Nobel Prize winning economist Paul Krugman says it's way too early to begin raising interest rates.
"When the financial crisis first struck, most of the world's policymakers responded appropriately, cutting interest rates and allowing deficits to rise," he says.
"And by doing the right thing, by applying the lessons learned from the 1930s, they managed to limit the damage: It was terrible, but it wasn't a second Great Depression," Krugman writes in The New York Times.
Now, Krugman says, demands that governments switch from supporting their economies to punishing them by raising rates “have been proliferating in op-eds, speeches and reports from international organizations."
The extent to which this view is prevalent is clearly shown by the latest report on the economic outlook from the Organization for Economic Cooperation and Development, which says that policymakers should stop promoting economic recovery and instead begin raising interest rates and slashing spending.
“What’s particularly remarkable about this recommendation is that it seems disconnected not only from the real needs of the world economy, but from the organization’s own economic projections,” Krugman observes.
“Inflation is low and declining, and the OECD’s own forecasts show no hint of an inflationary threat,” he says. “So why raise rates?”
Federal Reserve Chairman Ben Bernanke recently said that the Federal Reserve Bank and other central banks worldwide face the delicate task of determining when to raise interest rates while reining in the stimulus money pumped into the global economy to fight the world’s financial crisis, allvoices.com reports.
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