Monday, March 14, 2016

Economy: Hiking Interest Rates Now Wouldn`t Be A Mistake

(Drivebycuriosity) - The financial markets are awaiting this week´s Federal Reserve meeting (Wednesday). The pundits don´t expect an interest hike for this week,  but maybe for April or later this year. I think it wouldn´t be a mistake if Janet Yellen & Co. raise their interest rates already this week.

The data from the economic frontier suggest that the US economy had a good start into this year, in spite of the gloomy financial markets, and is getting stronger: American companies added 230,000 workers to payrolls in February, the unemployment rate stayed at 4.9%. The weekly jobless claims are shrinking and close to a record low. The latest numbers for personal income & spending, retail sales, industrial production & durable goods orders show solid growth as well (driveby).

So, the December interest hike didn´t hurt the US economy,  it might even had stimulated growth,   because it was a signal that the Fed is getting more confident for the US economy.

It also looks like that inflation is at the door. The core inflation rate - without energy & food prices - climbed onto 2.2% annually (blogspot). And commodity prices have been soaring in the recent weeks (tradingeconomics).

If the Fed hikes now moderately the monetary authority won´t need to fight accumulating inflation expectations in the near future. In the past the Fed often responded to late and had to brake inflation expectation by sharply higher interest rates which caused a recession.

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