The US Fed just kept rates where they have been for seven years - at a miniscule 1%. The reason had something to do with the need for foreign economic prospects to get better, and low inflation.
WTF?
The mandate of the US Fed is to keep inflation low, and employment high. The stated reason for keeping rates low - they they want to make sure foreign economic turmoil does not negatively impact the US economy - is crazed.
Since when is the US Fed guided by FOREIGN economic prospects, short of a worldwide depression? Depression!? What depression? The IMF is predicting world growth at about 3.4% or better for 2015. How does this warrant a full stop on American monetary policy? Does the US Fed know something we don't? If yes, where is their much vaunted transparency now?
OK, they now look overseas for guidance on monetary policy. Hmmm...how do they manage this new decision-making paradigm? What, exactly, are the measures of foreign economic success that will convince the United Stated Federal Reserve Board to move on interest rates? What countries are they looking at now and where will they be looking in the future? How is this different from the last seven years, where one could argue that there have been economic basket cases all over the place? Are they waiting for a Greek economic recovery? How is this not a recipe for NEVER raising rates?
US unemployment is officially hovering near 5%. The US Fed previously said it would raise rates when unemployment got below 6.5%. That was a year and a half ago. Even though the official inflation rate is low, the proper time to raise rates was at least that long ago. By not raising rates they risk having no policy tools in their arsenal should we head into another recession. In fact, it is probably too late.
This was obviously the time to raise rates. They either know it, or they are truly stupid, or they have been bought...or all of the above.
Incredible!
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