Tags: Insana | Fed | rates | funds

Insana: Fed Should Raise the Floor of the Fed Funds Target

By    |   Wednesday, 18 February 2015 01:17 PM

Most economists expect the Federal Reserve to begin increasing interest rates around mid-year by 25 basis points. But star CNBC commentator Ron Insana sees it differently.

"I don't think the Fed will raise rates at all in 2015, owing to a weakening world economy and a strengthening U.S. dollar," he writes in a commentary for CNBC.

"However, if the Fed believes the normalization process should begin this year, I would suggest an even more modest proposal that might allow the central bank to gently test the market and economic waters."

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

Insana's idea: "the Fed could lift the floor of the fed-funds target to the current effective rate of 0.125 percent, while leaving the ceiling at 0.25 percent," he suggests.

"The snugging of policy would represent a first step in normalization but would allow the Fed the luxury of monitoring the economy and market's response to that move toward normalization."

If things go well, the Fed could continue to gradually increase rates, Insana notes. If not, it could back off.

Meanwhile, Nobel laureate economist Paul Krugman expresses dismay over criticism of the Fed launched by some Republicans, particularly Sen. Rand Paul, R-Ky.

"The emerging GOP consensus on money is crazy — full-on conspiracy-theory crazy," Krugman writes in The New York Times.

As for potential presidential candidate Paul, who has proposed a Fed audit, "Mr. Paul likes to warn that the Fed's efforts to bolster the economy may lead to hyperinflation," Krugman says.

"He loves talking about the wheelbarrows of cash that people carted around in Weimar Germany. But he's been saying that since 2009, and it keeps not happening." So now Paul focuses on the Fed being an overleveraged bank that could collapse, Krugman notes.

"This story is wrong on so many levels that reporters are having a hard time keeping up. But let's simply note that the Fed's 'liabilities' consist of cash, and those who hold that cash have the option of converting it into, well, cash. No, the Fed can't fall victim to a bank run."

The central bank's balance sheet has mushroomed to $4.5 trillion through its quantitative easing over the past seven years.

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Most economists expect the Federal Reserve to begin increasing interest rates around mid-year by 25 basis points. But star CNBC commentator Ron Insana sees it differently.
Insana, Fed, rates, funds
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2015-17-18
Wednesday, 18 February 2015 01:17 PM
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