Friday, November 13, 2015

Will they or won't they?


                                      Comment due by Nov. 20, 2015
The risks of the Federal Reserve moving too quickly or too slowly are nearly balanced, New York Fed President William Dudley said Thursday, pointing to a rate hike on the horizon.Dudley, a voting member of the Fed and vice chairman of the Federal Open Market Committee, emphasized, however, that a December liftoff depends on incoming data. Echoing comments from his colleagues, he said that the pace of tightening will be "quite gradual" once the Fed begins raising rates.The central banker said the strong October jobs report should "partially put to rest" concerns that the U.S. labor market might be faltering, adding that the country is much closer to maximum employment than it was at the start of the year.Some labor slack remains, Dudley said, explaining that he has still not seen compelling evidence that the tightening jobs market is leading to more rapid compensation gains.
Dudley also addressed earlier concerns that global economics could impact the Fed's decision, saying the international outlook appears less problematic than it did a few months ago.
On the inflation front, the New York Fed president said that, if the economy continues on its above-trend pace, then worries about low inflation should begin to recede. Core inflation, he added, should rise once transitory factors dissipate.
Dudley said he thought the fundamentals supporting U.S. domestic demand look "quite sturdy" and the housing fundamentals are solid. He did predict, however, that the trade sector will probably continue to drag on growth in 2016.
Chicago Fed President Charles Evans also spoke Thursday, saying the central bank is close to reaching its employment target, but it could be "well into" next year before the goal for inflation is reached to support a rate hike.
Once the Fed initiates liftoff, he said, an appropriate strategy would be to raise the target rate gradually.
Evans is a voting member of the FOMC, which meets next month to decide on whether to raise interest rates for the first time in nine years.
In remarks prepared for delivery to the Manufactured Housing Institute in Chicago, Evans said it could be well into next year before headwinds from lower energy prices and a stronger dollar dissipate enough to allow for sustained upward moment in core inflation.
"The outlook for inflation remains too low," he said. "A gradual path of normalization would balance both the various risks to my projections for the economy's most likely path and the costs that would be involved in mitigating those risks."
"It has been dumbfounding to me," Evans later reporters after his speech, of how little the inflation outlook has changed over the past several years, even as the U.S. economy has strengthened.
While Evans expects U.S. growth of about 2.5 percent in the next 1½ years, he said housing is one part of the economy that still has a good way to go. Progress in that area, he said, has been slow and uneven.
On the other side of the equation, St. Louis Fed President James Bullard said Thursday the Federal Reserve's unemployment andinflation goals have been met, and there is no reason to continue to "experiment" with policy extremes.
Bullard, in prepared remarks, said the near-zero interest-rate policy has put the U.S. economy at "considerable risk of future inflation."
Fed Chair Janet Yellen also spoke Thursday, although she did not comment on the outlook for the U.S. economy or her thoughts on monetary policy decisions.
Yellen, kicking off a research conference on policy transmission and implementation after the 2007-2009 financial crisis, said the central bank must weigh the effects of post-crisis financial regulations and new channels through which policy affects markets as it prepares to raise interest rates. She added that the Fed must also weigh the disadvantages of its actions in light of new tools meant to help the Fed raise rates.
Fed "policymakers should be mindful of new channels for monetary policy transmission that may have emerged from the intricate economic and financial linkages in our global economy that were revealed by the crisis," she said in prepared remarks.
"It is crucial to understand the effect of regulations and possible changes in financial intermediation on monetary policy implementation and transmission," Yellen added.
Richmond Fed President Jeffrey Lacker also spoke Thursday, saying he continues to hold the view that monetary policy has the unique ability to determine inflation over time. Still, he said, caution should apply to the notion that policy should respond to signals of incipient financial instability.
Monetary policy's ability to affect real economic activity can be quite limited and is almost always short-lived when well-executed, he said.
The rate hike has been stymied in part by low inflation that continues to run below the Fed's 2 percent target rate, and some policymakers have advocated waiting for more signs that inflation will rise before embarking on a path of monetary tightening.
Lacker, who has twice voted this year to raise rates when the rest of his colleagues decided to stay put, said the recent behavior of inflation "does not warrant such pessimism." But he added that the credibility of such an inflation goal "depends on the public's belief that the central bank has and will use the tools necessary to make inflation return to its goal, should that become necessary."  (Reuters)

11 comments:

Anonymous said...

The article discusses mainly the Federal Reserve, along with many comments on it's decision to begin raising rates. Some people, including Chicago Fed President Charles Evans, aired their concerns about inflation caused by the raising rates. Many of the people quoted in the article are concerned about inflation, and don't want to experience high unemployment rates and high inflation rates at the same time, all because of raised rates. Personally, I feel that these people have every right to be concerned, because to experiance that kind of economc trauma is one thing, and trying to get out of it is something else. It would me like the Great Depression all over again, with a bit of Germany's pre-WWII inflation problems mixed in.

