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Should Interest rates go up?

beng100
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9/23/2015 8:59:17 PM
Posted: 1 year ago
With the current economic situation showing signs of improving many people are speculating a rise in interest rates is likely to occur in the next few months. Is this the right thing to do?
Dazz
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10/6/2015 11:16:23 AM
Posted: 1 year ago
At 9/23/2015 8:59:17 PM, beng100 wrote:
With the current economic situation showing signs of improving many people are speculating a rise in interest rates is likely to occur in the next few months. Is this the right thing to do?

I believe interest is wide of the mark, need to root it up as its just a credit bubble without any real economic activity which has to bust up back.
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R301115
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11/30/2015 9:54:43 AM
Posted: 1 year ago
At 9/23/2015 8:59:17 PM, beng100 wrote:
With the current economic situation showing signs of improving many people are speculating a rise in interest rates is likely to occur in the next few months. Is this the right thing to do?

Which economic situation? Global?
TheProphett
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11/30/2015 12:26:18 PM
Posted: 1 year ago
At 9/23/2015 8:59:17 PM, beng100 wrote:
With the current economic situation showing signs of improving many people are speculating a rise in interest rates is likely to occur in the next few months. Is this the right thing to do?

Current economic situation? No, the federal reserve should abstain from raising interest rates.
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Chang29
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11/30/2015 12:55:27 PM
Posted: 1 year ago
At 9/23/2015 8:59:17 PM, beng100 wrote:
With the current economic situation showing signs of improving many people are speculating a rise in interest rates is likely to occur in the next few months. Is this the right thing to do?

Whatever data you are looking at to think that the economy is improving, compare it to the last time the Fed began a tightening cycle.

A falling labor participation rate renders the unemployment data meaningless. Unemployment is the only data that is positive enough for the Fed to justify a rate hike.
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lannan13
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11/30/2015 6:49:56 PM
Posted: 1 year ago
At 9/23/2015 8:59:17 PM, beng100 wrote:
With the current economic situation showing signs of improving many people are speculating a rise in interest rates is likely to occur in the next few months. Is this the right thing to do?

Definately, mainly if we do not raise rates now the next time a recession hits the Fed won't have it's only weapon to combat it.
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TheProphett
Posts: 520
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11/30/2015 10:07:23 PM
Posted: 1 year ago
At 11/30/2015 6:49:56 PM, lannan13 wrote:
At 9/23/2015 8:59:17 PM, beng100 wrote:
With the current economic situation showing signs of improving many people are speculating a rise in interest rates is likely to occur in the next few months. Is this the right thing to do?

Definately, mainly if we do not raise rates now the next time a recession hits the Fed won't have it's only weapon to combat it.

The emerging markets will crash if we raise interest rates, and the foreign investment that we have put in so much too will bottom us out. We need to keep it level and provide support.
Topics I would like to debate: https://docs.google.com...

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lannan13
Posts: 23,022
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11/30/2015 10:10:10 PM
Posted: 1 year ago
At 11/30/2015 10:07:23 PM, TheProphett wrote:
At 11/30/2015 6:49:56 PM, lannan13 wrote:
At 9/23/2015 8:59:17 PM, beng100 wrote:
With the current economic situation showing signs of improving many people are speculating a rise in interest rates is likely to occur in the next few months. Is this the right thing to do?

Definately, mainly if we do not raise rates now the next time a recession hits the Fed won't have it's only weapon to combat it.

The emerging markets will crash if we raise interest rates, and the foreign investment that we have put in so much too will bottom us out. We need to keep it level and provide support.

That's true, but we still need to raise rates so we have a way to fight the next recession or the next recession might be another depression.
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If the sky's the limit then why do we have footprints on the Moon? I'm shooting my aspirations for the stars.

