This
article talks about how inflation has been on the rise for quite a while and is
expected to be on the rise in the coming future. The feds objective is to have
a 2% inflation rate and expects the current inflation rate to come down to the
expected rate. The Fed can raise the interest rates it controls without raising the real, or inflation-adjusted, interest rate, if expectations for future inflation are also rising. The article also states that Fed would like to increase interest
rates much higher but they haven't been very successful in doing that so far
with interest rates being almost close to zero. Giving people no incentive to
save money in banks and also have an incentive to increase investment further
raising the interest rates.
Link: http://www.economist.com/blogs/freeexchange/2016/03/low-end-theory
So it seems like the FED wants to overshoot the 2% goald for awhile to keep things symmetric. I can understand the benefits of that in our fluctuating economy. I do have to agree with the risk of the FED tightening money supply to push interest rates up past their near non-existence at the moment. The open economy and strength of the US dollar will impact economic recovery around the world. Regardless, it looks as thought FED will sell bonds to tighten the money supply. If an increase in inflation is what they want, they know how to get it.
ReplyDeleteI may be biased, because I'm not someone who is about to invest, rather I will begin saving. But I think that is the stance of most of the population, and yes the investment is good to have, but no saving is a huge risk. If people don't have anything saved and the economy goes through another recession then that is a major liability.
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