Fallout: The Financial Crisis

Fed could ease up on easy money

John Dimsdale Sep 22, 2009
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Fallout: The Financial Crisis

Fed could ease up on easy money

John Dimsdale Sep 22, 2009
HTML EMBED:
COPY

TEXT OF STORY

Steve Chiotakis: The Federal Reserve Board kicks off a two-day meeting to discuss interest rates today. There’s no sign the Fed is ready to start raising those rates. Instead, as the economy begins to pick up, economists are thinking about when the Fed should ease up on easy money. From Washington, here’s Marketplace’s John Dimsdale.


John Dimsdale: A lot of cheap money is sloshing around between rock-bottom interest rates and virtually free loans to banks. Eventually that’s a recipe for inflation. So the Fed will have to pull money back out of the economy by calling in loans and selling off bad bank debts.

But right now, inflation is nowhere to be seen, says William Dunkelberg, the chief economist at the National Federation of Independent Business. In fact, he says salaries are dropping.

William Dunkelberg: So compensation is certainly under control. Unit labor costs are not going to be going up and that’s the main thing that puts pressure on prices.

Without inflation, there’s little need for the Fed to raise rates or unwind lending programs. And some think even when inflation arrives, the Fed should hold off.

Christopher Hayes: If we could get some inflation, I think that would be great.

Christopher Hayes is the Washington editor for The Nation magazine. He says a little inflation for a little while would get the economy’s juices flowing again and reduce unemployment.

In Washington, I’m John Dimsdale for Marketplace.

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