Tags: new york times | federal reserve | rate hike | economy

NYT Editorial Board: Fed Hike Now Would Be Setback for Americans Who Are Still Not Getting Ahead

By    |   Tuesday, 04 August 2015 08:03 AM

While many financial experts expect the Federal Reserve to start raising rates by year’s end, the New York Times Editorial Board says that any such action would show that the nation’s central bank is satisfied with the country’s modest growth — and such a gesture also would be a symbolic slap in the face for many still-struggling Americans.

The Federal Reserve last week cited gains in consumer spending, the labor market and housing as evidence the economy is improving. But Fed officials kept a key borrowing rate at a record low near zero, where it has been for almost seven years.

Economists believe further gains in the economy and an acceleration of inflation, which has been running below the Fed's 2 percent price target, will prompt officials to begin raising rates later this year.

Some analysts say the first rate hike will occur at the next Fed meeting on Sept. 16-17, while others believe it could be December before Fed officials will feel confident enough about the economy.

“An increase, however small, would signal that Fed policy makers are basically satisfied with the economy’s performance," the newspaper’s editorial board said. "Coupled with Congress’s long failure to provide adequate fiscal support to the economy, that message would be a setback for Americans who are still not getting ahead,” the newspaper’s editorial board said.

“In recent years, the Fed has generally been good at communicating the reasons for its actions. If it really intends to move ahead soon with interest-rate increases, it needs to explain how an economy in which wages are stagnating is as good as it gets,” the board said.

The board stated its position before the government released data that showed consumer spending in June rose by the smallest amount in four months as shoppers cut back on purchases of cars and other big-ticket items.

Consumer spending edged up 0.2 percent in June, the poorest showing since a similar increase in February, the Commerce Department reported Monday.

But the improvement in consumer spending was the biggest factor boosting overall economic growth to 2.3 percent in the second quarter. That was better than a 0.6 percent expansion in gross domestic product in the first quarter, the Associated Press reported.

Through the first six months of this year, the economy grew a modest 1.5 percent. But economists believe the figure will jump to around 3 percent in the second half of the year.

“Given the depth of the recession that preceded the current recovery, growth in the 2-percent range has not been enough to pull up wages. That point was driven home on Friday, when the Labor Department reported a slowdown in wages and benefits in the second quarter,” the board said. “In a healthy economy, a more or less steady drop in the unemployment rate — as has occurred in the United States — would translate into rising wages and higher prices,” the board said.

“If significant or sustained, such increases would be cause for the Fed to raise interest rates. But so far, no such increases have appeared, and, as a result, most working people have not yet recovered all of the lost ground from the recession or raised their living standards.”

But some experts think it is high time to start hiking rates because the Average American is actually better off than you think.

"The middle class has been doing much better than the statistical pessimists assert," Harvard economist Martin Feldstein writes on Project Syndicate. "And with better policies, these households can do even better in the future."

Take average household income figures. Some Census Department data back up the idea that income has barely risen, if at all, in recent decades, says Feldstein, who chaired the Council of Economic Advisers under President Reagan.

"But more accurate government statistics imply that the real incomes of those at the middle of the income distribution have increased about 50 percent since 1980," he says. "And a more appropriate adjustment for changes in the cost of living implies a substantially greater gain."

That would put the increase of household income at almost 2.5 percent annually over the last 30 years.

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While many financial experts expect the Federal Reserve to start raising rates by year's end, the New York Times Editorial Board says that any such action would show that the nation's central bank is satisfied with the country's modest growth.
new york times, federal reserve, rate hike, economy
Tuesday, 04 August 2015 08:03 AM
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