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.”
Some of these problems might increase with higher interest rates, which would boost the value of the dollar further. “Right now, consumers and importers are happy to be able to buy more foreign goods, including oil. However, exporters aren’t as happy because their goods have become more expensive for foreigners,”, mentions Thornton.
Then why the apparent euphoria about strong economic growth? “The Fed is fueling another asset bubble. Right now, stock exchanges are reaching high numbers but it’s very likely because of all of this money the Fed printed. It’s not part of the real economy,” says the economist.