A Jon Hilsenrath Sunday evening piece in the Wall Street Journal: Inside Fed Statement Lurks Hint on Rates
Yellen caused a stir last week when she suggested the central bank might start raising short-term interest rates a little sooner than investors were expecting.
In focusing on that, Wall Street might have glossed over news of greater consequence.
- In the official policy statement, the Fed said it planned to keep short-term rates below what it sees as appropriate for a normal economy even after the unemployment rate and inflation revert to typical levels
- officials see the Fed’s target short-term interest rate at just over 2% at the end of 2016, well below the 4% they consider appropriate for an economy running on all cylinders
Hilsenrath asks why do they want to keep short-term interest rates so low for so long? Answers by saying that “the economy can’t bear a level of interest rates that looked normal in the past because it has been so deeply scarred by the financial crisis.”
- He also notes the risk: If it keeps interest rates too low it could spur another financial bubble or inflation.
More at the link, above, but the Journal is often gated, so if you’re unable to access the article try a search of Google news using the headline.
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Lower rates for longer are a positive for risk assets.
