Must-Read: Harriet Torry and Jon Hilsenrath: Lesson for Fed: Higher Interest Rates Haven’t Been Sticking
Must-Read: Lesson for Fed: Higher Interest Rates Haven’t Been Sticking: “In the seven years since the world’s central banks responded to the financial crisis…:
…by slashing interest rates, more than a dozen banks in the advanced world have tried to raise them again. All have been forced to retreat… the eurozone, Sweden, Israel, Canada, South Korea, Australia, Chile and beyond…. [The] two central banks that haven’t raised rates since the crisis—the Fed and the Bank of England—have enjoyed stronger recoveries than others…. “Tightening too early can have very large costs, as it has had in the Swedish case,” said Lars Svensson, who quit as Riksbank deputy governor in 2013 in protest at the bank’s policy decisions…. Central banks can’t push rates higher in the long run than their economies can fundamentally bear, said Mr. Svensson. In the postcrisis environment, central banks have had trouble setting rates low enough to energize their economies, he said….
Fed officials now say they plan to move gradually. But their expectations for rates could still be too high. Officials in June estimated the Fed would raise the short-term federal-funds rate from near zero now to 1.625% by the end of 2016 and to 2.875% by the end of 2017. Investors have a different view… under 1% at the end of 2016 and under 1.5% at the end of 2017…