Appearances can be deceiving

To many, the economy is strong enough to sustain a jolt of higher rates. Richmond´s Jeff Lacker is a case in point:

The U.S. economy appears strong enough to warrant significantly higher interest rates, Richmond Federal Reserve Bank President Jeffrey Lacker said on Friday.

Lacker, who is not a voting member of the U.S. central bank’s rate-setting committee this year, said he still favors raising rates sooner than later and that the Fed’s last policy meeting in July would have been a “good time” to tighten policy.

Speaking to a group of economists in Richmond, Lacker argued that a range of economic analysis suggests the Fed’s benchmark overnight interest rate – the federal funds rate – is currently too low.

“It appears that the funds rate should be significantly higher than it is now,” he said in the speech.

As the chart shows, for the past 23 years, inflation (PCE-Core) has been ‘cornered’.

Appearances Deceiving_1

What we dearly miss is some of the robust growth the economy experienced during the Greenspan years (1987 – 2005)

Appearances Deceiving_2

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s