What’s Behind the Fed’s Decision to Raise Interest Rates in a Struggling Economy?
On one side of this debate are people who say that the Fed needs to do this to prevent inflation from taking off. On the other side are people who warn that pushing up interest rates at a time when unemployment is still at a historically high level (and when real unemployment is more than double the official 5% rate) risks making things worse.
The increase of 0.25% in the Federal Reserve’s benchmark federal funds rate — the rate banks charge each other for holding short-term funds — was pretty minimal, but the arguments for raising the rate at all are absurd on their face.
The New York Times quoted Yellen as saying interest rates needed to be pushed up lest the economy begin “overheating”! As she put it, had rates not been raised last month, “”We would likely end up having to tighten policy (meaning raising rates) relatively abruptly to prevent the economy from overheating,” which she said could then throw the US back into recession.
What planet, or more specifically, what national economy does Yellen inhabit?
The US is so far from being an “overheating” economy it’s not funny. Official unemployment has remained stalled at 5.1% for three months now, but that is really a bogus number created during the Clinton administration when the Labor Department obligingly eliminated longer-term unemployed people who had given up trying to find a job from the tally of the unemployed, so their numbers wouldn’t embarrass the administration.
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