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NewsFlash: November 29, 2006

Why the Fed should lower interest rates

Among economists there are diverse opinions about how the Federal Reserve should set the Federal Fund Rate, the key interest rate which it controls. Often overlooked in the debate, however, is that even though the Fed has been holding the FFR steady, the real interest rate (which includes inflation) as been steadily climbing, raising the cost of borrowing. In today’s Snapshot , EPI economists Josh Bivens and Jared Bernstein show why the rising real interest rate should prompt the Fed to lower the Federal Funds Rate when they meet next. “Unless the Fed wants to outsource policymaking to the whims of the larger economy, it has to move just to stay in the same place,” said Bivens.