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Sunday, February 08, 2015

Only Raise Rates when Whites of Inflation’s Eyes are Visible

Larry Summers:

Only raise US rates when whites of inflation’s eyes are visible: ... Especially after Friday’s very strong employment report, there can be no doubt that cyclical conditions are normalising. ... All of this taken in isolation would suggest that interest rates should not remain at zero much longer.
On the other hand, the available inflation data suggests little cause for concern. ... Perhaps most troubling: market indications suggest inflation is more likely to fall than rise .
The Fed has rightly made clear that its decisions will be data dependent. The further key point is that it should allow the flow of information on inflation rather than on real economic activity to determine its timing in adjusting interest rates. And it should not raise rates until there is clear evidence that inflation, and inflation expectations, are in danger of exceeding its 2 per cent target. Here are four important reasons why. ...

    Posted by on Sunday, February 8, 2015 at 11:48 AM in Economics, Monetary Policy | Permalink  Comments (27)


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