To Raise Interest Rates, or To Not Raise Rates: That Isn’t the Question

Fed Hesitation Over When to Raise Rates is Upping Economic Turmoil: NCPA

Source: NCPA

By dragging out their decision over whether or not to raise interest rates, the Federal Reserve is fostering economic uncertainty that puts the markets at risk, warns NCPA Senior Fellow David Ranson in a special report.

“It scarcely matters whether or when interest rates are raised by a quarter point. Such a small rate hike is too small to make a sustained economic difference either way,” says Ranson. “What affects the economy much more is uncertainty about what the Fed will do and when. And Fed hesitation has been fostering that uncertainty.”

The continued indecision has led to “weeks of market-churning debate,” which diverts financial expertise from productive employment, enfeebles productive risk-taking and pulls capital into financing frivolous bets about the Fed’s actions and intentions.

So how do we avoid pulling the market into such confusion? Make the timing of the Fed’s interest-rate decisions more transparent, says Ranson.

“The dilemma is that the more information is made available about the Fed’s intentions to change rates, the more the scope (and perceived need) for speculating, gambling and hedging on when the next change might occur,” says Ranson. “The Fed needs to pay attention to that and make the timing of its interest-rate decisions transparent as well.” 

The Fed Is Holding Rates Down for All the Wrong Reasons

The National Center for Policy Analysis (NCPA) is a nonprofit, nonpartisan public policy research organization, established in 1983. We bring together the best and brightest minds to tackle the country's most difficult public policy problems — in health care, taxes, retirement, education, energy and the environment.