For the past few years, Nobel laureate economist Paul Krugman says fiscal austerity has held down the economies of Europe and the United States.
But Benn Steil, director of international economics at the Council on Foreign Relations, says that Krugman has it all wrong. Those countries with independent monetary policy, which doesn't include the 19 nations of the eurozone, have fared much better, he says.
The eurozone economy grew only 0.9 percent last year, compared to 2.4 percent for the U.S. economy.
"Though he could easily have done so, Krugman decided not to look at whether monetary policy mattered,"
Steil writes on Forbes.com. "Countries that have independent monetary policy can, in principle, offset fiscal drag with more accommodative monetary policy."
The powerful impact of monetary policy "could hardly be denied after the experience of 2013, in which a massive Fed asset purchase program offset a massive fiscal crunch," he says.
Quantitative easing has ballooned the Fed's balance sheet to $4.5 trillion.
Steil's message to Krugman: "Sorry, Paul, but your chicken-soup theory of monetary policy — it probably won’t help, but it couldn’t hurt — is not only frivolous, but wrong."
As for the Fed's interest-rate policy, while economists' consensus is that the central bank will start raising interest rates around mid-year, Newsmax Finance insider Sean Hyman doesn't expect a move until September or October,
he told Newsmax TV.
"I don't think that rate hikes are something to be feared at this point, because even if they start hiking, and even if they put in a couple of hikes this year, it'll probably be 25 basis points," the editor of Ultimate Wealth Report newsletter, told Newsmax TV's "Midpoint" show.
"So if you get 0.5 percent, is that going to kill companies in America? It's not. The earlier hikes never hurt companies. It's those later hikes, so I don't think we have anything to fear for quite some time on the rate front."
The Fed has kept its federal funds rate target at a record low of zero to 0.25 percent for six years.
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