Ever since the Great Recession of 2008, the economy hasn’t been functioning the way it ought to and hasn’t been reacting to stimuli as it should. And now it has left the Fed and elected officials few choices.
The economy is a truck with no wheels. A car without a transmission. A canoe that’s up a creeká, with no paddle.
Fed Chair Yellen had to deal with that Wednesday, when the Federal Reserve decided to raise interest rates despite that economic growth in the US this year has been mediocre — at best.
The Fed announced a quarter-point rate hike and promised/threatened another three hikes in 2017. (Don’t count on those. As has often happened in the past, the economy is likely to be growing too slowly to make good on the hikes.)
Don’t get me wrong — Yellen had to raise rates. For one thing, the Fed is merely catching up to the financial markets, where rates have already risen significantly.
A rate hike was also needed because the Fed’s near-zero rate policy for the past eight years is strangling savers and turning everyone into a stock market junkie, which is OK while equities continue to rise but awful when they ultimately fall.
Another reason for the rise: Without a rate hike now, the Fed will be powerless when the economy dips again. Hence, it was necessary so that borrowing costs — at least those influenced by the Fed — have room to be reduced.
If not for those reasons, the Fed wouldn’t even be thinking about boosting rates in the current environment..."