Federal Reserve very wisely puts interest rate rises on hold

The chairman of the Federal Reserve Jerome Powell has very sensibly reviewed the current economic climate including a potentially messy Brexit, slower growth in China and low inflation and low oil prices and decided not to continue its policy of interest rate rises and slow the sale of its acquired debt instruments to the market in order to  relieve the pressure on interest rates.

Its a decision  I supported in earlier posts and I continue to support it now.     Despite the solid growth in the global and American economy there.are still some fault lines present that are traceable back to the 2008 crash which could prove very damaging if the Fed engineered a slowdown now.  there is considerable evidence both in the data and the literature on the natural rate and the NAIRU of a wide range of possibilities regarding the effect of low unemployment on prices . As Robert  Solow and  John Taylor reported in 1999 quoting a paper by Douglas Staiger,James Stock and Mark Watson published in a collection by Christine and David Romer “the Nairu is imprecisely estimated” so prudence about raising rates is a sensible conclusion.  Other economists like Robert Eisner, John Hotson and myself  and others have made this argument in a number of papers over the years.( See Robert Solow and John Taylor , Inflation, Unemployment and Monetary Policy. The MIT Press Cambridge Mass., 1999 p 14, Harold Chorney , Restoring Full Employment, The Natural Rate of Inflation versus the Natural rate of unemployment paper presented at Adelphi university at the Conference on Social Policy as if People Matter, Garden City New York Nov.12 2004;published on this web site Sept.19,  2011.Robert Eisner, How Real is the Deficit ; and Robert Eisner, A New view of  the NAIRU in Paul Davidson and Jan Kregal, Improving the Global Economy: Keynesianism and Growth in Output and Employment. Cheltenham:Edward Elgar)

This may well change in the coming quarters but for the foreseeable future it is unlikely and Chairman Powell has made  good decision.


About haroldchorneyeconomist

I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
This entry was posted in Federal Reserve, monetary policy, natural rate of inflation, natural rate of unemployment, Uncategorized. Bookmark the permalink.

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