Many Economists Say Fed Shouldn't Delay Raising Rates

Monday, 18 Aug 2014 05:44 PM

By Dan Weil

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Given the recent quiescence of inflation and some sluggish economic data, the Federal Reserve may refrain from raising interest rates until at least the second quarter of next year.

In a recent Wall Street Journal survey, 30 economists voice concern that the Fed will wait too long to hike rates, and just three are worried the Fed will act too soon.

The Fed has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008.

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The central bank's favored inflation measure, the personal consumption expenditures price index, rose 1.6 percent in the 12 months through June, well below the Fed's 2 percent target.

Meanwhile, retail sales were unchanged in July, the worst performance in six months.

Still, some maintain that the Fed is too dovish. "They are making me nervous," Arun Raha, chief global economist for industrial manufacturer Eaton Corp., told the Journal.

"Given the strength of the job market, manufacturing and non-residential construction, it's about time they got rid of their low-rates-for-an-extended-period viewpoint."

Nonfarm payrolls climbed 209,000 in July, the sixth straight monthly gain of more than 200,000. That's the longest streak since 1997.

Meanwhile, Joseph LaVorgna, chief U.S. economist at Deutsche Bank, says that a spate of strong economic data could quickly change the Fed's tune to a more hawkish one, jolting investors. 

"If the numbers change and the Fed rhetoric all of a sudden changes, they're not going to care whether investors feel like the rug got pulled out from underneath them," LaVorgna told CNBC.

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