Does the Fed Need to Hike Interest Rates?

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.”

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