Is Janet Yellen About to Take Us Off the 'Zero Lower Bound?'

     I deliberately put it this way as the debate over the liquidity trap has been so fraught. A piece today in CNBC has a Wall Street investor worrying that Yellen is going to finally raise rates in June and the market won't be ready for it. 

     The smart money thinks the Federal Reserve will finally begin to increase interest rates early this summer. The question is how much market turmoil the move will cause. Janet Yellen's Fed will finally increase the cost of borrowing money in June, according to remarks made by top BlackRock bond investor Rick Rieder and prominent hedge fund managers Jamie Dinan and Kyle Bass at a New York charity event Monday night.

     "Bass, head of Hayman Capital Management in Dallas, said the market isn't fully prepared."

     "I think when she moves, it's going to cause a problem," Bass said at the Portfolios with Purpose awards night during a panel discussion moderated by CNBC's Scott Wapner.

     "Bass said employment rates were strong but predicted a rate hike would slow economic activity if moved more than 100 basis points, or 1 percent. He noted that Hayman had "reduced risk pretty substantially" to U.S. securities in the last couple of months given that expectation."

     

     http://www.cnbc.com/id/102472705 

    "Of course, we;ll see if she raises rates then-from what I understand the 'smart money' is kind of divided on whether she does it in June or say August. What we've seen lately is some large debates on what the impact will be of raising rates. Sumner seems not to have a real problem with it-of course, he argues that interest rates aren''t the way to judge monetary policy. 

    Krugman recnetly criticized the zeal among the Right wing inlfaitonphobes to see them raised. 

    http://krugman.blogs.nytimes.com/2015/03/01/the-strange-urge-to-raise-rates/?_r=0

    You have people who say rates should be raised as we're close to full employment now and people saying we actually have a long way to go till we reach full employment. 

   http://diaryofarepublicanhater.blogspot.com/2015/02/stephen-williamson-vs-laurence-mishkin.html

    Then we have the notable position of Stephen Williamson who goes further than just saying we've hit full employment so we can/should raise rates lest 'stagflation' raises it's unsightly head, but that somehow if you understand the Fisher Equation, raising interest rates will actually be a good thing as it will raise inflaiton. 

    "If I think about policy in terms of pegging a short-term nominal interest rate, I understand that, if the nominal interest rate goes down, and stays there, that the short run effect is more inflation (that’s the liquidity effect at work), but in the long run the Fisher effect takes over, and inflation actually goes down. Again, the liquidity effect ultimately dissipates. So, suppose we have been at the ZLB for a long time. The liquidity effect has dissipated, and the inflation rate is too low. How do I get the inflation rate up? I certainly can’t rely on a short-run liquidity effect, as the nominal interest rate can’t go down. There’s nowhere to go but up, and to rely on the long-run Fisher effect to take over ultimately. Of course, you may have to bear the effects of even lower inflation in the short run because of the liquidity effect."

     http://diaryofarepublicanhater.blogspot.com/2015/02/stephen-williamson-vs-laurence-mishkin.html

     So what about the MMT position? I've read enough Mosler the last day or two to think I have his view down. He says that changing the interest rates have no income effect just a distributional effect-it benefits some groups and hurts others. In addition, higher interest rates benefit the 'rentier class' ergo, rates should be left zero permanently. 

     Also, he calls for getting rid of all Treasury securities longer than 3 months. 

      P.S. One thing I hate about posting on Blogger is the way the margins are so hard to keep uniform. I have no desire to pay for MS Windows but why does everytime I cut and paste something it changes the margin and I can't figure out how to change it back?

     I've thought about at some point changing over to Wordpress.