jeudi 19 mars 2015
Fed Should Wait Longer to Raise Rates When They’re Near Zero, Chicago Fed Research Says
Posted on 19:16 by nice news
The Federal Reserve should delay raising interest rates from near zero for quite a bit longer given high economic uncertainty and the risk that moving too soon could threaten the recovery and force the central bank to slash borrowing costs again.
That’s the view expressed in a paper authored by Chicago Fed President Charles Evans and three of his staffers, and released Thursday at a conference at the Brookings Institution.
“The zero lower bound on interest rates implies that the central bank should adopt a looser policy when there is uncertainty,” Mr. Evans and his co-authors write. The say there is significant uncertainty around Fed officials’ expectation that low inflation will start rebounding toward the Fed’s 2% target.
“In the current context this result implies that a delayed liftoff is optimal,” argues Mr. Evans, who has said he thinks the Fed should wait until next year to start raising rates.
The Fed has held its benchmark short-term interest rate, the federal funds rate, near zero since late 2008 to bolster the economy. Fed officials Wednesday opened the door to consider raising the rate in June or later this year, but indicated they are likely to proceed cautiously.
They also lowered their forecasts for growth and inflation significantly, causing some investors to push further into the future their estimates for the timing of a first rate increase.
For Mr. Evans and his co-authors, that’s a start. At issue is what the authors see as the much bigger risk of raising rates too soon, since it could crimp the recovery and require the central bank to reverse course with new rate cuts. The opposite risk is that if the Fed waits too long to raise rates, it could cause inflation to go too high. But that could easily be addressed through hi
That’s the view expressed in a paper authored by Chicago Fed President Charles Evans and three of his staffers, and released Thursday at a conference at the Brookings Institution.
“The zero lower bound on interest rates implies that the central bank should adopt a looser policy when there is uncertainty,” Mr. Evans and his co-authors write. The say there is significant uncertainty around Fed officials’ expectation that low inflation will start rebounding toward the Fed’s 2% target.
“In the current context this result implies that a delayed liftoff is optimal,” argues Mr. Evans, who has said he thinks the Fed should wait until next year to start raising rates.
The Fed has held its benchmark short-term interest rate, the federal funds rate, near zero since late 2008 to bolster the economy. Fed officials Wednesday opened the door to consider raising the rate in June or later this year, but indicated they are likely to proceed cautiously.
They also lowered their forecasts for growth and inflation significantly, causing some investors to push further into the future their estimates for the timing of a first rate increase.
For Mr. Evans and his co-authors, that’s a start. At issue is what the authors see as the much bigger risk of raising rates too soon, since it could crimp the recovery and require the central bank to reverse course with new rate cuts. The opposite risk is that if the Fed waits too long to raise rates, it could cause inflation to go too high. But that could easily be addressed through hi
Fed Should Wait Longer to Raise Rates When They’re Near Zero, Chicago Fed Research Says
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