Federal Reserve Bank of Chicago President Charles Evans said Tuesday that the U.S. central bank can wait until the end of the year before making the decision to raise rates again, while adding it could start reducing the size of its balance sheet before that.
Indeed. We could wait a decade, too. Both delays are about equally foolish.
Increasing interest rates on debt, whether market rates of Federal Reserve benchmark rates, are inherently inflationary. Thus: the Fed needs to set its rates to levels consistent with target inflation, and then sit down, and be quiet.
Mr Evans also said in the interview that even if the Fed does hold off on rate rises until very late in the year, that needn’t stop the institution from pressing forward with its plans to allow its balance sheet to start shrinking at some point this year.
Indeed. The Fed needs to take this separate step, regardless, and get rid of the massive amount of Treasury debt it bought as part of its failed stimulus policy. The Fed isn’t a stimulus institution: its role is strictly the maintenance of stable market pricing and full employment (the latter which shouldn’t be a mandate as full employment will fall out of long-term price stability).