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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsKrugman: The Fed Should Remember the 90s
http://krugman.blogs.nytimes.com/?module=BlogMain&action=Click%C2%AEion=Header&pgtype=Blogs&version=Blog%20Post&contentCollection=Opinion&_r=0Headline unemployment, at 5.1 percent, is now quite low by historical standards, and the baying for a rate increase is louder than ever. But inflation is subdued, indeed below target, and wages are still going nowhere. Should the Fed be raising rates in the name of normalization?
Well, consider the situation in 1997, when the unemployment rate dropped through 5 percent. The Fed did raise rates a quarter point, but then stopped, waiting for inflation to become a problem which it never did, even though unemployment continued to fall, eventually to 4 percent.
The lesson is that the Fed really doesnt know what level of U3 constitutes full employment, and should be very cautious about acting preemptively absent any signs of inflation problems.
Why is this time different? Many people seem to think that the case for raising rates is made stronger by the fact that were currently at zero, which seems weird and unnatural. But if you actually think through the logic, its the other way around. When the Fed funds rate was 5 percent, there was room to cut if a rate hike turned out to be premature that is, the risks of moving too soon and moving too late were more or less symmetrical. Now they arent: if the Fed moves too late, it can always raise rates more, but if it moves too soon, it can push us into a trap thats hard to escape.
Hiking rates now is still a really bad idea and the arguments for that bad idea just keep getting worse.
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Krugman: The Fed Should Remember the 90s (Original Post)
eridani
Sep 2015
OP
greenspud fucked us over. bubble boy's keeping it so low to enhance the Wdiot has spoiled banksters.
pansypoo53219
Sep 2015
#1
pansypoo53219
(20,979 posts)1. greenspud fucked us over. bubble boy's keeping it so low to enhance the Wdiot has spoiled banksters.
keep fucking over the savers. jeez. damn wall street.
abelenkpe
(9,933 posts)2. Does make saving impossible.
laundry_queen
(8,646 posts)3. Interesting
One of the current criticisms of why Canada has dipped into recession is just that - rates were raised prematurely and there wasn't much room to cut back again when oil prices bottomed out.
Anyway, I agree hiking rates now is premature.