No Wascally Wabbits here, just a little something called inflation
That’s right no Wascally Wabbits here, just a little something called inflation, which is punishing consumers and putting pressure on the economy.
As a result the US Federal Reserve has signaled its intent to begin raising interest rates in March for the first time in three years.
So what’s the thinking behind raising interest rates? Well, the over-simplified answer is, when short-term rates are raised, it tends to make borrowing more expensive for consumers and businesses, thereby slowing the economy with the intent of reducing inflation. But that’s not where the challenges end.
Although there is support for rate increases with most central bank officials, their policymaking will become more complicated and enthusiasm may sour quickly as decisions become more and more tricky.
For example, How many times should the Fed raise rates this year? When should it start shedding its enormous stockpile of bonds? And how should the Fed respond if inflation eases later this year, as many officials expect?
All great questions, right? Now add those to concerns by some economists that the Fed is already moving too late to combat high inflation, and others arguing that high prices are mostly just a reflection of snarled supply chains that rate hikes are powerless to cure and you can understand why the path forward is less then clear.
So, for me, when it comes to rate hikes, at least for now, I'm still on team moderation.
