Friday, September 4, 2015

A Federal Reserve Bank President Makes the Case for Raising Interest Rates NOW

Jeffrey M. Lacker, President of the Federal Reserve Bank of Richmond, spoke today before the Retail Merchants Association in Richmond, Virginia.

He outlined the case for why the Fed should begin to raise interest rates now. I believe his view is in sync with that of the guiding Fed troika of Fed chair Janet Yellen, Fed vice-chairman Stanley Fischer and New York Federal Reserve president William Dudley.

Here are the key points he made in his speech, which he titled, The Case Against Further Delay,

  • Economic data suggest that an increase in the Fed’s target interest rate from near zero is warranted sooner rather than later.
  • With nominal short-term interest rates close to zero and inflation of at least one percent, real interest rates have been negative for the better part of the past six years. But with rising growth in personal consumption and income over the past couple of years, negative real rates are unlikely to remain appropriate.
  • The unemployment rate has declined nearly to pre-recession levels, and research suggests that there is little if any excessive slack in the labor market. Consistent with the Fed’s forward guidance, many labor market indicators support the case for an increase in interest rates.
  • Inflation has been below the Fed’s 2 percent target since early 2012, but has been running slightly above target over the past half year. Because inflation is a lagging indicator, maintaining low interest rates poses serious risks.
  • Recent financial market volatility is unlikely to affect economic fundamentals in the United States and thus has limited implications for monetary policy.

1 comment:

  1. I wonder if that means they worked a deal wih wall st