ok the fed reasoning for raising rates is that they are seeing inflation signs everywhere and they see bush admin spending like crazy. Over 200 billion for katrina alone. On the other hand people are saying katrina killed the economy in the gulf and we are already heading into a recession. So whats the verdict, the fed is fearing a stagflation like scenerio, even if we head into a recession with inflation going wild, they will have to raise rates, is that right?
Was the FED right in raising rates ? that is the question
- Thread starter mahram
- Start date
mahram the fed raised because they have been in a "rate increase" environment {and nothing had changed that} and INFLATION worries -- the government has always been pissing away money by spending, that was not their reason for raising an additional .25 --- come on now. 
Stagflation...
Well, that would certainly push the long end of the yield curve up!
IMHO, the post tech bubble crash world from 2000-2003 was more risky that most of us thought. It took a lot of faith, credit, and low interest rates guide us through that spot. Combined with global deflationary trends, it was quite a pickle for us not to fall into the Japan trap.
It is abundantly clear to me that the US Treas and the FED are set on targeting a policy of benign inflation, 2-3% p.a. Barring that, more inflation is OK. However, a deflationary environment takes away the government's control of monetary policy, and that can't be allowed to happen.
Now that the great danger of collapse/depression II has receded from the excesses of 2000-2002, the FED absolutely must raise interest rates to prepare itself for the next slowdown/recession - even if it must cause one to do so!
If we raise to 6.5% short term Fed funds, long bond yields rise to 6%, and next cycle fed only eases to 4.5%, you have 1) raised long yields 2) given yourself more room to raise up short term interest rates in future (so you can lower them again.)
Repeat until you get to the numbers you want.
Hows dem apples?
Well, that would certainly push the long end of the yield curve up!
IMHO, the post tech bubble crash world from 2000-2003 was more risky that most of us thought. It took a lot of faith, credit, and low interest rates guide us through that spot. Combined with global deflationary trends, it was quite a pickle for us not to fall into the Japan trap.
It is abundantly clear to me that the US Treas and the FED are set on targeting a policy of benign inflation, 2-3% p.a. Barring that, more inflation is OK. However, a deflationary environment takes away the government's control of monetary policy, and that can't be allowed to happen.
Now that the great danger of collapse/depression II has receded from the excesses of 2000-2002, the FED absolutely must raise interest rates to prepare itself for the next slowdown/recession - even if it must cause one to do so!
If we raise to 6.5% short term Fed funds, long bond yields rise to 6%, and next cycle fed only eases to 4.5%, you have 1) raised long yields 2) given yourself more room to raise up short term interest rates in future (so you can lower them again.)
Repeat until you get to the numbers you want.
Hows dem apples?
we are so far from a recession it isnt even a factor. gdp growth is running over 3%. a recession is described as 3 quarters in a row of negitive growth.