The Call For The Fed to Raise Rates Begins
Barron's call this weekend for Federal Reserve Chairman Ben Bernanke to raise interest rates to a "more normal" 2% is making some waves on Wall Street this morning.
Andrew Bary's story over the weekend pleads for the Fed to raise rates to avoid inflation. The dollar is dropping while commodities and the stock market is rising. The move over 10,000 for the Dow Jones industrial average last week was enough of a tell-tale sign for Barron's that the markets are healthy and the rates should be raised to a normal level.
The move would show the world that the worst days are in the past for the global economy and that the current administration is in fact committed to recovering the fledgling U.S. currency.
A jump to 2% would likely send a jolt to the global economy and allow the dollar to rise as commodities fall. This is a necessity for U.S. companies to attract global capital from investors that have been intimidated by the weak dollar. According to Barron's, the Fed will have to begin to support the U.S. currency to attract essential international capital.
However the chance that Barron's is going to push the Fed into changing its crisis-accommodative stance and near-zero short-term rates is unlikely as the Fed has no plan to make such a move in the near future.
Bernanke has stated recently that the Fed believes that accommodative policies will stay in place for the foreseeable future. The financial markets do not expect the rates to rise to 1 percent until October of 2010.
With questions arising about possible inflation if rates remain stagnant, Bernanke and his colleagues at the Fed can expect to answer many more questions about the lack of action. Barron's is likely the first of many more vocal calls for the Fed to raise. However, they will likely do little to sway Mr. Bernanke who is dead set on not seeing another Great Depression.
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