The Fed Should Remember the 90s Fri, 4 Sep 2015

The Fed Should Remember the 90s

SEPTEMBER 4, 2015 8:15 PM September 4, 2015 8:15 pm 

I’m (a) having a good time (b) jet-lagged to the point of madness, so posting limited. But I do want to weigh in on the latest job report and the Fed.

Headline unemployment, at 5.1 percent, is now quite low by historical standards, and the baying for a rate increase is louder than ever. But inflation is subdued, indeed below target, and wages are still going nowhere. Should the Fed be raising rates in the name of “normalization”?

Well, consider the situation in 1997, when the unemployment rate dropped through 5 percent. The Fed did raise rates a quarter point, but then stopped, waiting for inflation to become a problem — which it never did, even though unemployment continued to fall, eventually to 4 percent.

The lesson is that the Fed really doesn’t know what level of U3 constitutes full employment, and should be very cautious about acting preemptively absent any signs of inflation problems.

Why is this time different? Many people seem to think that the case for raising rates is made stronger by the fact that we’re currently at zero, which seems weird and unnatural. But if you actually think through the logic, it’s the other way around. When the Fed funds rate was 5 percent, there was room to cut if a rate hike turned out to be premature — that is, the risks of moving too soon and moving too late were more or less symmetrical. Now they aren’t: if the Fed moves too late, it can always raise rates more, but if it moves too soon, it can push us into a trap that’s hard to escape.

Hiking rates now is still a really bad idea — and the arguments for that bad idea just keep getting worse.

Source: http://ow.ly/RPR9i

 


News

Cyprus property prices point to an accelerating growth, according to the THIRTIETH edition of the RICS (Cyprus) Property Price Index.

Cyprus property prices point to an accelerating growth, according to the THIRTIETH edition of the RICS (Cyprus) Property Price Index.

Cyprus residential and commercial real estate prices point to a continuous rapid growth according to THE THIRTIETH publication of the RICS Cyprus Property Price Index...

Demand for Real Estate Keeps Trending up in Cyprus

Demand for Real Estate Keeps Trending up in Cyprus

Real Estate Demand in Cyprus Keeps Becoming Stronger...

Strong Growth in Cyprus Property Sales

Strong Growth in Cyprus Property Sales

Strong growth in Cyprus property sales

CYPRUS’ GOLDEN VISA PROGRAM RAISES 4 BILLION EURO

CYPRUS’ GOLDEN VISA PROGRAM RAISES 4 BILLION EURO

CYPRUS’ GOLDEN Visa Program that gives foreigners residency permit or citizenship in exchange of investment in real estate has fetched €4 billion in revenue to Cyprus in the past one year.

Reasons for optimism in the Cypriot construction sector

Reasons for optimism in the Cypriot construction sector

The future of the island’s construction sector is optimistic, but repeating the illegal and short-sighted practices of the past will have extremely negative consequences on everyone.

Company Profile

A&R Cyprus-Greece Fine Properties, Ltd (A&R CGFP) is a diversified real estate services provider, exclusively representing overseas buyers and investors who are looking to buy fine residential or income producing commercial real estate properties in Cyprus and Greece. Our team has over 70-years of combined experience in the global capital markets and a deep understanding of the local real estate and financial markets of Cyprus and Greece.

Read more ...