Should-Read: Jared Bernstein: Clashing with the Fed: Should they stay or should they go?

Should-Read: The very sharp Jared Bernstein swings and misses…

Of his five reasons for raising interest rates, [5] is simply wrong–wanting to avoid the ZLB in the future strongly calls for not raising rates in any way that fighter be premature; [4] is incoherent–since the point of raising is to slow job growth, claiming that it won’t is not an argument for raising; [3] is contradictory; and [2] and [1] seem based on a forecasting gestalt that has been overoptimistic for nine years now:

Jared Bernstein: Clashing with the Fed: Should they stay or should they go?: “Should the Fed raise their benchmark interest rate at their meeting later this month?…

…Financial markets put the likelihood of a March rate hike of another 25 basis points at 77.5 percent. That’s about twice what it was a few weeks ago…. Should they stay or should they go? Reasons not to raise: –The job market is… not there yet; both the underemployment rate and the prime-age employment rate remain elevated…. –While the recovery is about eight years old… middle- and low-wage workers have only recently started seeing real paycheck gains…. –Moreover, there’s little evidence that wage growth is bleeding into price growth…. –The strong dollar… is doing the Fed’s work for them!… –core inflation gauge remains below their 2 percent target… has been holding steady at around 1.7 percent….

Reasons to raise: –[1] The Fed… often moves before utilization constraints are fully binding. –[2] The economic headwinds typically cited in favor of holding have somewhat dissipated…. –[3] The Fed may view the stock market rally as a bit overdone… [but] not [to] raise would signal that the Fed is less optimistic…. That could tank the rally…. –[4] The job market, or more precisely, labor demand, is in a solid groove and won’t be slowed by a small hike. –[5] “Normalization” of the Fed funds rate is necessary to avoid the zero-lower-bound problem when the economy weakens…. I see both sides and think it’s a close call