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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsPaul Krugman: The Rage of the Bankers
Last week the Federal Reserve chose not to raise interest rates. It was the right decision. In fact, Im among the economists wondering why were even thinking about raising rates right now.
But the financial industrys response may explain whats going on. You see, the Fed talks a lot to bankers and bankers reacted to its decision with sheer, unadulterated rage. For those trying to understand the political economy of monetary policy, it was an Aha! moment. Suddenly, a lot of what has been puzzling about the discussion makes sense: just follow the money.
The basic principles of interest rate policy are fairly simple, and go back more than a century to the Swedish economist Knut Wicksell. He argued that central banks like the Fed or the European Central Bank should set rates at their natural level, defined in terms of what happens to inflation. If rates are too low, inflation will accelerate; if rates are too high, inflation will fall and perhaps turn into deflation.
By this criterion, its hard to argue that current rates are too low. Inflation has been low for years. In particular, the Feds preferred inflation measure, which strips out volatile food and energy prices, has consistently fallen short of its own target of 2 percent, and shows no sign of rising.
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http://www.nytimes.com/2015/09/21/opinion/paul-krugman-the-rage-of-the-bankers.html?ref=opinion&_r=0
kelliekat44
(7,759 posts)No one who uses ATMs regularly will ever actually make any money from interest unless you are a multimillionaire...and they don't use ATMs.
lumberjack_jeff
(33,224 posts)Well, when you see ever-changing rationales for never-changing policy demands, its a good bet that theres an ulterior motive. And the rate rage of the bankers combined with the plunge in bank stocks that followed the Feds decision not to hike offers a powerful clue to the nature of that motive. Its the bank profits, stupid.