In her speech last Thursday, Federal Reserve Chair Janet Yellen reiterated her plan to increase interest rates this year despite doubts about the Fed’s ability to generate its 2% inflation rate target.
Matt Phillips in Quartz: “In explaining the Fed’s decision earlier this month to hold off on raising interest rates, Yellen highlighted persistently low market measures of inflation expectations. That’s a sign that the markets doubt the central bank’s ability to actually generate enough inflation to get back to its 2% target. And for good reason, the Fed has consistently been undershooting its inflation target in the aftermath of the Great Recession.”
Matthew Yglesias argues against a rate increase.
“Economic commentators seem to have a great deal of difficulty with this, but it’s time to admit that at the moment the United States simply isn’t facing a serious business cycle problem. Unemployment is on the low side, but so is inflation. Cheap commodity prices are giving everyone a boost, there are a lot of able-bodied adults who may or may not rejoin the workforce in the near future, and after a long stretch of weak wage growth there’s room for people to get some raises without corporate profits being squeezed to an untenable level.”
“Things are basically fine, and while a small increase in interest rates almost certainly wouldn’t be ruinous, there’s also no reason to do it.”