FEDERAL RESERVE PREPARES TO MAKE ANOTHER MOVE …
A typically dovish member of the Federal Reserve’s board of governors made it clear this week she is on board with an interest rate hike in view of improving economic conditions (a.k.a. Trumphoria).
Lael Brainard, a German-born ex-Treasury official who is usually reticent to embrace hawkish economic sentiment, cited “continued progress in the labor market” and diminished “near-term risks to the United States from abroad” as reasons to support a rate hike.
“Assuming continued progress, it will likely be appropriate soon to remove additional accommodation, continuing on a gradual path,” Brainard said during a speech at Harvard University’s Kennedy school of government.
In other words, cue the rate hike …
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“We are closing in on full employment, inflation is moving gradually toward our target, foreign growth is on more solid footing, and risks to the outlook are as close to balanced as they have been in some time,” Brainard continued.
What’s the leggy blonde sexkätzchen talking about?
The impact of global macroeconomic trends on the still-sluggish American recovery, of course. And what America’s secretive, money-printing central bank ought to do in response to them.
The Fed previously raised its benchmark rate from zero to the 0.25 – 0.5 percent range back in December 2015.
Prior to that, rates had remained at zero since December 2008.
Last December, the Fed once again raised its benchmark rate to the 0.5 – 0.75 percent range.
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Low interest rates allow for cheap borrowing. Which in theory stimulates investment, jobs and economic growth. Of course if inflation doesn’t hit its ideal target rate of around two percent, the economy struggles to maintain momentum.
Wait … how does that work? Well … incomes have to be created from somewhere, right? And if the price of a particular item remains stagnant then the paycheck of the worker who produced that item is likely to remain stagnant as well.
Especially in our crony capitalist economy …
Anyway, a two-percent rate of inflation is considered ideal because it allows for prices and wages to both increase gradually. Stably.
Of course that target has proven difficult to hit in recent years. The annual rate of inflation for 2016 averaged just 1.26 percent, while in 2015 it clocked in at a meager 0.12 percent. The two percent threshold was also missed in 2014 (1.62 percent) and 2013 (1.47 percent).
If the Fed raises rates too quickly, it could choke off economic growth. If it doesn’t raise them fast enough, it could create even bigger problems.
The perils of command economic intervention, huh?
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