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http://news.yahoo.com/s/nm/20100428/bs_nm/us_usa_fed
In class we have pondered the perils of holding interest rates too low for too long. According to this article, "The Federal Reserve on Wednesday resumed a two-day meeting where it is expected to repeat a vow to keep interest rates at rock bottom levels for "an extended period" while acknowledging the U.S. economic recovery is getting stronger."
If the recovery is gaining momentum, do we really need to hold interests so low? The article goes on to cite continued high unemployment and stable inflation as reasons to not yet tighten monetary policy? My questions are, how long can we sustain these low rates? And if signs of strength are not enough to raise rates, what will be the trigger?
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I think that its really hard to say that we are stabilizing. Like we said before, some stats are good while others are still at all time lows. I think when we can look at all statistics and really say wow, we're doing well then we can say we are "stable". I think that while interest rates shouldn't skyrocket, they should probably start rising. If we wait too long we are going to have to make them jump too high in too short of a time!
ReplyDeleteI was under the impression that interest rates were utilized to balance output and inflation. I think as soon as inflation begins becoming a problem the rates will begin to come back up. For one reason or another American voters hate inflation almost as much as that hate taxes and always apply pressure to politicians to curtail it. Until then I don't expect that the Fed will worry too much about the fact that groups like Goldman are making a killing off of it because they believe that lending will stop as soon as rates are hiked (even though lending is happening anyway).
ReplyDeleteI would think that they feel as if they have no choice but to keep the rates low for now. Consumer confidence is really volatile right now and with a hike in rates most Americans would probably overreact, which could just put us back in the same jam we were in a few months ago with stagnant markets and consumers sitting on their cash.
ReplyDeleteFrom the article it seems like as long as inflation is kept under control there is no incentive to raise the rates. This seems reasonable and economic stimulus is always a good thing in these times. I guess like noah asked what will the trigger be for raising rates. It seems like leading up to the crisis rates were so low and obviously now rates are low again I guess It will just be interesting to see how things progress as the economy recovers. When the economy begins to reach previous marks I wonder if there will action taken to slow borrowing down.
ReplyDeleteJim and Rob both bring up two very good points. I can see the American people reacting negatively to a raise in interest rates as they haven't been very high in a long time. Also I agree that since there is no incentive to raise the rates why do it? But if housing prices start to rise we should raise rates as that was on of the causes of the housing boom.
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