take-us-off.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DiaryOfARepublicanHater+%28Diary+of+a+Republican+Hater%29
A lot of people think it's time to raise rates as unemployment is down to about 5.5%-they presume we're at or near to full employment (FE). However, some argue that we are still not near FE-Laurence Mishin argues that it's closer to 4%, if not lower:
"The most important economic policy decisions being made about job growth in the next few years are those of the Federal Reserve Board as it determines the scale and pace at which it raises interest rates. Let’s be clear that the decision to raise interest rates is a decision to slow the economy and weaken job and wage growth. There are many false concerns about accelerating wage growth and exploding inflation based on the mistaken sense that we are at or near full employment. Policymakers should not seek to slow the economy until wage growth is comfortably running at the 3.5 to 4.0 percent rate, the wage growth consistent with a 2 percent inflation target (since trend productivity is 1.5 to 2.0 percent, wage growth 2 percentage points faster than this yields rising unit labor costs, and therefore inflation, of 2 percent). The key danger is slowing the economy too soon rather than too late."
http://diaryofarepublicanhater.blogspot.com/2015/02/stephen-williamson-vs-laurence-mishkin.html
At least one key person on the Fed agrees, Chicago Federal Reserve President Charles Evans:
"The Federal Reserve should wait until the first half of 2016 before raising interest rates, a top U.S. central banker said on Wednesday, or risk undermining the very recovery it has helped engineer.
"Given uncomfortably low inflation and an uncertain global environment, there are few benefits and significant risks to increasing interest rates prematurely," Chicago Federal Reserve Bank President Charles Evans said in remarks prepared for delivery to the Lake Forest-Lake Bluff Rotary Club. "I think we should be patient in raising interest rates."
"Even if the Fed keeps rates at their near-zero level until next year, he said, inflation probably won't reach the Fed's 2-percent goal until the end of 2018. And if his forecast proves wrong and the economy begins to run too hot too fast, he said, the Fed would have "ample time" to raise rates moderately to head off excessively high inflation."
http://www.cnbc.com/id/102459016
This is a point that Sumner makes: focusing on unemployment as the target can be misleading. While I'm not a fan of the inflation target, it's actually the saving grace right now. Many will look at the unemployment rate and assume we're close to FE and it's time for a rate hike, but the inflation rate shows us this may not be the case-we certainly seem to have no inflation problem: why tighten money when inflation is below target.
No comments:
Post a Comment