Must-Read: Tim Duy: Curious

Must-Read: Tim Duy: Curious: “I find the Fed’s current obsession with raising interest rates curious to say the least…

…To me… it appears that by raising rates now the Fed is risking falling short on its employment mandate at a time when the price mandate is also challenged. And falling short on the employment mandate now suggests an economy with sufficient slack to prevent reaching that price mandate. And that is without considering neither the balance of risks to the outlook nor the possibility that escaping the zero bound requires approaching the inflation target from above rather than below. Consequently, it seems that the case for a rate hike in June should be quite weak….

What is driving so many FOMC participants to the rate hike camp?… First, they believe that tapering and ending QE was not tightening…. Second, the Fed may be too enamored with… the idea of normalization…. They have already decided that the equilibrium fed funds rate is north of 3 percent, and hence assume that the current rate is highly accommodative. They thus see a large distance that needs to be covered, and feel an urge to start sooner than later…

May 23, 2016


Brad DeLong
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