From The Wall Street Journal:
Some international officials have a message for the U.S. central bank: Get on with it already
By Jon Hilsenrath | Updated Aug. 27, 2015 7:04 p.m. ET
JACKSON HOLE, Wyo.—After months of forewarning by Federal Reserve officials that they are preparing to raise short-term interest rates, some international officials attending the Fed’s annual retreat here this week have a message: Get on with it already.Fed policy makers are wavering on whether to move rates up in September. Volatile stock prices, falling commodities, a strong dollar and signs of a deepening economic slowdown in China have created doubts at the U.S. central bank about the outlook for global growth.
International officials have been saying for months they will be prepared when the Fed moves rates higher, a message that is being echoed as central bankers, academics, journalists and others converge now in Jackson Hole for the Federal Reserve Bank of Kansas City’s annual symposium.
“If you delay something that you were planning to do, then you leave the impression that your compass is different than what you led markets to believe,” Jacob Frenkel, chairman of J.P. Morgan Chase International and former head of the Bank of Israel, said in an interview Thursday. Market drama is increased by delay, he added.
Fed officials have said they plan to raise their benchmark short-term interest rate from near zero this year, but haven’t agreed on when to start. The Fed’s Sept. 16-17 policy meeting was shaping up as a close call for a decision to move, and then market turmoil caused some officials to waver. New York Fed President William Dudley said Wednesday that a rate increase in September had become “less compelling.”
Some observers say they will be relieved when the Fed finally acts. “It’s better for the U.S. to make a decision,” Bambang Brodjonegoro, Indonesia’s finance minister, said Wednesday in an interview in Jakarta. “What makes the financial markets volatile is the uncertainty.”
Raising rates would signal that the Fed is confident about the U.S. economy, Bank of Japan Governor Haruhiko Kuroda said Wednesday in New York, before the Fed gathering. “That is not only good for the U.S. economy, but also for the world economy, including the Japanese economy,” he said.
As always, there’s more at the original.
I have to ask: why should the Federal Reserve move to increase interest rates? Banks are already sitting on large reserves that aren’t being loaned out, in part because there is insufficient demand for loans from reasonably credit-worthy customers; how will increasing interest rates help in this regard?1
The Fed is looking at increasing interest rates in part because they want to “push inflation up from below 2%.” Given that wages have been stagnant in our economy, pushing up inflation2 without a concomitant guarantee of wage increases will only make Americans poorer in real terms.
- The Editor is unlikely to notice any personal effects from an interest rate increase, unless such lead to an increase in savings account interest rates. However, savings account interest isn’t a significant part of our income. ↩
- By which I mean price inflation; Patterico and I have had a bit of a disagreement on the use of the term. ↩