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Home | Blog | If the Economy's So Strong, Why Is the Fed Keeping Rates So Low?

If the Economy's So Strong, Why Is the Fed Keeping Rates So Low?

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Tags Booms and BustsU.S. Economy

02/02/2015

At The Daily Caller, Mark Thornton wonders if the Fed has any plan at all, or if it's just afraid to do anything in the face of such a weak economy:

Despite encouraging employment numbers, the Fed has decided not to increase its interest rate, Bloomberg reports. The central bank believes that inflation will run below its two-percent target until the medium turn, when low-price oil  will come back to normal.

While not surprising, this interest rate freeze is certainly deceiving for Mark Thornton, Senior Fellow at the Mises Institute in Alabama. “The Fed doesn’t seem to have any long-term goals. First it wanted unemployment to decrease but then recognizes that the statistics has weaknesses. Then, it admits a strong and rapid economic growth in the U.S. but cites international problems as an excuse not to increase the interest rates. Low gas prices also seem to be an excuse to keep rates steady. Are they waiting for perfection to move?” the scholar told The Daily Caller.

He also cools down the Fed’s claim about a strong economy. “Even [Fed chair] Janet Yellen admits that the unemployment rate is a weak measure. It only includes people who are actively looking for a job. If we were to use U6 – a measure which includes discouraged workers not looking for a job – unemployment would be around 11 percent. It would be over 20 percent if we were to include long-term discouraged workers like Spain and Greece are doing,” he adds.

In fact, Thornton believes that the recovery might have reached its peak already. “Capital goods expenditures, used to buy or improve machines and buildings, is already decreasing, and so are private durable goods purchases like fridges.”

Read more. 

Ryan McMaken (@ryanmcmaken) is the editor of Mises Wire and The Austrian. Send him your article submissions, but read article guidelines first. Ryan has degrees in economics and political science from the University of Colorado, and was the economist for the Colorado Division of Housing from 2009 to 2014. He is the author of Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre.

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