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“Not Even Thinking About Raising Rates”

Not Even Thinking About Raising Rates
"Not Even Thinking About Raising Rates"

Thus said Fed Chair Jay Powell this past June. But what exactly does this mean and why did he say it?

It’s all about inflation. That is, the inflation we don’t have. Missing in action. The Fed actually desires some inflation, at least a little, generally defined as 2%. Those old enough to recall serious thinking about inflation during Paul Volcker’s tenure in Powell’s seat at the Fed remember inflation being described as a catastrophe. Nothing crushes bond holder returns like unexpected inflation. Nothing damages consumer spending like inflation when personal income is constrained. Facing this, Volcker used the interest rate tool to crush it. Further, he broadcast the message that the Fed always stood ready to do so again. Given that, realistically, inflation hasn’t made much of an appearance since that period from the late 1970s to the early 1980s.

Why would the Fed want to rekindle it?

To read the full article click here.

 


 

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