"If you are going through hell, keep going." "Sir Winston Churchill

"No one can make you feel inferior without your consent." "Eleanor Roosevelt

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TheProphett
Posts: 520
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12/1/2015 12:06:32 AM
Posted: 1 year ago
At 11/30/2015 10:10:10 PM, lannan13 wrote:
At 11/30/2015 10:07:23 PM, TheProphett wrote:
At 11/30/2015 6:49:56 PM, lannan13 wrote:
At 9/23/2015 8:59:17 PM, beng100 wrote:
With the current economic situation showing signs of improving many people are speculating a rise in interest rates is likely to occur in the next few months. Is this the right thing to do?

Definately, mainly if we do not raise rates now the next time a recession hits the Fed won't have it's only weapon to combat it.

The emerging markets will crash if we raise interest rates, and the foreign investment that we have put in so much too will bottom us out. We need to keep it level and provide support.

That's true, but we still need to raise rates so we have a way to fight the next recession or the next recession might be another depression.

The world economy, not to mention ours, is already going downhill from here, and the greenback (dollar) is just too crucial around the world in foreign reserves among other things to make changes too at this time. We either risk a minor setback, or a global crash, reminiscent of the recent '08 crash and the EU crisis.
Topics I would like to debate: https://docs.google.com...

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ColeTrain
Posts: 4,291
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12/1/2015 2:14:58 AM
Posted: 1 year ago
At 12/1/2015 12:06:32 AM, TheProphett wrote:
At 11/30/2015 10:10:10 PM, lannan13 wrote:
At 11/30/2015 10:07:23 PM, TheProphett wrote:
At 11/30/2015 6:49:56 PM, lannan13 wrote:
At 9/23/2015 8:59:17 PM, beng100 wrote:
With the current economic situation showing signs of improving many people are speculating a rise in interest rates is likely to occur in the next few months. Is this the right thing to do?

Definately, mainly if we do not raise rates now the next time a recession hits the Fed won't have it's only weapon to combat it.

The emerging markets will crash if we raise interest rates, and the foreign investment that we have put in so much too will bottom us out. We need to keep it level and provide support.

That's true, but we still need to raise rates so we have a way to fight the next recession or the next recession might be another depression.

The world economy, not to mention ours, is already going downhill from here, and the greenback (dollar) is just too crucial around the world in foreign reserves among other things to make changes too at this time. We either risk a minor setback, or a global crash, reminiscent of the recent '08 crash and the EU crisis.

Bro... Come on. :P

There isn't an inflationary risk... [http://blogs.wsj.com...] There's literally no reason not to. Besides, it doesn't matter what we think they probably will [http://www.nytimes.com...].

But yet again, there's real reason to raise rates. Think of slacked labor market, and how it could be positively impacted by a raise. Consistent trends show that inflation wouldn't be a problem (like last time). A good summation can be found here: "The economy may not be in top shape, but it's strong enough to handle an equity correction" [http://www.bloombergview.com...].
"The right to 360 noscope noobs shall not be infringed!!!" -- tajshar2k
"So, to start off, I've never committed suicide." -- Vaarka
"I eat glue." -- brontoraptor
"I mean, at this rate, I'd argue for a ham sandwich presidency." -- ResponsiblyIrresponsible
"Overthrow Assad, heil jihad." -- 16kadams when trolling in hangout
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TheProphett
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12/1/2015 2:16:28 AM
Posted: 1 year ago
At 12/1/2015 2:14:58 AM, ColeTrain wrote:
At 12/1/2015 12:06:32 AM, TheProphett wrote:
At 11/30/2015 10:10:10 PM, lannan13 wrote:
At 11/30/2015 10:07:23 PM, TheProphett wrote:
At 11/30/2015 6:49:56 PM, lannan13 wrote:
At 9/23/2015 8:59:17 PM, beng100 wrote:
With the current economic situation showing signs of improving many people are speculating a rise in interest rates is likely to occur in the next few months. Is this the right thing to do?

Definately, mainly if we do not raise rates now the next time a recession hits the Fed won't have it's only weapon to combat it.

The emerging markets will crash if we raise interest rates, and the foreign investment that we have put in so much too will bottom us out. We need to keep it level and provide support.

