Federal Reserve Chair Janet Yellen (photo credit: International Monetary Fund via Flickr, CC BY-NC-ND 2.0)
Have you ever heard of a pickle?
I don’t mean what you put on a hamburger. I’m talking about one of the funniest sequences in baseball—when a base runner gets a little too aggressive and finds himself caught between two bases, running hopelessly back and forth as the basemen trap him on the base path and eventually tag him out.
That’s a pickle. And boy, Federal Reserve Chair Janet Yellen is in one heck of a pickle.
Peter Morici wrote an interesting piece in the Washington Times last week where he speculated that the Federal Reserve may choose not to raise rates in June. He also questioned whether it would ever be prudent to do so.
Morici has a point. There are serious long-term consequences to raising the interest rate. There are also serious long-term consequences to keeping it where it is now.
If we raise the rate, economic activity might slow, resulting in lower tax revenue for cash-strapped states like Illinois and debt-ridden nations like Spain. Higher interest rates would effectively raise their relative debt burdens by increasing their interest payments, quite possibly to levels that they would be unable to pay.
So why not keep the interest rate near zero like the Federal Reserve has been doing for years?
Well, there are serious long-term consequences to that, too. As I’ve covered in the past, near-zero interest rates may have played a huge role in wage stagnation and the rising cost of living. Continue Reading