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Wednesday, August 26, 2015

'It’s Getting Tighter'

Paul Krugman has advice for the Fed:

It’s Getting Tighter: When thinking about the market madness and its possible real effects, here’s something you — where by “you” I mean the Fed in particular — really, really need to keep in mind: the markets have already, in effect, tightened monetary conditions quite a lot.
First of all, if break-evens (the difference between interest rates on ordinary bonds and inflation-protected bonds) are any guide, inflation expectations have fallen sharply...
Second, while interest rates on Treasuries are down, rates on private securities viewed as even moderately risky are up quite a lot...
So real borrowing costs are up sharply for many private borrowers. This is a significant headwind for the U.S. economy, which was hardly growing like gangbusters in any case.
A Fed hike now looks like an even worse idea than it did a few days ago.

    Posted by on Wednesday, August 26, 2015 at 12:33 AM in Economics, Monetary Policy | Permalink  Comments (66)


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