Considering that major economies of the world are in deflation, it doesn’t make any sense whatsoever for the U.S. Federal Reserve to start hiking interest rates. If you factor in the deflationary impact of the recent crash in oil prices, the U.S. Federal Reserve should focus more on possible deflation on U.S. shores rather than inflation. In fact, it should pat itself on the back that there is even some sort of inflationary pressure in the United States. Considering the larger global economic picture, any kind of inflation means sustained economic growth. That is good news. In this context, inflation is welcome.
Of course, inflation shouldn’t be allowed to spiral out of control. But cutting interest rates now that inflation rates are negligible is sure to clip the wings of the American recovery that has just started to soar. It is worth noting that for Main Street Americans to finally start enjoying some of the financial benefits already raging on Wall Street, there has to be quarter after quarter of solid economic stability and growth. Raising interest rates now will effectively put a brake on whatever economic progress the Obama administration has managed to put together. Factor into this equation the impact of the strong dollar and the reduced prices of consumer goods due to cheaper imports, there really isn’t a compelling argument for raising interest rates. The U.S. Federal Reserve should think twice. You can expect the political and economic fallout to be quite substantial.
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