Saying the thing which is not about raising rates
The front page of The OZ: Interest rate cuts losing power: RBA. The premise is that there was a time that interest rate cuts had done some good, but if so, that was only when they had been set too high. If you would like to understand why interest rates can be too low, and have been much too low everywhere for quite a long time, you should look at the last two chapters of my Free Market Economics. But the main message is that the era of low interest rates is over. Let me therefore take you two articles on the same theme.
The first is Yellen helps Clinton dodge a bullet which comes with the sub-head: “Federal Reserve policymakers keep their key interest rate steady, putting the central bank on the sidelines until after Election Day.” The first sentence of the article is merely about politics. The economics is about what lies in wait. But first that opening sentence:
Scratch one big economic worry off the list for Hillary Clinton.
The worry being scratched off is that interest rates will be raised before the election. Trump knows what a problem this would be for the Democrats better than anyone. Yellen knows exactly what Trump knows, but says the thing which is not like the rest of her leftist tribe:
Fed Chair Janet Yellen also strongly rejected claims lobbed at her by GOP presidential nominee Donald Trump that she is keeping rates artificially low to boost stock prices and aid Democrats.
“I can say emphatically that partisan politics plays no role in our decisions about the appropriate stance of monetary policy,” Yellen said at a news conference after the Fed announced its decision. “We do not discuss politics at our meetings and we do not take politics into account in our decisions.” . . .
“The Federal Reserve is not politically compromised,” she said. “I can’t recall any meeting that I have ever attended where politics has been a matter of discussion. I think the public if they had been watching our meeting on TV today would have felt that we had a rich, deep, serious, intellectual debate about the risks and the forecasts for the economy.”
Since she cannot say otherwise, that was the pre-fab answer. But they of course do think politically 100% of the time, and know full well what will happen when rates start to rise, or even if they hinted that they would rise. It will happen immediately if it’s Trump, more slowly if it’s Hillary, but up they will go. As noted at the end of the article:
The decision [to leave rates where they are] should be a bit of a boost for Clinton, more because it avoids a nightmare scenario than does much to strengthen the economy.
“Nightmare scenario”? What could they possibly mean?
There is then this second article dealing with the same issues: Yellen rejects Trump charges that Fed plays politics. Shorter and again outlines Trump’s complaints in the company of Yellen’s untruths. But it ends with this:
By statute, the Fed is an independent body intended to be shielded from political pressure and whose operations are not funded by the US Congress.
But Fed governors are nominated by the White House and approved by the Senate.
You can see the cynicism in the article but there is even more in the comments to the story. I will just list one, which is like most of the others, and which follows more or less my own sentiments about all of it:
Her denial proves the point. Yellen is a marxist who does Obama’s bidding. If Trump wins in November this fool will raise interest rates in December. Bet the farm on it.
For all that, the sad fact is that the only way our economies can ever get on track is for rates to rise. It will be a rough ride, but without the redirection of savings in productive directions, there is no chance of a recovery either short term or long.