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The Fed is in a jam, though, because it faces asymmetric risks. If it raises rates too soon, its scope to cut them, should the economy then sour, is limited by
by rquantz 11y ago
The Fed is in a jam, though, because it faces asymmetric risks. If it raises rates too soon, its scope to cut them, should the economy then sour, is limited by the fact rates cannot fall far below zero. If it waits until inflation is stronger, it has unlimited capacity to raise rates to tame it.
This to me is the key paragraph. Why not wait until we reach or exceed target inflation, when they risk tanking our still very fragile economy, and then being unable to do anything about it since rates would still be close to zero?
- seansmccullough 11y agoBecause we will have a recession sometime in the next couple years, and if the Fed keeps interest rates at 0, it will have no ammunition when the time comes.
- TheCowboy 11y agoRaising the rates prematurely, you risk accidentally triggering a recession or weakening the economy, then you're forced to raise rates to prevent a recession caused from prematurely raising rates. Interest rates aren't something you can slowly raise without effect.
- seansmccullough 11y agoThe economy is the strongest it's been in 5 years, and you can't keep rates low forever.