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Monetary Policy

 
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PostPosted: Sun Feb 07, 2016 8:05 pm    Post subject: Monetary Policy Reply with quote

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Yes, however, the Fed may be anticipating faster growth (reflected in the Atlanta GDP-Now model). I agree, the FOMC should tighten more slowly. The consensus a month ago was a 1.25% Fed Funds Rate by the end of 2016.

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The Fed may be expecting faster wage increases, from a tightening labor market, and low commodity prices, including oil, to continue.

It may want to let some air out of any asset bubbles slowly than (potentially) suddenly later. It seems to be a cautious move, at this point.

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It’s important not only to make it cheaper to borrow, but also easier to borrow. An increase in borrowing will raise spending and investment to generate income and employment. When a virtuous cycle takes hold, that raises income = consumption + saving and move the economy towards full employment, then borrowing can become more expensive and more difficult to slow the expansion to a sustainable rate. There are still massive idle resources, e.g. labor and capital, that need to be employed. The economy is underproducing between $1 1/2 trillion and $2 trillion a year.

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