-E. Piper Phillips

Anonymous said...

This could go many different directions either bad or good. With the rate increase, people could be more willing to invest in more opportunities than usually. However on the other hand what if not enough people and businesses jump on to this opportunities? It could result in many disappointments and economy disconnection with the nation as a whole.

-Alex Shields

Heather Kiczek said...

The article discusses whether or not the fed should begin to raise interest rates. With the economy being so weak, any of the slightest adjustments can destroy it completely. Even with the anticipation of the fed raising rates, that alone has caused some effect on prices. With the risk involved in inflation, the effects could also snowball into a greater issue. With high inflation and high unemployment rates, the economy would experience real trauma. I think that although raising the rates would come with great risk, I think looking at the long term success rates like more investment opportunities, are very tempting.

Anthony Zullo said...

This article goes into depth mainly discussing the Federal Reserve and many comments on it's decision to begin raising interest rates. Many people are not on board for this decision because if you look at the past mistakes made in America, many people do not know what to do with their money and raising interest will encourage irrational decisions by the US citizens. Some people, including Chicago Fed President Charles Evans said his concerns about inflation is that it will cause the a rise in rates of everything. I can see what the federal reserve is trying to do and that is to have a continuos flow of money circling and help the economy boom but it very well may spiral in the opposite direction and put the whole world in a depression because money is very hard to maintain.

James McDermott said...
This comment has been removed by the author.
James McDermott said...

So much policy has become dependent on the condition of financial markets that the real economy continues to take a backseat to the financial economy. One of several problems associated with this type of policy strategy is that it fails to account for the fundamental developments and considerations that should be driving monetary policy decisions.It appears that the Fed is more concerned about the level of equity benchmarks at the expense of core mandates including maximum employment and 2% inflation targeting.

David Bavagnoli said...

The topic of whether or not to raise the interest rates has been controversial for a very long time now. However, one can argue that if the rates were to go up, it will trigger a recession that would bring the GDP to its lowest point in years and it could last for a long period of time. Keeping interest rates the same doesn't sound so bad now after all. I think that the fed should start to raise interest rates very slowly. Regardless of how weak the economy is, it has been ten years since the interest rate has been raised and raising it maybe a quarter of a percent at a time won't do very much damage if any.

Nikolas Fountis said...

A big debate that has been going on for many years that has its different valid argument points is whether or not the Federal Reserve should raise the interest rates. Many people that are against this such proposition argue that if the decision is made to increase interest rates then there will be and increase in inflation ultimately leading o he people making decisions that could be classified as "irrational decisions" thus causing a high chance of the economy entering a recession if not worst a depression. Even if the interest rates may not be raised by a lot if can still effect the economy tremendously and that is why my decision would be to leave it how it is now.
-Nikolas Fountis

Anonymous said...

The article "Will They or Won't They?" is about members of The Federal Reserve discussing whether or not to raise interest rates or not. This has been a controversial issue that has been going on for many years now. If the rates do go up it can cause majors inflation leading to a recession. However, if we don't raise them other factors may cause the economy to weaken even more. Although raising these rates will cause economic problems however a small raise in the rate wouldn't be so bad. I think we should have the interest rates raise slowly to see where things go and keep going from there.
-Surina Sandhu

Anonymous said...

Determining whether or not the Federal Reserve will raise the interest rates is a very important topic. The interest rates determine whether companies and consumers are going to be spending/saving more or less. For quite some time, interest rates have been at an all time low, pretty much next to 0. There are many factors to look at when determining if the interest rates should be raised. These include: unemployment, inflation, etc. As markets continue to strengthen up, and unemployment starts to get closer to the NRU, the members of the Federal Reserve are deeming it close to time to hike up interest rates. Since inflation is at a low level, under the 2 percent target range, it is a smart idea to raise interest rates to try to cause inflation and rebalance the economy. However, if they raise the rates too high, there is the possibility that the economy can go into a recession. This is a very controversial topic and needs to be looked at from every economic aspect before a final decision can be made by the Federal Reserve.

-Nick Arciszewski

Anonymous said...

Reading this article I realized that it was about America raising their interest rates. This is an issue that has been going on for years and years. The problem with raising interest rates is that if they do it would cause a raise in the inflation of the country. But as well if we don't raise them it can cause us to have economic problems near the future. It really hard to decide what to do in terms of raising or not raising. We would just have to examine which way would benefit us the most.


Chelsy Ventura