The Fed, Everybody Else, and Interest Rates

Will the Fed start raising benchmark interest rates this week? Lots of folks, including folks in the Fed are getting wobbly. I’ve written before about being wobbly in an economy.

Harriet Torry and Jon Hilsenrath, in a Wall Street Journal piece, were careful to point out that central banks raising rates doesn’t work very well:

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.

No, they weren’t. They all chose to retreat. That’s the minor point, though. The larger point is a big so what? Those economies named by Torry and Hilsenrath (generally European, Asian, and Australia) aren’t ours. They’re not as large, they’re not structured the way ours is, and none of them have the same imperatives ours does. Their economies, too, are largely influenced by our economy; ours is that large and globally dominant.

That other central banks do this or don’t do that is wholly irrelevant to what our central bank does or doesn’t do. There’s no symmetry here; it really is a one-way street.

Independently of all of that, the Fed has for a number of sound reasons set 2% as its inflation goal, and our economy hasn’t approached that rate in years. If the Fed wants 2%, it’s going to have to let interest rates rise to levels consistent with that inflation rate.

The Fed needs to start raising its rates this week as more or less scheduled. No waffling. No wobbling. No timing the thing. Just do it. Full stop.

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