That's true, but we still need to raise rates so we have a way to fight the next recession or the next recession might be another depression.

The world economy, not to mention ours, is already going downhill from here, and the greenback (dollar) is just too crucial around the world in foreign reserves among other things to make changes too at this time. We either risk a minor setback, or a global crash, reminiscent of the recent '08 crash and the EU crisis.

Bro... Come on. :P

Bruh......

There isn't an inflationary risk... [http://blogs.wsj.com...] There's literally no reason not to. Besides, it doesn't matter what we think they probably will [http://www.nytimes.com...].

But yet again, there's real reason to raise rates. Think of slacked labor market, and how it could be positively impacted by a raise. Consistent trends show that inflation wouldn't be a problem (like last time). A good summation can be found here: "The economy may not be in top shape, but it's strong enough to handle an equity correction" [http://www.bloombergview.com...].

Reading the Economist right now. I'll just write an article about it later.
Topics I would like to debate: https://docs.google.com...

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ColeTrain
Posts: 4,291
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12/1/2015 2:18:34 AM
Posted: 1 year ago
At 12/1/2015 2:16:28 AM, TheProphett wrote:
At 12/1/2015 2:14:58 AM, ColeTrain wrote:
At 12/1/2015 12:06:32 AM, TheProphett wrote:
At 11/30/2015 10:10:10 PM, lannan13 wrote:
At 11/30/2015 10:07:23 PM, TheProphett wrote:
At 11/30/2015 6:49:56 PM, lannan13 wrote:
At 9/23/2015 8:59:17 PM, beng100 wrote:
With the current economic situation showing signs of improving many people are speculating a rise in interest rates is likely to occur in the next few months. Is this the right thing to do?

Definately, mainly if we do not raise rates now the next time a recession hits the Fed won't have it's only weapon to combat it.

The emerging markets will crash if we raise interest rates, and the foreign investment that we have put in so much too will bottom us out. We need to keep it level and provide support.

That's true, but we still need to raise rates so we have a way to fight the next recession or the next recession might be another depression.

The world economy, not to mention ours, is already going downhill from here, and the greenback (dollar) is just too crucial around the world in foreign reserves among other things to make changes too at this time. We either risk a minor setback, or a global crash, reminiscent of the recent '08 crash and the EU crisis.

Bro... Come on. :P

Bruh......

There isn't an inflationary risk... [http://blogs.wsj.com...] There's literally no reason not to. Besides, it doesn't matter what we think they probably will [http://www.nytimes.com...].

But yet again, there's real reason to raise rates. Think of slacked labor market, and how it could be positively impacted by a raise. Consistent trends show that inflation wouldn't be a problem (like last time). A good summation can be found here: "The economy may not be in top shape, but it's strong enough to handle an equity correction" [http://www.bloombergview.com...].

Reading the Economist right now. I'll just write an article about it later.

Psh. Me > Economist
While I'm at it: Raising rates > not raising rates
"The right to 360 noscope noobs shall not be infringed!!!" -- tajshar2k
"So, to start off, I've never committed suicide." -- Vaarka
"I eat glue." -- brontoraptor
"I mean, at this rate, I'd argue for a ham sandwich presidency." -- ResponsiblyIrresponsible
"Overthrow Assad, heil jihad." -- 16kadams when trolling in hangout
"Hillary Clinton is not my favorite person ... and her campaign is as inspiring as a bowl of cottage cheese." -- YYW
TheProphett
Posts: 520
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12/1/2015 2:21:15 AM
Posted: 1 year ago
At 12/1/2015 2:18:34 AM, ColeTrain wrote:
At 12/1/2015 2:16:28 AM, TheProphett wrote:
At 12/1/2015 2:14:58 AM, ColeTrain wrote:
At 12/1/2015 12:06:32 AM, TheProphett wrote:
At 11/30/2015 10:10:10 PM, lannan13 wrote:
At 11/30/2015 10:07:23 PM, TheProphett wrote:
At 11/30/2015 6:49:56 PM, lannan13 wrote:
At 9/23/2015 8:59:17 PM, beng100 wrote:
With the current economic situation showing signs of improving many people are speculating a rise in interest rates is likely to occur in the next few months. Is this the right thing to do?

