Influential economists suggested that it is safe to increase the interest later then increase it too early.Md Noman Siddique (Author) Published Date : Feb 28, 2015 12:26 IST
According to influential economists it is safe to increase the interest rate later then raising it too early. In a high-profile research paper released on Friday, the officials said, the US economy can rebound to the strong growth rate with a given time. It was also mentioned that Americans are also habituated to this.
The research paper was prepared by four top economists and presented to the powerful central bankers in New York. The paper suggested that, it will be wise for the Federal Reserve to keep the rate at rock bottom, then tighten the monetary policy more aggressively.
New York Fed President William Dudley refers to the current low inflation and warns against being too anxious to tighten monetary policy when he assessed the paper. He said, The risks of hiking rates a bit early are higher than the risks of lifting off a bit late . The he added, This argues for a more inertial approach to policy .
Cleveland Fed President Loretta Mester, cautions against waiting too long. She also showed concern about potential financial stability and loss of public confidence in the economy. During the meeting, Fed Vice Chair Stanley Fischer said, the Fed will increase the interest rate this year despite some concerns among investors. He also mentioned that, this was the first rate hike in getting closer . He also assured that, from then on the Central Bank will not follow a predetermined path for monetary policy tightening.
The paper also concluded that the Fed cannot be definite about the level; they should aim in due course to raise its key rate. The economists wrote, given the uncertainty, There may be benefits to waiting to raise the nominal rate until we actually see some evidence of labor market pressure and increases in inflation .
In a statement on Wednesday Fed Chair Janet Yellen said, in term of growth We don't yet know what the new normal is . It was earlier reported that, in order to boost inflation and start the economic recovery from the 2007-09 recession the FED, the ECB and other central banks slashed borrowing costs to record level and purchased trillions of dollars.
Influential economists suggested that it is safe to increase the interest later then increase it too early.