Tags: Fed | raising | rates | risks

Minneapolis Fed Chief: Raising Rates Now 'Would Create Profound Economic Risks'

Minneapolis Fed Chief: Raising Rates Now 'Would Create Profound Economic Risks'
(Dollar Photo Club)

By    |   Friday, 21 August 2015 01:27 PM

The Federal Reserve has made clear its plans to begin raising interest rates this year, and many economists expect the first move to come next month. Narayana Kocherlakota, president of the Minneapolis Fed, thinks that would be a bad idea.

"Many observers have called for the [Fed] to tighten monetary policy by raising interest rates in the near term," he writes in The Wall Street Journal.

"But such a course would create profound economic risks for the U.S. economy."

The Fed has kept short-term interest rates at a record low near zero since December 2008.

So what's wrong with lifting rates now? The inflation rate is well below the Fed's target, Kocherlakota notes. The central bank's favored inflation gauge showed prices climbed only 0.3 percent in the 12 months through June.

"The outlook is for more of the same," Kocherlakota says. "The U.S. inflation outlook thus provides no justification for policy tightening at this juncture." The Fed should actually ease policy rather than tighten it, he maintains.

Steve Forbes, editor-in-chief of Forbes Media, doesn't share Kocherlakota's opposition to rate hikes. He tells Newsmax TV that the Fed should move quickly to lift rates.

"When the Fed allows rates to rise you're going to see the beginnings of the credit markets in this country working again," Forbes told Newsmax TV's "The Hard Line" program. "Small and new businesses are having a very difficult time with regulations, which make bank loans very expensive for small businesses."

Thus these companies aren't receiving much in the way of loans, especially from community banks, which are "getting crushed by regulations," Forbes said.

"What you have is a situation where . . . big companies are doing well, the government is doing well in terms of borrowing. But the people who are the innovators, the job creators, which come from small businesses, they're suffering in this environment." So rising rates can help job creators, Forbes maintains.

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The Federal Reserve has made clear its plans to begin raising interest rates this year, and many economists expect the first move to come next month. Narayana Kocherlakota, president of the Minneapolis Fed, thinks that would be a bad idea.
Fed, raising, rates, risks
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2015-27-21
Friday, 21 August 2015 01:27 PM
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