Definately, mainly if we do not raise rates now the next time a recession hits the Fed won't have it's only weapon to combat it.

The emerging markets will crash if we raise interest rates, and the foreign investment that we have put in so much too will bottom us out. We need to keep it level and provide support.

That's true, but we still need to raise rates so we have a way to fight the next recession or the next recession might be another depression.

The world economy, not to mention ours, is already going downhill from here, and the greenback (dollar) is just too crucial around the world in foreign reserves among other things to make changes too at this time. We either risk a minor setback, or a global crash, reminiscent of the recent '08 crash and the EU crisis.

Bro... Come on. :P

Bruh......

There isn't an inflationary risk... [http://blogs.wsj.com...] There's literally no reason not to. Besides, it doesn't matter what we think they probably will [http://www.nytimes.com...].

But yet again, there's real reason to raise rates. Think of slacked labor market, and how it could be positively impacted by a raise. Consistent trends show that inflation wouldn't be a problem (like last time). A good summation can be found here: "The economy may not be in top shape, but it's strong enough to handle an equity correction" [http://www.bloombergview.com...].

Reading the Economist right now. I'll just write an article about it later.

Psh. Me > Economist
While I'm at it: Raising rates > not raising rates

vi_spex has trained you well.
Topics I would like to debate: https://docs.google.com...

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ColeTrain
Posts: 4,291
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12/1/2015 2:22:43 AM
Posted: 1 year ago
At 12/1/2015 2:21:15 AM, TheProphett wrote:
vi_spex has trained you well.

Hah.
Inflation: [http://assets.bwbx.io...]
"The right to 360 noscope noobs shall not be infringed!!!" -- tajshar2k
"So, to start off, I've never committed suicide." -- Vaarka
"I eat glue." -- brontoraptor
"I mean, at this rate, I'd argue for a ham sandwich presidency." -- ResponsiblyIrresponsible
"Overthrow Assad, heil jihad." -- 16kadams when trolling in hangout
"Hillary Clinton is not my favorite person ... and her campaign is as inspiring as a bowl of cottage cheese." -- YYW
beng100
Posts: 1,055
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12/1/2015 10:27:28 PM
Posted: 1 year ago
At 11/30/2015 9:54:43 AM, R301115 wrote:
At 9/23/2015 8:59:17 PM, beng100 wrote:
With the current economic situation showing signs of improving many people are speculating a rise in interest rates is likely to occur in the next few months. Is this the right thing to do?

Which economic situation? Global?

Yes global.
ColeTrain
Posts: 4,291
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12/2/2015 2:51:48 AM
Posted: 1 year ago
At 12/1/2015 10:27:28 PM, beng100 wrote:
At 11/30/2015 9:54:43 AM, R301115 wrote:
At 9/23/2015 8:59:17 PM, beng100 wrote:
With the current economic situation showing signs of improving many people are speculating a rise in interest rates is likely to occur in the next few months. Is this the right thing to do?

Which economic situation? Global?

Yes global.

The global situation, definitely, is suitable.
"The right to 360 noscope noobs shall not be infringed!!!" -- tajshar2k
"So, to start off, I've never committed suicide." -- Vaarka
"I eat glue." -- brontoraptor
"I mean, at this rate, I'd argue for a ham sandwich presidency." -- ResponsiblyIrresponsible
"Overthrow Assad, heil jihad." -- 16kadams when trolling in hangout
"Hillary Clinton is not my favorite person ... and her campaign is as inspiring as a bowl of cottage cheese." -- YYW
ResponsiblyIrresponsible
Posts: 12,398
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12/6/2015 5:52:32 PM
Posted: 12 months ago
Well, considering this is my cup of tea, I suppose I'll "revive" this.

