The old saw is that the Federal Reserve cannot battle inflation and recession at the same time. If true, it would appear that more agency governors are opting for letting an economic downturn run its course, even if it is a long one. That would be a mistake.
According to Bloomberg, "The Federal Reserve shouldn’t wait for housing and financial markets to stabilize before it begins raising interest rates, central bank policy maker Gary Stern said."
Stern’s view is based on warped logic. Most of the inflation in the US economy is imported. The Fed cannot control oil prices and co do little to harness the tremendous increase in the price of commodities. As food and housing costs move up in large export countries like China, the cost of goods moving to the US is bound to spike.
The Fed can have a substantial voice in the future course of a recession. Dropping rates once or twice more offers the chance for the consumer to pay less for everything for credit cards to car loans. Even a modest increase in spending by the average citizen would go a long way to pull the US GDP back toward positive territory.
The Fed, it would seem, is undercut any chance for a near-term recovery.
Douglas A. McIntyre
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