The Fed Still Boosting Banksters?

That would be shocking.

The Federal Reserve announced on Wednesday (December 16) that it would raise policy interest rates by ¼ to ½ of 1 percent end the seven year policy of keeping Fed interest rates near zero, and would embark on a path of “gradual” interest rate increases in order to “normalize” interest rates. This announcement had been long expected by pundits, economists and the financial markets, and, more to the point, had long been pushed by Wall Street and their supporters

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Dean Baker of the Center for Economic Policy Research (CEPR) wrote almost immediately after the decision multiple reasons why data do not support a decision to raise rates: He points out that while the official unemployment of 5% is not particularly high, “most other measures of the labor market are near recession levels”. [...] Finally, wages stagnation is still significant, even despite some recent low gains.

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[The] problem is exacerbated by the fact that the European Central Bank is moving in the opposite direction by lowering interest rates — even into negative territory.

All of this raises the obvious question of how did Janet Yellen and the Federal Reserve justify their rate increase now, despite strong signs that there is little economic basis for doing so?

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Part of the reason they believe inflation will rise despite the increase in interest rates and other negative forces, is that they believe with lower unemployment, workers will achieve the bargaining power to raise their real wages.

  Naked Capitalism: Gerald Epstein, Professor of Economics at the University of Massachusetts, Amherst

Oh sure, because unionization is so strong in America now.

Here is an example of the Fed trying to play the classic game of the “confidence fairy” – we will raise your confidence by pretending we are confident. But it is rather more like “whistling past the graveyard”: with the data out there for everyone to see, most are unlikely to be fooled. It is also a little like saying: we are going to get in our truck and run you over because we are confident that you are strong enough to take it.

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The final example is the argument that they want to raise rates pre-emptively now, before there is any clear sign of excessive inflation, because lags in monetary policy mean that if they wait they might be too late and then they will have to raise rates more abruptly and this will be even more disruptive.

We must ask the question: who does more rapid increases disrupt? The answer is likely to be the speculative financial markets, and the banks who might find that the speculative positions they take have been mistaken. So here, in paying excessive concern for the financial speculative markets, the Fed is willing to raise interest rates before the labor market is really ready.

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[T]he more standard pattern identified by the IMF and BIS economists of lower interest rates hurting bank profits has likely returned. And with it has been the blistering pressure to raise rates.

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Yellen and allies should be engaging in much more creative, direct job promotion and direct promotion of local infrastructure investment, as proposed by groups like QE for the People in the UK associated with Jeremy Corbyn and the Fedup Campaign, here in the US. To make that happen, we need to keep pushing.

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The fact that the Fed is embarking on a policy that will perpetuate the financial system being outsized relative to the real economy, particularly when more and more academic studies confirm that that is negative for growth, confirms that the Fed needs fundamental governance changes to reduce bank influence and increase democratic accountability. A place to start might be having all the regional Fed presidents be nominated by the President and subject to Congressional approval.

Yeah. Somehow, I don't think THAT will be a big help.

...but hey, do what you want...you will anyway.