Sunday, June 21, 2009

Is it gettting time for the Fed to raise rates, a little?

The daily federal funds rate (average) has trended in the upper third of the 0% to 0.25% range for over a month now. It has not been below 0.17% since May 20, 2009. In fact, this week it was 0.22% or above and for the last day of data, Thursday, June 18, 2009, it was 0.25%. Given this "real" federal funds rate, there would probably be very little harm to dumping the range and setting the target rate to 0.25%.

Such a move would demonstrate to people that the Fed does have some serious concern about inflation pressures that may be building.

Sure, "the markets" may still be suffering from enough lingering nervousness about the recent crisis to suggest that the Federal Reserve hold off right now and wait until August, but if they wait until August people will then complain that the Fed waited too long.

If they don't raise the rate to a flat 0.25% now, they may be forced to raise it to a flat 0.50% in August. A rate of 0.50% may be appropriate in August anyway, but better to raise rates gradually.

-- Jack Krupansky

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