There are a whole lot of considerations at play, and this is far from a "Well, *obviously* they should or they shouldn't" move. There's question not only of fundamentals, but of both the evolution and communication of policy actions, and how financial markets will respond.

So, first, the arguments *for* liftoff:

Inflation is very low at the moment -- year-over-year measures are at 2 tenths headline (including food and energy) and 1.3 core (excluding food and energy). Most people in the Fed, with a few notable exceptions, accept an accelerationist Phillips-Curve framework. This expressed current inflation as a function of expected inflation, the unemployment gap, and price shocks, as such:

[anything in parenthesis is a subscript]

pi (t) = E(t) pi (t+1) + omega * (Ut - Un) + rho

So, rho is unexpected price shocks that shift the curve up and down. We generally assume that's stable over time. Expected inflation we can assume is somewhat stable -- which would arguably obviate the Phillips Curve relation unto itself -- and omega is a regression coefficient relating the unemployment gap to inflation. We assume, via an accelerationist framework, that this coefficient rises over time such that inflation and inflation expectations trade off one for one in the "longer run."

The Fed would argue that (Ut - Un) is essentially stable: there might be some lingering slack that isn't captured by the U3, but policy lags and a shallower path of subsequent increases, as opposed to more abrupt tightening down the road, would be more than sufficient to act ahead of the curve. They would argue that E(t) pi (t +1) -- expected inflation for one period forward -- is or at least will be relatively stable (generally, the argument is that *long-run* expectations are stable, and that might be a more suitable substitute for shorter-term expectations). Finally, they'd say that rho -- the decline in commodity prices and import prices as a result of global weakness and the appreciation of the dollar -- are "transitory," and will be more than offset as diminishing labor-market slack exerts upward pressure on inflation. In particular, there's pass-through from relative energy and import prices into the core index, irrespective of the fact that it explicitly excludes food and energy prices: businesses require, for instance, electricity and transportation. If it bleeds over to lower shorter-run inflation expectations, consumers may delay purchases, pushing down on inflation, *and* if there are layoffs -- as there are -- in energy-producing or globally-sensitive (e.g., manufacturing) sectors, that would tend to push down on inflation or at least slow the degree of progress we see in the labor market.

So, to summarize, there are three assumptions:

(a) We're at or near full employment.

(b) We should act "ahead of the curve" because of (a) policy lags, (b) so that we can proceed more gradually in order to (1) rebalance risks to the outlooks for inflation and employment, (2) determine how markets will respond to normalization, (3) fine-tune the rate path, and (4) ensure that the new tools for normalization amid elevated excess reserves -- ON RRP and IOER -- are operational.

(c) Being at or near full employment should apply sufficient upward pressure on the current inflation rate: that is, the accelerationist Phillips curve more or less holds, meaning that there's a non-trivial, statistically relevant relationship between lagged and expected inflation. In other words, there are severe costs to "getting behind the curve," including but not limited to having to proceed at a steeper pace, which might roil financial markets and undermine the expansion itself.

(d) The impact of the dollar and commodity prices are transitory, and after these influences begin to subside, inflation will move back "steadily" to 2 percent.

(e) Inflation expectations remain well-anchored.

To go through them one by one:

(a) This one I wouldn't challenge. There are plausible arguments as to "latent slack." but both the historical record of labor-force flows and the remarkable stabilization of the LFPR as the labor market continued to grow above its now-lower steady-state level suggests that we are at the very least near full employment. Whether there's merit in slightly overheating so as to invite otherwise out-of-the-labor-force workers to reenter is another story. I think there is, though that need not delay the *first* rate increase, if the objective is to focus on the path of future rate increases.

