Fanatics favour zero

Tonight Singapore time (afternoon in the U.S.), the Federal Reserve will announce their monetary policy decision. For too much of hyperventilation has happened against a rate hike. Financial Times has led the no-rate-hike campaign by giving ample coverage and prominence to all those who have beseeched/threatened and warned  the Federal Reserve against a rate hike. The latest to join the battle against a rate hike is their journalist John Authers. The threat is mostly about financial market dislocation. That there is no embarrassment or introspection among the journalists or in the Editorial room of the newspaper with respect to their stance must surely be embarrassing. I hope they feel so, at least in private. Their official view too is against a move, of all things, from 0.0% to 0.25%. Is that monetary policy tightening, for God’s sake?

The paper has hardly featured any view that has made the case for a rate hike. No space for Claudio Borio of the BIS, for example.

Wall Street Journal, on the other hand, has an edit, ‘Trapped by zero’ and a joint opinion piece by Rand Paul and Mark Spitznagel favouring a Fed move today. Such diversity of views on this matter is lacking from the FT.

This is the comment I left under John Authers’ piece:

This newspaper must be surely embarrassed about leading such a concerted and feverish campaign against the Federal Reserve from raising its Federal funds rate from 0.0% to 0.25%. All the arguments are based on possible reactions in financial markets.

Six years after too much finance caused a crisis, the punditry is still warning us about how financial markets could cause havoc in the real economy. The longer the policy rate stays at zero, the bigger the threat. Trapped at zero, forever.

On May 26 in a blog post at FT Alphaville, Matthew Klein wrote the following:

“The most significant takeaway of all this is that the connection between monetary policy and the real economy, while significant, continues to change in ways that nobody, including the experts, can fully understand. Remember this whenever you hear that a given policy change is “obviously” right/wrong/necessary etc. There’s nothing obvious about any of this.” [Link]

The hyperventilation about a rate hike that takes the policy rate to 0.25% after six years is the most conclusive proof of all that has gone wrong with the global monetary policy framework of the last thirty five years.

Intellectual depth and variety in the West today (more precisely, the lack of them) give ample room for disappointment and concern.  Another exhibit is the dismissive attitude towards James Corbyn of the Labour Party. One may be dismissive of his policy prescriptions or views. But, there are so many caveats that need to be appended to such dismissive attitudes. One is that the track record of the liberal economic policies followed since the 1980s is mixed. The costs have deliberately not been recognised, let alone computed. Second, these are early days. One must give them time to spell out their stand specifically. Third, instead of dismissing them, doesn’t it make sense to recognise the underlying forces and developments that have allowed such a leadership to emerge?

If I were Janet Yellen, that Lloyd Blankfein makes a case against a rate hike would help me make up my mind in favour of it.


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