FOMC Preview: Fed should press the button – Deutsche Bank


FXStreet (Córdoba) - According to David Folkerts-Landau, Chief Economist at Deutsche Bank, the central bank of the United States should start rising rates on Thursday considering that the longer it waits, the higher the risks.

Key quotes:

“We believe the Federal Reserve should press the button when it meets this week – although there is a good chance it won’t. Many economists, on the other hand, including those at the IMF and World Bank, are literally begging it not to.”

"Inflation is not a problem now, but zero rates are a recipe for excess inflation down the road. The longer the wait, the higher the risks. If inflation does break out, the Fed will be forced to tighten aggressively, causing far more damage to the US and global economy than starting now. The Fed should be aware of that."

Delay carries other risks too. Rock bottom policy rates and repressed longer term market rates create distortions in resource allocation. Private savings are depressed while financial risk taking is encouraged for a generation of investors that view extreme lows in interest rates and money printing (quantitative easing) as normal. Some might even expect the Fed to support the markets if need be.”

It is never a good time to raise rates, as it is never a good time to go to the dentist. But delaying both for too long has consequences. The Fed needs to start normalising policy now.

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