The Fed Is Raising Interest Rates to Make Up For Its Own Inaction

RSS NEWS Uncategorized

This Post was originally published here: Source Link

Kevin Dietsch

“Natura non facit saltus”—“Nature never leaps.” That was the motto the great Victorian economist Alfred Marshall chose for the frontispiece of his Principles of Economics.

Until recently, “the Fed never leaps” might have been our central bank’s motto. With rare exceptions, when it raised interest rates, it did so in baby steps of 25 basis points, or a quarter of one percentage point. But in May the Federal Reserve hiked rates 50 basis points for the first time since 2000, and it just raised them again, by 75 basis points—a move not seen since 1994.

Why the big leap? Of course, the immediate cause is inflation, which has done some leaping of its own. After spending most of a decade below the Fed’s two percent target, it shot up last spring, and has been rising ever since. During the last 12 months, the Consumer Price Index rose by a whopping 8.6 percent—something not seen since 1981. Hence the Fed’s own, exceptional move.

Read more at The Daily Beast.