The Fed Should Actually Increase Interest Rates As Soon As Possible.

When conservatives talk about taxes, almost every time they mention laver curves.

This curve was originally said to be the inspiration of Arthur Laffer, and it was painted on the back of a napkin. The laver curve shows that lowering taxes at a particular node can actually increase taxes.

In September, when the interest rate was zero, the meeting concluded that "if we make a firm policy decision quickly, it will give us a signal of confidence in the strength of the US economy, which is more likely to stimulate economic activity rather than restrain it."

Shepard Sen (Pantheon Macroeconomics) chief economist of the Pantheon (Ian Shepherdson) has extended the logic of the Ralph curve to another area. federal funds Interest rates. The traditional idea is that the lower the interest rate is, the stronger the economic reaction will be, but this view is likely to be wrong.

For example, extreme low interest rates are actually releasing a clear signal to businesses and families, telling them where the economy is having problems. "Every game played by the fed once in a blue sky is a kind of endorsement for the lack of motivation for economic recovery."

Also, interest rate Very low means that capital may not be fully effective because the low threshold of return will make any project look attractive. Shepard Sen pointed out that investing in US crude oil companies to buy back shares is actually an example of misallocation of capital.

He assumes that if the federal funds rate has its own laver curve, there will also be a node with a negative effect of misallocation, which will overwhelm the benefits of low interest rates.

Shepard Sen studied the combination of federal funds interest rate and quantitative easing and GDP growth data after two years to find practical support for his hypothesis. The result worries him: "the actions of the Federal Reserve in the past few years seem to have made monetary policy go far beyond the head, and it may not have really helped the economy, but it has done harm."

Therefore, Shepard Sen believes that the Fed should now as soon as possible. Increase interest 。

"We believe that Britain's departure from Europe is a severe challenge in June, and that September is the best opportunity. But if Yellen and his colleagues can overcome the fear of raising interest rates in the light of summer market transactions, July is also possible.