(b) This is the usual mantra of monetary policy as forward-looking: the key problem is that this becomes exceptionally deranged when there's considerable uncertainty about the outlook: threats emanating from China and emerging markets, the impact -- and future impact -- of commodity-price declines, how financial markets will respond to liftoff, the current level and evolution of the real neutral fed funds rate, etc. Charlie Evans published a great Brookings paper back in March arguing that the optimal approach is "risk management": we could both be wrong, but it's better to err on the side of caution because the subsequent blowback -- unwinding accommodation faster -- is far easier and less painful than if we tightened too early. Tightening at a steeper path (a) assumes an accelerationist Phillips curve, (b) assumes a rapid acceleration in the neutral real interest rate, which is highly unlikely and (c) assumes that there is considerable upside risk to inflation expectations.

(c) This claim is the most suspect. The Phillips curve relation has broken down since the mid-1990s: a pre-NAIRU, 1960s (e.g., pre-Friedman and Phelps) curve is a better fit for the data. The crux of the argument is that inflation expectations are well anchored to the extent that a substantial drop in unemployment need not bid up nominal wages, as the public anticipates that the Federal Reserve will respond appropriately to hold down both wage and price inflation. The relationship between lagged and future inflation broke down, also, from 1996 onward.

A common application of this is the "missing disinflation" around 2009 onward. A Phillips curve model would -- and did -- predict outright deflation given the magnitude of the financial crisis, which is why, for instance, Hall and Ball and Mazumder basically declared DSGE models dead when that deflation never quite transpired. The answer was (a) downward nominal wage rigidity and (b) anchored expectations -- you could also tie in globalization or pent-up real wage cuts or even the implementation of explicit, numerical inflation targets as a way of anchoring expectations of future inflation.

(d) This is also suspect. It depends a whole lot on the *composition* of the decline in oil. The literature is split: an IMF paper suggests it's primarily supply-driven, a Kansas-City Fed paper says it's primarily a self-fulfilling decline in precautionary demand driven by expectations of future price declines, a New-York Fed paper says it's primarily demand-driven, etc. Given divergent global monetary policies given weak global demand, the dollar is also likely to continue to rise. I don't buy this.

(e) This is the operative point of the Phillips Curve, not the unemployment gap, a recent paper by Blanchard, Cerutti, and Summers argues. Virtually every measure, be it TIPS spreads, inflation swaps, or surveys are plummeting as late. That doesn't bode well for future inflation.

In short, the Fed's own criteria haven't been met. Yes, we've seen "some" further improvement in the labor market, but there's no real reason to be "reasonably confident" that inflation will move back to 2 percent over the vaguely-defined medium term.

Therefore, I vote nay on liftoff.
~ResponsiblyIrresponsible

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12/6/2015 6:00:49 PM
Posted: 12 months ago
And... oops. Not *everything* in parenthesis is a subscript, lol... I was trying to differentiate between t and t+1, but you all get the point.
~ResponsiblyIrresponsible

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12/6/2015 9:55:07 PM
Posted: 12 months ago
At 11/30/2015 6:49:56 PM, lannan13 wrote:
At 9/23/2015 8:59:17 PM, beng100 wrote:
With the current economic situation showing signs of improving many people are speculating a rise in interest rates is likely to occur in the next few months. Is this the right thing to do?

Definately, mainly if we do not raise rates now the next time a recession hits the Fed won't have it's only weapon to combat it.

About a week late, but I'll dispel this (widely held) myth nonetheless.

This is actually complete malarchy. In particular, it's a ceteris-paribus assumption. It holds constant the economic fundamentals that would prevail in the absence of a rate hike, and assumes we'll observe the same vibrancy even if the Fed opted to raise rates at a steeper trajectory. That, of course, is utter rubbish: tightening would reduce neutral real interest rates and push down on both employment and inflation. In reality, this would likely *induce* the recession for which the Fed would need to reduce rates -- and because we're already so close to zero, and equilibrium rates are roughly at that point, it would nevertheless need to rely on unconventional tools, but with less credibility with which to do so.

In other words, hiking -- or an outright increase in the funds rate -- provides absolutely no ammunition to the Fed whatsoever. An increase in neutral interest rates is a different story, but that's a function of *not* hiking too soon.
~ResponsiblyIrresponsible

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