Tags: Joseph Stiglitz | federal reserve | rate hike | economy

Stiglitz to Fed: 'Now is Not the Time to Tighten Credit'

Stiglitz to Fed: 'Now is Not the Time to Tighten Credit'
Janet Yellen (AP)

By    |   Wednesday, 09 September 2015 08:30 AM

Some experts expect the Federal Reserve to raise interest rates at its meeting next week, but that would be a mistake, says Nobel laureate economist Joseph Stiglitz.

"It is as close to a no-brainer as such decisions can be," the Columbia University economist writes on Project Syndicate. "Now is not the time to tighten credit and slow down the economy."

The Fed under its dual mandate pursues full employment and stable prices. "It has been more than successful at the second, partly because it has been less than successful at the first," Stiglitz says.

Non-farm payrolls rose just 173,000 in June. Meanwhile, the Fed's favored inflation gauge rose just 0.3 percent in the 12 months through July.

The central bank has kept short-term interest rates at record lows near zero since December 2008. Fed officials have said they will likely start boosting interest rates this year.

"The usual argument for raising interest rates is to dampen an overheating economy in which inflationary pressures have become too high," Stiglitz says. "That is obviously not the case now."

The Atlanta Fed's forecasting model puts third-quarter growth at just 1.5 percent.

Meanwhile, New York Post columnist John Crudele says the sagging economy will make it difficult for the Federal Reserve to tighten next week.

"The Fed wants to raise rates, it must raise rates, but it is becoming increasingly impossible to raise them," Crudele writes. "The Fed’s near-zero interest-rate policy hasn’t helped the economy. . . . So the Fed knows it needs to reverse course and raise rates."

What's the problem?

"The economy is withering," Crudele says. "If rates aren’t raised soon, the Fed may feel that it will again miss its opportunity to make a move." The Fed also needs to boost rates because it will soon have to lower them to counter economic weakness, he says.

But Crudele thinks the central bank will stand pat this month because of that economic weakness.

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Some experts expect the Federal Reserve to raise interest rates at its meeting next week, but that would be a mistake, says Nobel laureate economist Joseph Stiglitz.
Joseph Stiglitz, federal reserve, rate hike, economy
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2015-30-09
Wednesday, 09 September 2015 08:30 AM
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