The Fed should proceed carefully
Federal Reserve Vice Chairman Stanley Fisher commented a few days ago that there is “a pretty strong case” for the Fed raising interest rates next month. In what alternate universe has Fisher been spending his time?
Central bank officials have used ultra-low interest rates for several years to combat the “Great Recession.” Though the strategy has been somewhat successful, many Americans still have not recovered.
Artificially low interest rates cannot be maintained forever, of course. At some point the Fed should go back to giving the market a greater role in how much we pay to borrow money.
But not now.
Apparently, Fisher has not been paying much attention to the headlines during the past couple of weeks. Throughout the world, business leaders and investors have been jittery about future prospects, to say the least. Massive losses in several stock markets have reflected those concerns.
Stock exchanges in the United States, Europe and Asia have shown losses – with analysts blaming them on reports the Fed may be set to boost interest rates.
There have been other alarm signals, including a slowdown in the gigantic Chinese economy and lower industrial production in Japan.
What does that have to do with our interest rates?
Though an individual economy such as the massive American one enjoys some independence from global trends, a world marketplace drives trends everywhere. A slowdown in Asia affects us just as certainly as an industrial collapse in, say, Michigan.
Fisher and his fellow Fed governors are right to be considering interest rate hikes at some point.
But not now.
That could be the starting point for a Greater Recession.