On Wednesday, the Federal Reserve is expected to announce that they are raising interest rates above zero for the first time in seven years. Such a move would be a mistake. In recent briefings and presentations, EPI Research and Policy Director Josh Bivens has laid out the case for keeping interest rates low until the economy has truly recovered from the Great Recession.
“You should raise interest rates only when you think you need to start slowing the pace of economic growth because you’re worried that fast growth and falling unemployment will spark too-rapid wage growth that will bleed into rapid price inflation,” said Bivens. “But there’s no reason to think that the pace of economic growth today is excessive and needs to be slowed because of incipient inflation. And the stakes to getting this trade off between low unemployment and stable inflation wrong are huge.”
In his presentation, Bivens explains why it is unlikely that today’s low interest rates will lead to rapidly accelerating inflation, and why the dangers of slowing the economy too soon outweigh the dangers of allowing a small amount of inflation.