From Fed mouthpiece, Jon Hilsenrath:
Federal Reserve officials are likely to raise their benchmark short-term interest rate from near zero Wednesday, expecting to slowly ratchet it higher to above 3% in three years.
But that’s if all goes as planned. Their big worry is they’ll end up right back at zero.
Any number of factors could force the Fed to reverse course and cut rates all over again: a shock to the U.S. economy from abroad, persistently low inflation, some new financial bubble bursting and slamming the economy, or lost momentum in a business cycle which, at 78 months, is already longer than 29 of the 33 expansions the U.S. economy has experienced since 1854.
Among 65 economists surveyed by The Wall Street Journal this month, not all of whom responded, more than half said it was somewhat or very likely the Fed’s benchmark federal-funds rate would be back near zero within the next five years. Ten said the Fed might even push rates into negative territory, as the European Central Bank and others in Europe have done—meaning financial institutions have to pay to park their money with the central banks.
…In short, the age of unconventional monetary policy begun by the 2007-09 financial crisis might not be ending.
Ending? Cripes, it only just started. It will continue until debt is written down, crammed down, deleveraged, violently destroyed and inflated away. The only question for the next cycle now is what kind of QE will it be?
If it’s a rerun of the last cycle then it’ll more disaster. If it’s another innovation, this time to print money directly for government to render tax cuts and infrastructure spending then we’ll be a chance.
I doubt this innovation will come from the US where the Monetarism doctrine remains a slavish religion. It may have to come from Britain and the Bank of England which pioneered a lot economic thinking in the GFC.
That might lay the groundwork for US central banking reform.
